Tell me if this scenario sounds vaguely familiar: The CEO of a young start-up is out of options. As she dials the phone, she begins to worry about the voice she will hear on the other end of the call. That’s because the CEO is calling the chair of her company’s board of directors, and she is about to inform the chair that the company needs additional funding in order to reach payroll this quarter. How much? Let’s just say a large sum. One of the company’s largest customers, the CEO says, is delayed in making payment. As a result, the CEO has nowhere to turn but to the chair of her board of directors.
In business, surprises can happen. Customers can be slower than you might expect in paying invoices. And new CEOs can make mistakes. That example is just one of many that I have heard over the years, but it’s a common one. And it’s an example as to why start-up companies must organize a strong and talented board of directors (BoD).
A BoD is comprised of advisors who fill gaps in the company’s expertise. The board can be called in at agreed-upon times to provide input for the CEO and the company. The board and its members can field questions on strategy and compensation, and keep a CEO focused on hitting key milestones, prioritizing goals, navigating risks, meeting standard financial principles, and ensuring there is adequate cashflow to run the business. The board also maintains a fiduciary responsibility to the shareholders, to ensure their investments are being spent properly.
In short, the assembly of a BoD is more than just a component for success; it is an absolutely essential cog in the development of a start-up company. Before new CEOs uncork their champagne and celebrate funding commitments from their investors, they should organize a BoD. Here’s how:
1. Odds are better than evens.
Your BoD will need an odd number of members in order to function properly, for voting purposes. The typical structure of an early-stage board typically includes two representatives of the company, two investors, and one independent that is mutually agreed upon.
Helpful tip for later: In some cases, your company can nominate and appoint what are called board observers. Not only do board observers serve as a nice compromise when investors or other allies want to be on the board and all seats are filled. But they also can add an extra set of eyes and ears in the room. As non-participatory members, they won’t have an official say on your company’s decisions, but they can provide savvy and influence when and where it matters most. (However, they still will require airtime in meetings and will need to be communicated with as much as the board members.)
2. Take your time.
You wouldn’t drop to one knee and make a marriage proposal to someone that you just met, right? The same theory can be applied toward choosing which people to appoint to your board. Finding the right people for your board will take equal parts time and patience. You need to do your homework. You need interview them. You need to get to know them. You need to call around to mutual acquaintances. Like a marriage, you will need to determine if someone is a good fit for the long haul for both you and your company.
3. Identify your allies.
A good rule of thumb: Look first to a trustworthy, reliable, and knowledgeable resource to serve as the chair or lead director of your board. He or she likely is already familiar with your company and knows your strengths and weaknesses as a professional.
Beyond that, this person will open doors for you and help build out your network of directors as the company grows. People with different talents and backgrounds should comprise your board. They could be experts in finance, marketing, a particular domain or industry, or any knowledge base that is truly unique to your company.
4. Diversify your board.
When it comes to your strengths and weaknesses, it’s safe to assume that you have them. We all do. In assembling your BoD, find professionals who will complement yours.
The lead director’s role on your board is to guide you through the potential landmines that every CEO faces and to build alignment on key issues with other board members. A best practice is to first receive input from the lead director on major changes; this will help frame the issues in your next board meeting and allow the lead director to obtain feedback in a post-meeting with non-company board members, as needed.
5. Communicate. Capitalize. Thrive.
Structuring your board does not end once it has been assembled. Now is the time to lay the foundation for its success—both in the present and in the long view. Here are a few guidelines:
- Schedule meetings monthly, quarterly, or as regularly as needed. And be sure to send your dashboard and all relevant and routine information ahead of time. That way, your meetings will be reserved for focusing on key actions (like hires, funding, etc.) and not on presentations.
- Remember that anecdote I offered at the beginning of this? Communicate with the BoD actively, and not only in times of crisis or need.
- Lastly, be transparent. You are dealing with seasoned professionals here. They can see your obfuscation from a mile away, and they will appreciate your ability to provide full disclosure.