Firehose #176: 🥱 Board in the house. 🥱
Why board reporting is good for CEOs too. Plus: GoodRx's S-1, stunts in reverse, autonomous flight, and the moon's origin story.
One Big Thought
Leading a good board meeting is a skill, often developed over years of observation and practice. Unless a founding CEO has previously served on a high functioning board, the first few board meetings with a new company are rarely productive. Some CEOs may present a “book report” style presentation, in which they list all the accomplishments that quarter, but with no call to action or key decisions framed and highlighted. Others may provide too little information, leaving board members with no context from which they might provide guidance.
Still others might second guess the necessity of reporting to the board at all, other than what the rules of corporate governance require. Board decks take concerted effort to compose — not just from the CEO, but from other members of the team. Early stage companies have few resources to devote to tasks not deemed operational. Does the value of that advice you get from the board outweigh the extra work required? Or, perhaps more bluntly — is the report there just to keep your VCs happy?
My view is that CEOs should themselves be motivated to set up a basic reporting cadence and create informative board reports. Here’s why.
First, your board can’t be effective unless its members understand your business. As CEO, you hopefully selected financial partners and independent board members who are smart, experienced, thoughtful, and collaborative. None of that experience or brains is valuable without context. With a few exceptions, most non-executive board members aren’t present in the company day-to-day. Companies like Netflix have gone out of their way to loop board members into operating meetings, but that’s not going to be possible for many startups. Without context from reports, your board can’t help you see around corners to avoid worrisome trends or spot new opportunities without consistent reporting and structured discussion.
Second, boards do become more valuable as they scale, but they also become more difficult to manage. Imagine a board with N members. Metcalfe’s law states that the number of edges in a graph scales like ~N^2. That means that, if each board member needs to converse with each other board member to resolve an issue, the number of conversations grow as a power law. CEOs, therefore, need to actively manage their boards over email and in the boardroom. The best way to do that is with a presentation that gets members on the same page and structures the conversation around a few key topics and desired outcomes.
Third, business relationships are based on both trust and accountability. Trust without accountability is blind faith. The CEO needs the trust of the board to make key decisions and operate the business day-to-day. But, without accountability for the results of those decisions, that trust can be short-lived. Consistent board reporting is a great way to be held accountable. In addition, an accountable CEO sets an example for her team that she will, in turn, both trust and hold them accountable for their results too. Ideally that cultural norm flows from the board on down throughout the organization.
Fourth, if you believe that planning is important, you should also find value in consistent reporting. Sure, early on, when you’re trying to iterate quickly and establish product/market fit, you’re flying by the seat of your pants. However, once you settle into a repeatable go-to-market motion, you should start planning for the future. Otherwise, you have no way to make decisions regarding allocation of capital — human, physical, or financial. You may not even understand the long-term consequences of decisions you’re making today. The nice thing about a planning process is that reporting is a byproduct. I encourage CEOs to use the annual planning process as an opportunity to revisit or revamp the board metrics, reporting cadence, and the structure around board meetings. Ideally, reporting should be a rollup of your current business telemetry, so the way you present to the board mirrors internal metrics.
Managing and reporting to one’s board are critical skillsets that CEOs must develop over time. They’re obviously essential if you want to take your company public, but the benefits can come much earlier in your company’s lifecycle. Generating board reports isn’t (just) a service to your VCs. It’s a muscle that helps you make key strategic decisions and perform critical governance functions for your growing enterprise.
— Thanks to Rachel Jarrett of Zola, Matt Weiler of Daily Harvest, Lauren Cooks Levitan and Jeff Kolovson of Faire, and others for reviewing a draft of this post.
Tweet of the Week
Links I Enjoy
What the doctor ordered. →
GoodRx filed to go public this week. The company’s core product allows consumers to save money on prescription purchases at pharmacies. Because of lack of affordability, 20-30% of U.S. prescriptions are left at the medicine counter. GoodRx is attacking this problem with a data-driven consumer platform. It has nearly 5 million monthly active customers and generates over $500M in run-rate revenues predominately through fees from PBMs. It also earns advertising fees from pharmaceutical companies who want to promote brands to its customers in the GoodRx app.
Prescriptions are a sticky behavior for many customers.
“When a consumer uses a GoodRx code, the code is saved to the consumer’s profile at the pharmacy. From then on, the GoodRx code typically applies to all future refills as well as, in many cases, fills for other prescriptions at that location, without the consumer having to re-present the GoodRx code.”
This dynamic contributes drives high repeat revenue to 80% in a given period. The company also has a subscription offering (GoodRx Gold), for which consumers generate 2x the 1-year contribution margin compared to non-subscription customers.
Impressively, the company is very profitable, with Adjusted EBITDA margins ~40%. It’s so profitable it supports a sizable debt load of $688M, or ~3.7x last twelve months’ Adjusted EBITDA. Interest coverage is about 5.6x EBIT, so the company has plenty of room to maneuver. Further, most of its debt comes due 5 years out.
College collab houses. →
Taylor Lorenz wrote a fascinating piece on how college students are adapting to living together in the age of COVID-19. Students are signing long-term group leases on Airbnbs all over the country and studying together remotely. Studying in a surf house in Hawaii sounds a lot better than quarantining on campus!
Stunting in reverse (video). →
It still mystifies me that Christopher Nolan insists on releasing TENET in theaters during a pandemic. I probably won’t see it until it hits a streaming service. For now, I’ll have to watch this video of John David Washington training to do his stunts in reverse!
Ready for take-off! →
Lightspeed announced our investment in Reliable Robotics* this week. Reliable joins a number of our autonomy investments, including Aurora Innovation (autonomous cars) and Dexterity (warehouse robots). The company has been operating in stealth mode for several years. Reliable recently demonstrated the industry’s first autonomous flight — from taxi, to takeoff, to landing with a 2,550 pound load on a Cessna 172 Skyhawk.
Netflix for fire. →
Last week I wrote about California’s intersecting disasters of wildfires and COVID-19. This week I have a bit of optimism for you. Digital fire spotting tech is getting much better.
[PG&E] used to spend a couple of million dollars a year on a smoke patrol program. Every afternoon during fire season, seven pilots would fly in set patterns (similar to a lawn-mower’s path) over heavily forested areas in its service territory, looking for smoke. But satellite advances meant it could get similar information for a tenth of the cost — and have continuous coverage, Strenfel said.
Even in a test version last year, the satellite system detected an early-morning grass fire on Mount Diablo in July 2019 about 15 minutes before the first 911 calls came in, he said. PG&E now has systems in place to notify local fire agencies when its technology spots fires.
The article even discusses satellites with sensors specifically built to detect fires with high resolution.
Birth of the moon. →
Conventional wisdom is that our moon formed when a planet roughly the size of Mars collided with Earth. The resulting debris eventually condensed into the moon we know today. However, new analysis of moon rocks shows that the molecular composition of the moon is too similar to Earth for that theory to be true. This article lays out a few others theories on where our moon comes from.
Billie’s future (video). →
I can’t wait to see a concert when COVID is over. I actually had tickets to see Billie Eilish perform in SF along with a bunch of my partners from Lightspeed earlier this year, but that concert was sadly cancelled. So, I was psyched to see Tiny Desk produce a mini-concert with her and her brother Finneas featuring her new single, “My Future.” Enjoy!
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Disclaimer: * indicates a Lightspeed portfolio company, or other company in which I have economic interest. I also have economic interest in AAPL, ADBE, AMT, AMZN, BABA, BRK, BLK, CCI, CRM, GOOG/GOOGL, FB, HD, LMT, MA, MCD, MSFT, NFLX, NSRGY, NEE, PYPL, SHOP, SNAP, SPOT, SQ, TMO, VEEV, and V.
Header image credit: https://www.pickpik.com/teacher-female-college-student-office-people-success-8940