Founders often ask me when the right time is to set up a startup board. Surely, they suggest, sooner is better, in order to leverage the expertise and credibility of seasoned business people to fast track their own success. Right?
My contrary response often comes as a surprise.
Generally, if a startup hasn’t raised any funds through formal rounds, or has just raised a small amount from angel investors or friends and family, setting up a formal board isn’t really necessary.
Instead, it may be better to assemble a range of advisers, who can provide input and advice on an ad hoc or informal basis.
Setting up the right board of directors for the stage of a startup’s journey is a process that should be carefully considered, not least because changing or exiting a board member can be a political minefield.
Furthermore, a poorly composed board may not have the same appetite for, and experience with, high-growth businesses, thus limiting the potential of the startup.
The decisions founders make in assembling a board can have far-reaching consequences.
Startup boards are unique in their composition and roles. Although many founders have had exposure to boards in a large corporate environment, they are often in no better position than those who are flying blind.
This is because the role of a board in an early-stage business bears little resemblance to those in established and successful businesses.
In my own experience of working with startups, I believe there are six simple guiding principles that will help founders in this process.
1. Look for a broad skill set and flexibility in board members
Like the founding team, a board member should be able to wear a number of hats.
There is also often no clear delineation of responsibilities between board members, and they may float between the key areas of governance, strategy and finance as and when the need for their expertise presents.
A broad skill set and a flexible “can do” attitude which is light on rigidity and formality is generally most effective in a highly dynamic early-stage business.
2. Ensure your board members can roll-up their sleeves
A board director is more than just someone who comes to meetings and ensures robust governance and operations. They should be a trusted confidante, mentor and sounding board.
The board member who has a practical ability to help grow the business by allowing the founder access to their skills and network will be instrumental in the success of the startup.
3. Allow your board to hold you accountable
Most founders will be acutely aware of their remaining runway, but a board director can be vital
for maintaining this focus.
They should hold the founder accountable, but also help drive conversations around future funding, ensuring there is always more than six months of runway.
Securing the next round of funding can often take upwards of three months, and the bargaining position becomes weakened if this process stagnates.
4. The right personality and cultural fit
A board director should be a good cultural fit with the founders and other existing board members.
They should be able to challenge the founder’s thinking and stress test their plans, however a successful relationship cannot be built on a fundamental misalignment on values, or friction that comes from differing interpersonal styles.
5. Be prepared to be flexible in remuneration
The average commitment for a board member is one meeting each month and about two to three hours a week in guidance.
Some board members may be investors and unpaid. Others may have an ESOP or an incentive structure in place. This will vary from board member to board member, although founders must be careful to establish the right precedents.
For example, it can become problematic for later-stage investors if initial investors who have been appointed to the board can’t be convinced about resigning their directorship.
6. Develop the right metrics to help your board to help you
The right metrics will help your board to understand, at a glance, how the business is tracking against the strategy.
This is a simple monthly dashboard that uses a small number of metrics to show the progress down the pipeline of new business and revenue.
This encourages healthy dialogue if the milestones are not being met, and allows founders to tap into the expertise of the board member to help founders correct course.
At the right time, a board can be extremely advantageous to give founders strategic input, help develop revenue, attract top talent, and drive fundraising.
But, ultimately the implementation should rest with the founder.
A great board member is like a secret weapon, ready to be deployed using an arsenal of experience and expertise to ensure the business is on track to deliver according to plan, and overcome any challenges along the way.