How does a startup recruit a board of directors?
Where can startups recruit capable board members, and how can such a board prepare for modern governance?
Perhaps few sectors of the economy are as exciting as the startup sector – many of whom are in the tech industry.
The rapid advent of technological advances and social and cultural changes has made technology more embedded in our work and daily lives.
This presents startups with incredible opportunities. However, with growth comes challenges.
Most startups need competent board members to guide them from founding to expansion.
As such, startups must ask themselves this critical question: Where can they recruit capable board members, and how should that board prepare for modern governance?
Watch video: Julie Barber is a CEO, non-executive director, chairperson, mentor, speaker and No. 1 best selling author. She helps startups raise funding. Here, Julie discusses how to get funding and why a good board will help a startup survive and thrive.
Investors in startups can help recruit board members
The investment community is one of the top sources for a board of directors.
Indeed, many funders — individual investors or venture capital firms — often insist on having a seat on a new company’s board. Doing so allows investors to keep a closer eye on their investment and ensure that the corporation is appropriately preparing for continued growth.
Investors sometimes won’t insist on being on the board of directors. However, it may be worth asking them to be part of a board anyway.
Inviting investors on a board — even if they don’t ask — can be beneficial. It shows that a founder is interested in a long-term relationship with the investor in question and that they have nothing to hide from those investing in a company.
If the investor is not interested in being on a board of directors, they may have a better idea of how to provide effective leadership.
As such, ask investors if they have any recommendations for board members.
A truly well-connected venture capital firm or an individual investor may have some good thoughts about finding individuals ready to advise an organisation on how to grow.
Experienced investors can also offer even more significant benefits when it comes to funding.
The odds are good that the individuals they know will be experienced in board membership, understand their responsibilities, and be well-positioned to help a business grow.
Recruitment firms can help find board members
Finding suitable board members can be complex, but various search firms can help businesses locate board members to fit their needs. In these instances, a founder may benefit significantly from hiring a major search firm.
Hiring a search firm comes with many benefits. They can help a company fulfil specific needs and may even be able to help a business identify niches for potential board members. Experienced search firms have likely worked with startups before.
An experienced search firm knows where to look, who to ask, and what to ask. They may also have experience in the industry, thus enabling them to find people that can provide effective leadership.
However, search firms present real challenges, particularly to a growing business. Most significant? They are expensive.
A good search firm can cost as many as five figures of limited revenue. Yes, this can be an investment, mainly if they help a business find the right person, but there’s no guarantee that this will be successful.
If a business hires a search firm, it is always better to use a firm that a trusted source has specifically recommended.
Do investors have any firms they have used in the past or heard good things about?
What about using local businesses and contacts?
The best source for board members may be right in front of the founder.
Depending on someone’s specific personal network and business experience, a person may be able to find the perfect board member by simply looking through their contacts.
Local board members are found through networking with various advantages unavailable elsewhere. First, recruiting board members locally means that a founder is already selecting known and trusted people.
Furthermore, selecting someone local means that that person will know the local economy and potentially the target market.
That being said, there is also a danger when bringing in board members known to founders.
First, a person may miss the faults of the board member. Founders may not be able to see their severe problems and may miss disqualifying features that should prevent them from board involvement.
Furthermore, there may be an opportunity cost. Yes, they may fit on a board, but what if there is someone better out there that should have been brought on? What if someone is brought in out of convenience, thus missing out on bringing on a board member who could do a much better job?
Also, have you considered any of your early hires, your employees. Would they make good board members?
Are your board members prepared to govern?
As any business knows, a good board can make or break their chances of success.
To be prepared for growth, a business must have proper director training trained board members who understand their roles and responsibilities.
These board members must be prepared to guide a company, tell hard truths, and put the company in a position to succeed.
At the Corporate Governance Institute, we’re here to help. We offer an array of director training and educational programs, including a Diploma in Corporate Governance, that can take board members to the next level and ensure a business is ready to grow.
Want more information? Download the course brochure below.