The top 10 tips on building Boards for start-ups
An extract from the 360Leaders’ CEO Academy on how to build Boards for CEOs and founders of start-ups, which was facilitated by Margaret Rice-Jones, once a CEO and now chairing several VC backed businesses.
“A board will never feel right but imbalance is normal. The board needs constant management and as CEO, it’s hard to challenge the very board that is there to supervise and support you. It’s easy to hire people you like but don’t just hire people that are likely to agree with you. The board should be able to find your blind spots and as uncomfortable as it may seem, it’s the tough board discussions that allows the business to move forward.”
Purpose of the Board:
The role of the board is to outline the defining strategy within the company’s vision, mission and values. Its objective is the ensure obligations to shareholders and stakeholders are met. The board is there to ensure the appropriate human and financial resources are available to deliver the plans and challenge the financial and operational state of the company acting as a sounding board for execution. In addition, board members should hire the CEO and determine the rewards of any board member.
The top 10 tips:
1. Set the tone from the start — you as CEO are expected to be in charge so ensure you are well prepared and in the right mental state. Start the board discussion with a simple; what are we trying to achieve as a board?
2. Board member make-up — It should include a palette of complementary skills, experience and backgrounds not dominated by Executives. Still, you don’t always have the chance to choose your board so make the most of what you have. If too many friends, co-founders and family members make up a board, raise a new round to force a shakeup of the board later.
3. Size — stage dependant, a small startup only requires a small board and vice versa with a larger corporate. 4 people for your first board will suffice — Chairman, CTO, NED and yourself. The board can have both odd or even numbers. With most startups votes rarely happen, hence there is little chance of a split vote.
4. Diversity — this goes well beyond the gender issue. It’s about diversity of thinking and experience. Hire the outliers, the culture ‘unfits’ and challengers that may be difficult to manage.
5. Board vs. Advisory Board — these are not the same thing. The members have different roles or different reasons so don’t mix their responsibilities. E.g. Advisory Board is for introductions and suitable for international posts to open doors in new markets. Advisory Board meetings should be ad-hoc and informal but output-focused.
6. Compensation — Pre-series A pay with equity, post series A use cash. Pay at least expenses. Equal input-equal comp. NEDs should not be forced to invest. It’s ok to renegotiate cap table, particularly pre-exit. NED and Chair fees should always go through the payroll. You need Chairmen and NEDs for different stages in the company’s journey so use fixed term contracts and compensation that reflect that.
7. Board evolution — A CEO of a startup is in charge of board construction. Once a Chair is onboard, the two should build the board in collaboration. Look ahead to the future when constructing the board. The company will look different in a year from now. Make board members give feedback on how the meeting went and be dedicated to improvements.
8. Meeting format — all board members should be in the same room when you have a face-to-face meeting. Ideally come to where the company is based. An option is a monthly teleconference followed by quarterly 2 day board meetings. CEO Report first on agenda then financials. Set up the conversation you want to have. Chair and CEO should go through the board meeting agenda and report in advance of the meeting. There should be no surprises.
9. Reporting — have a clear summary of the Board Report. Make it easy to progress actions from last meeting. Send in good time before the board meeting- not the night before.
10. Management team members in boards — early on a CTO may be a board member and later a CFO would be helpful if an exit is on the table but the rule of thumb is to invite management team members that carry major responsibilities to participate occasionally at critical phases. E.g. VP Sales during sales ramp up phases, VP Product during product-market fit and pivots. Remember it’s important that the CEO has board meetings without any executive members to be able to discuss CFO, VP Sales performance. In a company with multiple founders, navigating this can be tricky.
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About the author: Martin Falch is CEO & Co-founder of 360Leaders, a leading executive search firm for tech and digital advising startups and corporates on hiring and developing leadership talent.