I have been reading a good deal lately about board dynamics and structure. I’m advising several early stage companies, and I have been trying to work out if I would make a decent, independent, outside director for these and other early stage technology start-ups. From my homework, which included council from far more experienced entrepreneurs and ex-CEOs than me, I have resolved, as objectively as I can, that I have what it takes.
From my own experience I know that when entrepreneurs come up with a new idea or inspiration, more often than not, they endlessly bounce their new concept off friends, family and colleagues. The feedback provides great initial insights, and the brainstorming either helps to crystallize an idea or proves to be its undoing. This is the first stage of using outside advisors to help a business from a non-operational point of view.
Some business founders feel that at an early stage, a board is an unnecessary administrative chore. In my opinion this is a critical mistake. A good board, or group of advisors, can add a huge amount to an early stage company, and help founders in many ways. It’s also a good deal easier to implement policies and procedures at an early stage. These can then be refined as the company evolves.
If a company raises capital from sources other than the founder’s own bank accounts, a board is essential. Founders are critical to an early stage company’s board, and upon receipt of the first round of funds they will be joined by a representative appointed by the provider of capital, who may well have a different agenda to the founders. The introduction of an independent outside director, at the earliest possible stage, is important as they should have only the best interests of the company in mind, whereas the founders and investors have agendas based on when they wish to exit etc. With each round of funding, other VC board directors will most likely join the board, adding to the differing interests. The longer the appointment of an independent director/s is left, the harder it is to make such appointments.
Inexperienced board members, who pay attention to the minutiae of a business, add unnecessary complications to the job of the CEO. A CEO should be empowered by the board to manage the day to day operations of the company, and to execute agreed strategy. I was joined on a board many years ago by two inexperienced, but I have to say well meaning, angel investors. They damaged the company by shifting the focus of the board to non-strategic operational matters. The situation was resolved by a very experienced CEO, outside non-executive member of the board. Prior to a critical meeting, he had a quiet word with the two directors in question. This resulted in both of them resigning, seemingly out of the blue, which was the best thing for the company. There was no animosity and they exited the business profitably many years later. This is one of many situation that helped me understand the importance of having experienced independent directors on a board.
Boards mature and grow with a business, and members at the outset may or may not be the right fit for the company when it reaches the growth stage, for example. Outside independent directors are key to ensuring a board is well prepared for the internal and external challenges a company faces through its evolution.
I thoroughly recommend the following for further reading regarding early stage boards:
Startup Boards: Getting the Most Out of Your Board of Directors by the same author as the article above, Brad Feld .
NB. I advise on business start-ups, relocations etc. as a consulting entrepreneur so please don’t hesitate to contact me to find out how I might be able to help.