How to assemble a board of directors that will make, not break, your startup
Monday, May 27, 2019/
We all know that from a legal and regulatory perspective, companies are technically required to have a board of directors. But ask any startup founder who’s not sleeping at night and facing a rollercoaster ride every day, and they’ll tell you the last thing they need to be reminded of is compliance and the necessity for more controls.
That’s why it’s critical you assemble the right board — one that adds real value from the get-go. And often, the value is not obvious — it only emerges over time with the benefit of hindsight.
Having started more than 10 businesses (some great businesses that weren’t large, some large businesses that weren’t good, and others large and excellent), I’ve come to appreciate the need for and role of the board, particularly in the startup and early-growth phases.
The key is having the right people at the right time who can deliver the right value. So, the adage that ‘two rights don’t make a wrong’ is something I keep in mind every time I’m asked about boards.
The right people
In our personal lives, we choose the people we want around us. They’re the ones who naturally align to our values, those we feel we can communicate with, and ultimately, who we like and respect. Though they aren’t necessarily in agreement with us on everything.
As we meander through life, trying to make sense of complex issues we face every day, we value diversity — this is how we grow, learn and deliver great outcomes (unless you fall into the narcissistic autocratic category).
First and foremost, these same principles should be applied when making decisions about the people you want on your board.
We know the textbook approach tells us the right people for a board are those who have the experience, intellect, skills and maturity you don’t necessarily have (mmmm … that’s confronting!)
From my perspective, as a founder, the ‘right choice’ relates to the values of the individual. They are there to challenge your hypotheses, judgements and decisions. Unless they’re aligned with your values, it’s easy to see how these frank discussions can devolve into personalised, defensive and even confrontational outcomes. Naturally, this also requires a degree of humility on your part, with a willingness to be open about what challenges you face on a daily basis and ability to feel comfortable turning to your board to help you ‘confront your demons’.
The right time
Naturally, businesses evolve over time. Inevitably, this means what you need from your board changes too. In the early stages, it’s best to surround yourself with a board that’s highly entrepreneurial, supportive of trying new things and accepting of failures.
This formative stage of the business is where ‘make or break’ decisions are made, and often with insufficient data to validate every call. That’s why you need a board that’s open to taking calculated positions, supportive of your hypotheses and willing to have a go. They also need to draw your mind to any immediate potential pitfalls in your thinking, adequate resourcing and, of course, cashflow.
As the business starts to develop, and you move into the growth phase, there should be a natural shift to data-based decision-making. It’s all very well relying on gut in the formative stages, but as the business scales, you should be using data to make far more informed decisions.
This is where the board and regular board meetings start to take a different course.
Preparing board papers and defining your strategy with serious thinking is imperative. In this stage, I try and use the board as a thinktank — prosecuting the big strategic questions and helping focus resources on the key operational complexities that require great execution. It’s also a more challenging time because individual views that are unsubstantiated by data become difficult to manage — the person with the biggest personality and loudest voice tends to get the most airtime.
And we quickly fall into the trap best enunciated by Jim Barksdale, former chief of Netscape: “If we have data, let’s look at data. If all we have are opinions, let’s go with mine.” This is a very dangerous position to be in.
The board needs to recognise and understand the changing needs of the business and criticality of using data to drive increasingly well-informed decisions.
And it’s okay to say ‘I don’t know’ and spend time finding the right information, rather than simply relying on a value judgement, no matter how experienced your or the board member’s view may be.
It’s in this growth phase most of the tension tends to occur with the board. The narrative with the board starts to change. They want you to start implementing better systems, more compliance, greater scrutiny, and words like ‘audit committee’, ‘compliance team’, and ‘detailed monthly reports’ become more common.
For founders trying to keep their head above water and cope with scaling the business rapidly, hearing these phrases is like a red rag to a bull. Founders feel the board doesn’t comprehend the realities of operating the business and tensions can quickly rise, potentially leading to a degrading of relationships and crises. Remember, as the business changes over time, you might not be the best person to lead the company. The same applies to board members, and this is something that should be revisited from time to time. This is probably best left to the chairman to deal with!
My advice to founders ‘living’ in this phase is to be very upfront with the board and explain why this is not going to really add value. There is a middle ground, and as a founder, you need to expend most of your energies on growing and building the business, not simply addressing the needs of a group of individuals.
It’s probably best at this stage to ensure you have a good chief financial officer as part of your executive team, who can provide the board with much of the ‘technical’ information they require on a day-to-day basis.
I would always suggest having at least one board member who has previously founded and scaled a business — they will know what it takes and will identify with your pain points along the way.
The right value
Adding value, or more simply, usefulness, is fundamental.
Founders are constantly facing trade-offs. One of the most cited trade-offs is time. Every minute you spend doing something for someone is time away from the key challenges facing the business. And this comes at a cost.
When selecting the right people to be on your board, think carefully about how much time they will cost you versus the time you may save. On the cost side, there’s the time you will need to keep your board fully abreast of what’s happening in the business. However, the last thing you want is to spend copious amounts of time compiling detailed board papers that simply deal with past performance and challenges.
Rather, you want to find an efficient way to keep your board fully informed, so that they understand the landscape, and rather use their time and expertise to help you solve the complex strategic challenges going forward.
It’s fallacious to assume that simply having people on the board who have expertise in specific areas (finance, legal, governance) will relieve the business of needing to hire these skills. The board is there to advise, enquire, prosecute and challenge — not execute operationally.
I’ve always found the most useful board members are those who bring experience in strategy, customer acquisition, scaling operations and deep technology solutions. For startups, these are the really valuable inputs that help founders move the business into the high-growth arena.
Remember, once you’ve chosen your board, you will need to live with them for some time to come.
So choose carefully. It can be a life-changing decision.
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