Empowered Team

Reading Time Time to read: 6 minutes

How to build a great board of directors for your startup

Chris Wilkinson

Head of Talent @ Forward Partners

Startup boards are different. In early stage startups founders tend to be the CEO’s and they also tend to have a large (usually majority) stake in the business. Therefore, the ownership/management dynamic is not as pronounced as it might be in a more mature corporate business. As a result, the need for managerial oversight is less of a requirement thus often making the task of constituting a board a low priority in the early days of a startup's life until (usually) investors start to demand a board seat and ask to see a certain level of process and structure implemented around governance.

Key Takeaways:

  • Assembling a strong, talented and experienced board will allow you to hire better, execute faster and feel less stress overall.

  • Avoid the Peter Principle when constituting your board and be disciplined in hiring against essential board-level criteria, in particular personal attributes;

  • Consider the role of Chairman with the attention it deserves;

  • Don’t avoid addressing the opportunities and risks involved in constituting a board;

  • Consider an advisory board.

Startup boards are different. In early stage startups founders tend to be the CEO’s and they also tend to have a large (usually majority) stake in the business. Therefore, the ownership/management dynamic is not as pronounced as it might be in a more mature corporate business. As a result, the need for managerial oversight is less of a requirement thus often making the task of constituting a board a low priority in the early days of a startup's life until (usually) investors start to demand a board seat and ask to see a certain level of process and structure implemented around governance.  

At this stage, startups tend to find that the attraction of constituting a board (beyond reacting to investors that ask for a seat as a prerequisite of investment) is in being able to lean on a trusted panel of non managerial yet experienced talent for advice that isn't yet available in company - this usually comes in the form of a non-executive-director (NED). These senior and experienced advisors are hugely valuable, especially as startups inevitably start to grapple with the relentless operational and strategic decision making that often leaves, even experienced management, feeling overwhelmed and in need of support. Also, it is worth noting that a strong board of directors, composed of high quality individuals that are relevant to your business and work harmoniously in providing positive support will give CEO’s wings. The smartest and best performing CEOs often have high performing boards and this is no coincidence.

Naturally, the allure of constituting a board of senior, experienced advisors is obvious to a fledgling startup and may even seem a somewhat effortless task of drawing up a shortlist of wish list talent and approaching them with the coveted board seat. However, in practice, putting a board together, that is both relevant and effective, is hard work. Over the past four years, here at Forward Partners we have seen many entrepreneurs succeed in, and others fail at, constituting a board of directors.

Below we outline some pitfalls to avoid along with some tips on best practice when coming to building your board of directors. Please note that there is another topic to explore here on why being on the board of a startup is attractive to potential NED’s and how to set yourself up for success in building a world class board. However, we do not have the space here to do this topic justice so for the purposes of this article we will focus on the preliminary steps.

What should a startup board do?

  • Startup boards should be able to provide help on specific challenges facing the company. Popular challenges and topics on which a board is consulted and particularly useful for include; strategy, fundraising, budgeting, internationalisation, exits, commercial expansion, and org restructuring.

How does an effective startup board operate?

  • The key to being able to access the collective knowledge and potential of a board is in having a strong Chairman that orchestrates meetings, coaches the management (the CEO), teases out insights from the other NED’s and encourages variety of opinion whilst avoiding conflict.

  • Each NED adds demonstrable value to the company and its decision making.

  • Board influence does not undermine the leadership and autonomy of the CEO.

  • The founder/CEO is cognisant of their potential to suppress different views due to company ownership power dynamics at play and the strength of their vision.  

    • As a tonic they will ideally have a Chairman that acts in a ‘coaching’ role, helping the CEO ‘grow’ as an executive, adapt their style and act as a sounding board for advice. They may even introduce third party coaches in some circumstances and will have the trust of the CEO in doing this.

  • The board is able to make tough decisions in reorganising itself when a change in circumstances requires such decision making.

    • This almost invariably requires a strong and trusted Chairman.

  • There is some process in place to manage the board to some set of KPI’s.

What does a great NED look like?

  • Effectiveness at the board level requires a mix of functional competency and personal attributes. Great board hiring does not sacrifice on either piece. Great NED’s will have strong strategic decision making skills, solid judgment, and effective leadership as well as scoring highly on authenticity, integrity, strength of character (gravitas and presence link to this), patience and maturity. It is often the latter, more personal attributes, that are sacrificed - these are arguably the most important attributes to screen for.

What criteria should I be evaluating a prospective NED on?

  • How do they ‘fit’ with the other board members - what will the chemistry be like?

  • Is this someone that I can work with? (Sounds simple but you must avoid candidates that introduce unnecessary friction)

  • What is the strategic ambition of the business and does this candidate address this?

  • What are the issues that concern the board and is this candidate able to positively contribute to discussion?

How do I evaluate a NED once they are on the board?

  • Once appointed, a NED should quickly focus on where they can add value and identify ways to influence at board level without causing friction. You do not want passengers on your board. Look out for positive impact and influencing skills.

  • A good NED will really want to get under the skin of a business, identify the issues that they want to address, rank those issues in order of priority, develop good relations with the executive team, and then take the time to learn the dynamics of the non-exec team whilst learning how best to influence around the board table in a tactful manner.

  • Experienced startup execs that are new to a NED role will need to quickly adapt to being in a hands-off role and quickly adapt to taking time to understand challenges (particularly important if the candidate comes from an entrepreneurial environment where quick-fire decision making is often the case), know which battles to fight, and leverage the power of well-judged, well-timed questions.

Potential pitfalls to be mindful of:

  • Being a NED comes with a range of responsibilities and risks to the candidate. Candidates should be aware of this responsibility before agreeing to join as their reputation and financial situation will be at stake. This means the responsibility of the company to hire well is even more important.

  • Startup execs who want to repeat what worked for them previously without understanding why it worked last time and what’s different this time around

  • Directors who place too much emphasis on formality and governance aren’t a good fit for highly dynamic early stage businesses

  • Hiring a board of directors is the formal way of constituting a board complete with legal and reputational responsibilities and risks. You do however get a committed and involved board that has genuine insight and contextualised input in your business. If however, you are in need of more adhoc strategic advice then consider leveraging your VC’s mentor network or constituting a less formal advisory board. This can often be much easier and less complicated. However, you will need to consider the costs and benefits of these resources in line with the needs of your business. In particular,  try to avoid making the mistake of taking advice free from of context from someone who is unlikely (if they have no formal tie to your company) to understand your challenges, motivations and aspirations. This kind of shoot-from-the-hip advice can at worst be damaging and at best distracting.

Useful Links:

 

Chris Wilkinson

Head of Talent @ Forward Partners

Chris has helped build the leadership teams for some of the world’s most innovative digital companies. Prior to Forward Partners he was a Senior Associate at the digital headhunting firm The Up Group and placed C'level executives at companies such as Skyscanner, JUST EAT, WorldRemit and Circle. Chris is passionate about disruptive businesses and is now hands-on with helping Forward Partners’ portfolio scale their businesses from a people perspective. In his spare time Chris enjoys playing jazz piano, writing sitcom scripts and drinking IPA.

Apply for Office Hours

We’re looking for great entrepreneurs with great ideas.

Apply here

Similar Guides