MANAGING YOUR STARTUP BOARD
Second in a series –
Who? Choose and Build Your Board Members Carefully
Your first board management challenge begins on day one: Wisely picking your first board members.
The board is instantly created on the day of incorporation: Depending on your state of incorporation, it typically consists of just one person – the CEO. Experienced startup founders will occasionally add one more of the (if any) co-founders, plus someone they know well and highly respect, thus sticking to an odd number.
First Expansion. First timers often start to get thoughts about enlarging their board of directors.
- First Caution: Think a long time before you add a friend to your board.
- Second Caution: Be careful before you add a person inexperienced with business.
- Third Caution: Be slow to add a stranger.
I’ve witnessed painful fights, sometimes costly legal battles when people had to be kicked off the board. It killed the life of a promising software startup I observed. The brothers feuded from day one on everything. They came to physical blows. And the CEO fired his brother in a painful scene. Energy left the CEO and depression set in. Later the company closed its doors.
Time Limits. One preventive measure (avoid officially firing a board member) is to set a limit on the number of years a person may occupy a seat on your board of directors.
Number & Size of Board. The number of members should be kept to an odd number so that decisions (formal voting) can be made, so that the company is not stalled during disputes. More than eleven board members is unwieldly, seven is considered the maximum for startups. Occasionally new investors will require visitor privileges, but they cannot vote.
- Add an Independent. It’s wise to have one seat on the board filled with an “independent” person, typically experienced with startups, boards of directors and if possible your industry. An “independent” board member can bring high value to your company in several ways: some bring technology savvy; others bring a network of contacts with potential strategic partners. They are street smart about what investors do on boards of directors.
- Human Guidance. And some board members bring special psychological and behavioral skills with them. A few are skilled, professional counselors. They typically become close to the CEO and share in private the struggles that are inevitable. The wise will get to know you the CEO well enough so you trust the person to give you the frank assistance needed when it’s time for your behavior to be adjusted.
Investors on The Board. More people will be added to (“seated” on) the board when you raise capital from sources outside the company. Investors want someone to watch out for their invested money while your startup is progressing, They will complicate your life as company leader, decision maker and risk taker.
Your board will add one new member for each round of financing. You will expand to three after your first round. And to four after round number two and so on. Serial entrepreneurs will simultaneously add another board member, often a company officer. Or it might be another independent. That is to keep a balance between investors and employees. That five-man board often remains for a few more years until a large third round is completed.
- Expect More Pressure. Be prepared to experience your expanded board pushing you to do things you had not planned on, things you do not want to do. That’s how life works in startups, particularly when aggressive (“sharp elbows”) angels and VCs are on the board (think before you take their money). This makes each board meeting increasingly challenging.
- Treat your board as family members, not dictating bosses whom you are in combat with. Your board of directors is not your authoritarian parents. Family members can help you (or get in the way), so carefully seek their wisdom, and use it. Include them when you wonder if you should embark on a new direction or make a critical decision. They can do more when you give them time to think. Then they'll thank you and keep rooting for you. When you learn to do this, they will appreciate how wise you are and contribute a very helpful element to executing your business plan.
- Pick people, not venture capital firms. When looking for money from venture capital pools, research reputations of angels and venture firm Partners before engaging in deal discussions. When your intuition signals a venture investing person is not great to work with, find someone else with the money you are seeking. Life is too short, too hard, for you to have to work for a decade or two with a person you detest, someone who thinks you are making all the wrong decisions.
Startups need extra encouragement, just like a growing child. Family wars create circumstances that warp the child as it grows up. Learning to wisely select board members for your startup is one of the most valuable elements of building a great company.
I wish you The Bests on your Adventure!