As the sole owner of your company, chances are you’ve never had a board of directors—which makes a lot of sense. Now, you’re considering partnering with a private equity firm to facilitate partial liquidity while preparing for accelerated future growth. But you’ve never had a board of directors; are you curious, or even nervous, about how it all works?
Ask your spouse or children what image is evoked when you mention “board of directors.” Answers might allude to fancy suits, slamming fists, and loud, larger-than-life characters. Perhaps these depictions come straight out of Hollywood. We’ve never served on the boards of companies outside of our own partners here at Montage Partners, so we can’t attest to whether these characteristics hold truth in other businesses. But, we can say with 100% certainty that board meetings at the companies with whom we’ve partnered could not be more different than this illustration.
You might be thinking, “That’s great – no yelling, no fist-slamming, but what can a board of directors add to my company?”
For starters, a good board of directors listens first. That means the board will listen to you and your management team and will seek your direction. How can any board of directors add value if they don’t first understand where your priorities exist?
Next, a valuable board of directors will bring a treasure trove of know-how to your company through the diversity of its members’ experiences. You probably know your industry well. But oftentimes, other industries offer up best practices that can be utilized in your industry. We’ve invested in a variety of companies across diverse industries, including aerospace, business services, food and beverage, industrial distribution, niche manufacturing and technology. The improvements you’re searching for might already have been addressed in another industry, and a good board can help tie in best practices from other industries to help improve your company.
Strong boards of directors also offer invaluable mentorship, something business owners often don’t realize they were missing until they wonder how they ever survived without it. We have had the privilege of bringing spectacularly-talented individuals onto the boards of our companies. Take, for example, Frontier Group: an Arizona-based aerospace metal finishing provider formed in 2018 when two leading companies in the industry joined forces. To this board of directors, we added Dan Korte: a senior executive in various capacities for more than 30 years, who has worked at aerospace and defense companies such as Boeing, Rolls-Royce, LMI Aerospace, and PPG Industries. Aside from industry expertise, decades of experience, and growth-strategy successes, Dan offers intangible assets to the management team of Frontier Group—the emotional relief and peace of mind that come from knowing there is a skillful and invested expert alongside them who is committed to helping their company succeed.
There is one advantage of having a board of directors that supersedes all other advantages. When everyday company drama can drive management into the weeds, boards of directors stand by to help the management team zoom back out to a “big picture” perspective. The most highly-performing companies we know are always thinking ahead. We encourage the companies with whom we’ve partnered to create 3-year growth strategies. Do these plans always turn out exactly as detailed? No. And that’s okay. It is more important that management sets strategic goals and strives for innovation. Not every initiative will succeed. But stagnancy as a company when competitors are innovating leads to falling behind.
Last, and for the benefit of all parties involved, a good board of directors keeps things fun. More focus is placed on the future, not on the past. Previous challenges are addressed and improvements are made, and then the focus on the future continues. Morale soars when every employee understands their contribution to the success of the company as a whole and knows where the company’s long-term goals lie. Astute boards of directors recognize these things and help to keep company attention focused on the right areas.
As you consider a liquidity event and study the culture of potential private equity firms, feel out the values of each option. Will they establish a board of directors that will pay attention to your needs, offer expertise, provide mentorship, fight for your competitiveness and keep things looking upward? If not, it might be time to look at other options.
About Montage Partners
Founded in 2004 and located in Scottsdale, Arizona, Montage Partners is a private equity firm that invests in established companies in the western U.S. with EBITDA between $1 million and $5 million. Above all other investment criteria, Montage Partners invests in exceptional people. Montage Partners provides liquidity to those who have spent years of their life building great companies, Montage Partners protects those companies through a transition of ownership and Montage Partners supports the next generation of a company’s leadership in executing on growth initiatives. For more information, please visit www.montagepartners.com.