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Chairman, founder, and former CEO of Practice Fusion shares advice for founder control
How much can a founder learn about maintaining control of their company if the person giving you advice just gave up control of a company they founded?
Quite a bit, actually.
Ryan Howard started work on his healthtech company in 2002 and officially founded Practice Fusion in 2005. Today, the electronic health record (EHR) platform provider says it serves nearly 30,000 monthly active practices and has grown revenue by more than 70 percent year-over-year.
But something is different: this past August, Practice Fusion announced that its board of directors had voted to replace Howard with Tom Langan, the company's chief commercial officer, as interim CEO. In November, the company confirmed Langan as permanent CEO.
It's not a rare occurrence. The founder of Sequoia has admitted that 45 percent of founding CEOs of their investments are fired within 18 months.
So, with a firsthand experience of losing control of the company, Howard shared with the Splash Health audience today his advice for how founders can best maintain control. Here are a few of those tips:
Want control? Maintain control of board seats
Many founders lose control of the company after the Series A round, said Howard, using Practice Fusion as the perfect example of this.
If a founder is serious about maintaining control past this stage, they must start thinking about it from the moment the company is incorporated. Howard recommended allocating three to four common board seats as well as creating clear vesting for founders and rules for termination. If you have a co-founder no longer showing up—but they still have control through the board—that's not going to be good for the company.
Of course, the more value your company has, the more leverage you have when it comes to fundraising and working with investors in general, so the most important thing, as always, is making sure that you're not just meeting but exceeding financial goals.
Negotiate contractual language to protect your employment
"Negotiate for yourself," said Howard, "because nobody else will." (Except maybe your attorney, if they're good—see below.)
But Howard further elaborated that you should fight for contractual language that says you should get fair notice and an open dialogue when your employment is at risk. That way you can understand the issue and have time to mitigate before you're let go.
"You might get along with the board and co-founders now," said Howard, "but when things go sideways, people show their ugly side—especially when money’s involved."
If you don’t like your attorney, cut them loose
First and foremost, make sure the lawyer is not just neutral, but explicitly on your side. Do your due diligence to make sure there are no conflicts of interest that would make the lawyer lean toward others on the board.
A great lawyer, explained Howard, can assist in managing your board. Make sure to leverage that expertise as a strategic asset so you keep a firm pulse on how board members are feeling. If the board is growing unhappy, you want to know early on and how to mitigate issues.
Howard insisted that "if you don't like your attorney, cut them loose." Attorneys are "commoditized" in Silicon Valley, so you should never feel locked into an attorney who isn't doing you any favors.
Tolerating assholes will ruin your culture
Focusing on the executive/management team is a must for founders. Howard admits that he, like many founders, was originally intimidated by senior executives, but you have to get over that because "force multipliers free up your time to be more strategic, have a network to recruit more rapidly, and deliver much better results for their function than you can."
And it all starts with the interview. Howard thinks group interviews result in more data and consensus across the team. He also strongly believes in spending a decent amount of time with potential executive hires (1-2 full days) so they can explain and deconstruct problems at a granular level.
"If they don't want to do it, they don't want the job bad enough," he said. "Don't hire them."
Also, no matter how great the candidate, don't ignore culture: "Tolerating assholes will ruin your culture." In reality, he said, you will spend more time with your management team than your partner or spouse, so you have to get along with them.
Avoid bloated boards
The primary function of the board of directors is governance and, as Howard added, hiring and firing the CEO. In short, it's the CEO's boss. Howard says he knows a founder whose seed-stage company already has five people on the board, which makes absolutely no sense.
"If someone is that valuable to help you, put an advisory board together. Give them equity, but don't make them your boss."
"Avoid bloated boards," he said, so you can focus on running your company.
And, as described above, if you're going to spend a day or two with a potential executive hire, you should spend many, many meetings with a potential new board director. "The more the better," said Howard, who said founders should also ask the hard questions in these meetings. Ask them about the last CEO they fired and why. Explain how you run your board meeting and see how they react. And keep in mind that they're putting their reputation on the line, so remember to think of this as a long-term partnership where the goal is to build value together
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Practice Fusion provides a free, web-based EMR system to physicians. With medical charting, scheduling, e-prescribing (eRx), lab integrations, referral letters, Meaningful Use certification, unlimited support and a Personal Health Record for patients, Practice Fusion's EMR the complex needs of today's healthcare providers and disrupts the health IT status quo. Practice Fusion is the fastest growing Electronic Medical Record community in the country with more than 150,000 users serving 40 million patients. The company closed a $23 million Series B round of financing led by Founders Fund in 2011. For more information about Practice Fusion, please visit www.practicefusion.com