Startup boards – when you need one and how to manage it
I have had the pleasure of being on a range of boards in my career. From non-profits to startups, I have seen board structures and meetings that are highly effective and those that also have gone spectacularly wrong.
Some entrepreneurs dread them, others really benefit from them. This piece explores our thoughts on when to form your board and how to manage it for your own and your company’s advantage.
If you don’t fancy reading the whole article (I won’t be offended!) here are the main takeaways:
- Don’t bother forming one until the true seed round. There isn’t enough to govern before then.
- Get the most out of your board by preparing an excellent board packet, tackling the issues up-front and coming armed with meaty discussion points.
- Your board is there to help and not to judge. Your board works for the founders and the company. You are not there to prove your vision at each and every meeting. Everyone on the board is there to solve problems and capitalise upon opportunities.
When do you form a board
I have seen far too many founders form a board too early. If you have yet to raise any money or are raising from a small group of angel investors or family and friends, I highly recommend putting the brakes on creating a formal board unless those early investors are very experienced at serving on startup boards.
Here are a few of reasons why:
- Once you invite someone to join your board it can be tricky, from an ego-perspective, to get them to step-down and allow someone else to join in their place. Save yourself the headache.
- If your company or idea is still in its infancy you probably know that pivots can be frequent and happen at breakneck speed. This can be confusing and frustrating for most board members that you bring on from a pre-seed raise. These emotions can turn enthusiasm into negativity and a tendency to build roadblocks along your journey to building innovative things.
- There just isn’t much to govern. As discussed later, a good board helps with hiring, firing and strategy, however when a company has no customers, revenue or significant numbers of employees there is very little to discuss during a two hour board meeting. Save yourself the time and instead inject it into building your MVP.
If you really must build a board before you raise professional capital (perhaps because an angel investor is insisting on it) and you have little leverage to decline, then keep the board limited to three seats that are designated by the common stock and allocate one of them to the angel investor.
To protect yourself further in this instance we would recommend placing a time limit of 12-18 months on the seat and that is subject to renewal by mutual board consent. You could also make it contingent upon the achievement of certain milestones or events such as raising a subsequent round or hitting $x in revenue.
A few other important points to remember:
- Do not fall to the charms of consultants or brokers who want a board seat (or even worse, a fee) in exchange for helping you raise capital or providing advice.
- Anyone who is on your board should have invested capital into your company and have “skin in the game”. Also, if the board member can’t help your company grow don’t add them to the board.
- Decline requests for rights to optional future board seats. This adds no value to the company and would create significant disruption to the existing board if exercised further down the line.
Managing your board
“Governance is not management” – Kenneth Dayton – Governance is Governance
Once you have the board in place the next step is ensuring that it delivers value to your company. Value is not derived from a quarterly arse-kicking from a bunch of board members whose main goal is to show how smart they are by schooling you at every moment on how to run your company. If you are an entrepreneur with a board don’t forget that the board works for you and not the other way around.
The best boards I have served on have been effective because:
- The founders agreed a board format and strategic objectives with their lead investor during the fundraise process and before the board was formed.
- The founders of the company controlled the room and allowed the dialogue to flow in the right direction.
- The founders produced excellent board packets that were circulated at least seventy two hours before the meeting.
- The founders came prepared with big, strategic discussion points that they wanted to gather the board’s opinions on in the session.
- The founders welcomed members of the wider team to guest present during the meeting.
- The non-founder board members came to the meeting with pre-written notes and an attitude focused on listening and finding solutions to challenges.
You will notice that 5 out of the 6 points above are contingent on the Founders coming to the board prepared and with a tight agenda.
As with all startup boards, the news will not always be positive and there will be challenges that need to be presented to the board and discussed. The best board meetings that I have attended presented the challenges honestly, thoroughly and with well thought out resolutions.
The board packet
Here is what we like to see in a board packet:
- Quarterly highlights and executive summary
- How is the company performing to its strategic goals
- Are you executing on the plan that you agreed to?
- Has the market changed since the last board meeting? How is our position in the market?
- Has the team changed? For better or worse?
- Financial snapshot
- Budget to actual (how are performing to your budget?)
- Cash on hand (how much is in the bank?)
- Cash zero date (when do you run out of money?)
- Sales pipeline deep-dive
- How many new opportunities were generated in the quarter?
- How are the existing pipeline opportunities progressing through the sales funnel?
- How were your sales leads generated?
- Which initiatives or campaigns worked well during this last quarter?
- What needs improvement?
- Existing customers deep-dive
- Updated customer list with attached contract values and sign-up dates.
- A couple of case studies on how new customer implementations during the most recent quarter performed.
- Churn update.
- Product update
- How are customers interacting with the current gen product?
- What new features were launched in the most recent quarter?
- What is coming up next?
- Human resources
- New hires update.
- Team departures.
- Overall team sentiment and any concerns.
- What is coming up in the next quarter
- What are actions for the board?
This doesn’t have to be War and Peace but it should be a well-written and detailed report that is circulated as a PDF at least seventy two hours before the board meeting (I am repeating this time frame comment on purpose!).
Try to avoid death by a thousand pie charts. Make this document interesting to read, with a natural flow and a snappy style of content that emphasizes total transparency in a plain English manner. The more complicated it is the longer the board meeting will run and less value will be gained. Just like a good product manager, focus on what content you can remove as opposed to what you can add in.
The last bullet is a key one. By ensuring that you have some assignments for your board to complete over the next quarter stimulates engagement, buy-in to the company and ensures that you, the founders, receive results. These assignments could be hiring projects (e.g. finding five names for potential data scientists to join the team), helping to syndicate the next round of funding or generating some new sales leads. In terms of the third idea, one of my portfolio companies built a lead generation tracker for all investors and members of the board to promote some healthy and friendly competition – try it out!
The board meeting
If you have an office and are not constrained by pandemic measures, I would recommend holding it in-person within your own space. As you should have a small board then this should be an easy task. If you need to have members to join via video-conferencing then get them to dial in 15 mins early and test out the connection as there is nothing worse than a late start to an important meeting. Get some coffee and doughnuts brought into the office, set up the table and have some spare printed versions of the board packet handy.
Try and keep the meeting to a maximum of two hours. We are all busy people and are grateful for a tightly managed agenda that keeps to time.
If you have a large board then getting a facilitator involved might be useful for keeping the agenda flowing. Having been in board meetings with lots of VC’s and other investors I have observed a tendency for some of the members to use the time as an opportunity to demonstrate their superior intelligence over others. Observe intently and cut this off passionately if it occurs. No value is gained from an IQ measuring test.
If your board is too big an idea might be to split it into separate, smaller committees that meet separately in advance of the board meeting. This allows the committees to come prepared with the outcomes of their work.
Don’t also go to the pains of creating a specific deck for the board meeting. Just use the board packet that was circulated prior to the meeting. Also, don’t feel the need to stand at the front of the room and present, just sit at the table with everyone else.
If you have board observers (this is a person that can attend board meetings and can receive the board packet but does not have any voting rights) decide on if they need to be in attendance for the entire board meeting. If you are not comfortable with them being present during certain sections of the meeting then you can always ask them to leave.
After the board meeting
If there are actions generated (there should be!) then send out a reminder within twenty four hours after the meeting.
Transparency is key outside of the board so feel free to share an edited board packet with the rest of your company. It will help increase engagement amongst your team and allow them to understand more about your KPIs as executives of the company.
I have been witness to far too many founders dreading the end of the quarter and the impending board meeting. Even if the news is not the best, this is not a meeting that is designed to deliver you a verbal kicking. Your board meeting should be a gathering of brilliant minds to discuss ideas and deliver solutions to whatever challenges you face.
Go forth at the beginning of the fourth quarter with confidence and conviction.
Kia kaha kia u taku puawai (be strong and firm).