What Does a Good Startup Board Look Like?
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Boards have the ability to play a transformational role in the growth and development of a business. While there is no clear-cut example of what a great startup board looks like, the very nature of the startup model allows its board - within set principles and ethics - to be whatever it needs to be to thrive.
The value metric is different to that of a large corporation as attributes like support, guidance and access to broader professional networks are prized over strengths in governance or legal accountability. The question herein lies with how to effectively adapt these characteristics to the fast evolving nature - and challenges - of a startup’s journey to scale.
Independence is key
When a founder or CEO struggles to relinquish control of their startup, having an independent chairperson on the board is crucial. When the role of CEO and chairperson gets conflated, it can hinder a business by fostering introspection rather than critical analysis. Being a chief exec can be a lonely place, so it is essential that an independent chair develops, mentors and guides them in their role, drawing on learnt experience and informed perspectives.
With that in mind, the right chairperson needs to be willing and able to dedicate time to the CEO. True support and valuable coaching can’t be harnessed from a chair who isn’t present, so a strong commitment is non-negotiable. Someone who will dedicate at least four flexible days a month to companies in their portfolio is ideal - this allows enough time for complete support through challenges like capital raising or acquisition deal management.
Objectivity should apply across the board too. Board members can’t make important decisions in an echo chamber - yet only one in four Australian startups appoint an independent, non-executive director (INED). An INED is not linked to other members of the board, nor do they have pre-existing connections with the organisation - so they’re likely reaching conclusions without bias or influence. Also, engaging an INED is an opportunity to diversify beyond the boards’ existing skillset by reaching out to external networks and unfamiliar sectors.
Run a thorough, formal recruitment process
In the Australian sector, 65 per cent of startups admit to not having a formal recruitment process for board members, while over 50 per cent admit to not remunerating their board with salaries or equity. By not running a formal recruitment process, you risk missing gaps in skills or knowledge needed to support your board, stunting growth and other opportunities.
Sourcing board members through personal networks like friends or family can be detrimental, not only to your business but also to your relationships. When you limit potential candidates to a pool of only your connections, you risk becoming tone deaf to a vast network of highly skilled, connected candidates with the potential to support business growth via new channels.
As your business grows and more funding is raised, key investors can sometimes want to become board members, however just because your business is scaling, your board doesn’t have to inflate. Startup boards are typically smaller than well-established organisations, with four formal directors and three members on the advisory panel.
To be sure your board is providing the most value to your business, it must be agile. Review the board every twelve months to consider if the capabilities of your members are aligned with the next growth phase of your business, and be sure that shareholders take a back seat in appointment decisions.
Run a full matrix review of what your business needs from a board - without time pressures - to develop an analytical, thorough approach to a formal two-way hiring process. Ensure potential board members have the right capabilities to match the needs of your company and always, always pay your board director.
A business must hold between eight to twelve formal board meetings a year to focus on strategy and growth - they should run for one to two hours depending on your funding stage. Formal meets make sure the business’ rhythm stays on beat.
To gain the most value from these meetings, the CEO has to address key reporting needs across the core functional areas from the C-level or executive team. Preparation is needed to deliver strategic insights to the overarching business objective, backed by market commentary and data points on how your business will continue to grow and adjust. The best CEOs ensure a clinical approach to executing the boards’ needs and desires, always aiming to answer their minimum requirements while nailing additional relevant insights.
As a founder or CEO, it’s your responsibility to present both good and bad news, so send a detailed agenda before any formal meeting to give the board notice on what to expect. Allowing directors time to consider their responses benefits the CEO too, as any advice or decision-making will be better considered and articulated.
The Australian startup ecosystem is vibrant - but with one in four startups claiming they would not choose the same board again, there is vast room for improvement in board recruitment and operational best practices. Ensuring the right people are around the table for various stages of your business’ growth takes time, energy and tough decisions - but the return on investment is well worth the hard yards, as trusted advice is invaluable.