A small but effective board is vital for a startup
Having top-tier governance and an effective board are critical to building and growing a business, and successful startups know this.
The journey for a startup’s founding team can be lonely. There’s no doubting its challenges. Days are filled with unpredictable stresses and an endless number of decisions. Therefore, as a CEO it is vital to surround yourself with the top minds both on your executive team and on your board.
A solid foundation
Good corporate governance allows a company’s interests to be addressed so that all stakeholders, including those of shareholders, employees, and customers, are happy.
Integrity, accountability, transparency, fairness, and individual responsibility are core values of good corporate governance. Having such a solid foundation in place early on allows a startup’s management team the time they need to focus on innovation and delivering better products. So, how do startups develop and observe sound corporate governance practices?
Building a board of directors
The board of directors is one of the most critical components of a startup’s internal management structure.
The board of directors determines the strategic direction of the startup. These activities include fundraising, acquisitions, hiring of key executives, budgets, and new product lines.
The benefits of forming a board earlier in a startup’s lifecycle are clear.
Many startups fail because they have disagreements between the founding team, have too much confidence, or lack expertise in areas like sales and marketing. These issues can be avoided with a robust and supportive board.
How many people should be on startup boards?
At a minimum, the board should have:
- The CEO
- A chairperson
- One independent non-executive director
A startup board should have directors who possess varied skill sets that align well with the company’s stage and growth plans.
At a minimum, startups should find at least one or two non-executive directors who have experience with related industries and customers. Most useful are directors with no material stake in the company. Scott Weiss, a general partner at Andreessen Horowitz, suggests that effective startup board members possess the following characteristics:
1: Domain expertise
Find someone who has done it before, who will help you get off the ground and supply extensive contacts in the market you aim to capture.
2: Sharp and fearless
An effective board relies on consistent and constructive discussions. A board member who is afraid to speak their mind is no good. Founder of Bridgewater Associates, Ray Dalio, says the best board members are ‘radically transparent’ and don’t fear uncomfortable topics.
Startups move quickly, which is why you need responsive board members who are willing to answer your emails and texts quickly. The best board members help you when something breaks; they figure out what went wrong and help plan your next steps.
4: Adds real value
An effective board member adds real value to startups through their connections to other entrepreneurs, potential investors and the market.
How to conduct effective board meetings
Thomas Porter, the co-founder at EDF Ventures, says, “The art of a good board meeting requires the CEO to bring out the critical issues, stimulate a productive discussion in a non-threatening fashion, and get consensus in a timely manner.”
The board deck
One of Silicon Valley’s most prominent venture capital firms, Sequoia Capital, likes the idea of using ‘board decks’ to make board meetings more effective while at the same time reducing the time spent preparing for them.
Successful startups like Dropbox and TuneIn use the following structure for board meetings.
There is a good book for more detailed information on this subject: ‘Startup boards: getting the most out of your board of directors’ by Brad Feld.