Start thinking about constituting a board of directors before it becomes essential.
Startup boards are different. Indeed, the majority shareholders are founders in most cases. Founders are also CEO's and the management dynamic is much different than in larger companies. The urge for executive's oversight is less pronounced and it's not priority until suddenly investors starting to request board seats, implying a shareholder agreement which board matters and more.
Founders may react with some fear or unnecessary stress and some of them can fail in that process. It's a this very moment, the independent board member (IBM) come into play. Appointing an independent board member is crucial. In many cases, the IBM is a talented and experienced person who have been through the same process years before.
The IBM is an entrepreneur backing up the founders and turns to be a fantastic moderator between the founders and the investors. The Founding team can count on him to balance smartly any board resolutions and perform on demand duties like pricing analysis, product strategies, or participating to some key hiring processes.
Something to keep in mind from the early beginning is to make a clear distinction between l "Board discussions" and "Shareholders discussions". It looks that the line in between is not always clear and as a consequence it could blurry the board dynamics.
The management team relationships, and roles of the CEO/founder(s), shareholders, investors, and board of directors rapidly change in a successfully scaling startup. Who makes what decisions is rapidly changing. A lack of clarity and common understanding of who makes what decisions and is accountable for what results can cause confusion, and slow down or prevent scaling.
By the way, Govrn is free for startups below €2M Annual Revenue !
In a nutshell:
Think Board governance early enough Hire an independent board member
Between 4-5 board members to start with (Founders, Lead Investor, IBM)
Focus only on the company value creation plan ; no time to waste in board admin ;-)
Setting the Tone for Strong Corporate Culture
The presence of a strong board governance from the early stages of a startup not only ensures efficient decision-making but also sets the tone for the organization's culture. A board of directors can help in establishing the company's mission, vision, and values, which shape the overall corporate culture. This strong foundation can significantly contribute to the future success of the startup.
Advantages of Diverse Board Composition
While a startup board might initially consist primarily of founders, it is advantageous to strive for a diverse board composition as soon as possible. Diversity in the boardroom brings varied perspectives, expertise, and experiences, which can stimulate creative thinking and innovative solutions. Adding a lead investor to the board can bring financial acumen and market insights, while an independent board member can bring a fresh perspective, free from potential internal biases.
The Importance of Role Clarity
It's essential to have clarity on the roles and responsibilities of different stakeholders in a startup - the founders, investors, and board members. Clear delineation helps prevent overlaps and confusion, ensuring everyone is aware of their specific roles and responsibilities. This can improve overall operational efficiency and support effective scaling of the startup.
Leveraging Board Management Software
Board governance can be made more efficient and effortless with the use of board management software like Govrn. It reduces administrative hassles, facilitates seamless communication, and provides data-driven insights for effective decision-making. This ensures that the board's focus remains on creating value for the company rather than being entangled in administrative complexities.
Conclusion: Start Early, Start Strong
Board governance might not seem an immediate necessity for startups, but incorporating it early in the company's journey can pave the way for long-term success. Appointing diverse and experienced board members, ensuring role clarity, and leveraging technology for efficient governance can set a solid foundation for the startup. Remember, a strong board isn't just about governance; it's about guidance, strategic insight, and a commitment to the startup's mission.