Board of Directors: Your Startup's Secret Weapon
Boards can be a powerful force for growth and development of a new business.
Although there is no one-size-fits-all definition of a great startup board, the very nature of startups allows their boards to be flexible and adaptable to meet the company's needs.
They are the foundation of any internal management structure and a key strategic council to the founder. They are not there to run the day-to-day operations of the company, but to guide and support. An experienced board can provide advice and guidance to the company's management team, and they help to ensure that the company is being run in a sound and ethical manner.
Startups are often founded by people with a great idea and a lot of energy. However, they may lack the experience, network or know-how to navigate the challenges of taking their business to the top. This is where a board of directors can come in.
There are many reasons why startups should form a board of directors early in their lifecycle. Here are five important reasons:
Challenging the founder: An experienced board will challenge the founder's assumptions and ideas. This helps to ensure that the founder is thinking critically about the company's strategy and operations.
Advising the founder: They'll provide the founder with advice and counsel on a variety of matters, such as business strategy, financial planning, and legal matters.
Encouraging the founder: They'll be a source of support and encouragement for the founder. This is especially important during times of difficulty.
Ask the right questions: What problem are we solving and is our product the best solution? Do we have the right GTM strategy? Are we building the right company culture? Does our system and process scale? Are we in compliance? Are we on track with our target demographic and are we growing into our ideal market space, etc? Remember, at the end of the day, it's up to the founder to answer these questions. A great board will challenge them with questions that will make the founder use their critical thinking skills and think outside the box.
Increased credibility: Having a board of directors can make your startup look more credible to potential investors and partners. This can make it easier to raise capital and expand your business.
When to Form a Board of Directors
The best time to form a board of directors is usually early in a startup's lifecycle. This is because a board can provide valuable advice and guidance to the company as it grows and evolves.
Who Should Serve on the Board of Directors?
The ideal board of directors for a startup should have a diverse mix of people with different skills and experience, including:
The founder or CEO of the company: The founder or CEO is essential to the board of directors. They are the ones who know the company best and who can provide the board with insights into the company's operations and strategy. They should have a deep understanding of the industry, the market, and the company's products or services. They should also have a strong track record of success in business.
Investors in the company: Investors are also important members of the board of directors. They have a financial stake in the company and can provide the board with insights into the market and the competition. They should have experience in investing in startups and should be able to provide the company with financial guidance.
Independent directors: Independent directors are not affiliated with the company in any way. They bring a fresh perspective to the board and can help to ensure that the board is objective and unbiased. They should have a strong track record of success in business and should be able to provide the company with strategic guidance.
Subject matter experts: These are people who have expertise in a particular area, such as finance, marketing, or law. They can provide the board with insights into specific areas of the business.
Pre-seed stage? An Advisory board might be a great place to start
In the pre-seed stage, every dollar is as precious as a roll of toilet paper during a pandemic. That's why many startups wait to form a traditional board of directors until they get a more substantial investment during their series A round. But there's another option during this initial phase: an advisory board.
An advisory board is a group of people who provide advice and guidance to a startup. They're not like a traditional board of directors, which has legal authority over the company. Advisory boards are more like a sounding board for the founders, and they can provide valuable insights and connections.
There are many benefits to having an advisory board. For one, it can give you access to expertise that you wouldn't otherwise have. Advisory board members can be a great sounding board with things like business strategy, marketing, finance, and legal matters.
In addition, having an advisory board can help you to legitimize your startup. When you have a respected group of people who are willing to put their name on your company, it shows that you're serious about what you're doing. This can make it easier to attract investment and get your startup off the ground. If you're tight on cash, these advisors will often accept compensation in the form of stock in the company.
Conclusion
Starting a new business is challenging, even for experienced entrepreneurs. A board of directors can be a valuable asset for any startup, providing advice and guidance, helping to mitigate risks, and increasing the company's credibility. By forming a board early in the company's lifecycle, founders can get the support they need to succeed.
Here are some specific tips for founders who are considering forming a board of directors:
Start by defining your needs. What kind of advice and guidance do you need? What skills and experience are you looking for in board members?
Do your research. Find potential board members who have the skills and experience you need, and who are a good fit for your company culture.
Remember that the boards main objective is not to implement or execute on the decisions. Their role is to provide guidance and support.
Consider, at a minimum, a board of advisors in your pre-seed stage. It's never too early to have sage advise.
Remember their role. As a board member, their main job is to challenge, advise and encourage the founder. They are not there to implement or execute. It's more important for them to ask the right questions than answering all of yours.
Communicate regularly. Keep board members updated on the company's progress, and be open to their feedback, praise or criticism. Tough love isn't always easy, but being a startup founder isn't for the faint of heart.
