One of the most challenging aspects of running a startup is managing the Board of Directors.
First time entrepreneurs tend to find this part of the job especially daunting as they are just learning how to run a company, let alone simultaneously how to manage a group of high powered investors and outsiders. Truth be told, most startup CEO’s are experts at managing product or sales, but not at managing a bunch of gray-hairs.
Managing your Board of Directors need not be scary though. In the end it all comes down to one thing: good communications.
Having been through this a few times, and inspired by a First Round Capital Event that I’ve been asked to speak at tonight on this very topic, here’s my Quick and Dirty Guide to some of the top issues around Managing your Board of Directors in an early-stage startup:
- The first step towards having great relations with your board of directors is selecting the right people to be on your board. Typically your investors will require a seat on your board as part of their investment. As such, be really careful about who you take money from! (see this previous post as reference on selecting your investors). Remember, you’re not just getting their money, you’re also typically getting a board member — someone who you’ll have to meet with regularly, report to, defend your decisions to, and debate with. If you don’t enjoy the interactions with your potential investor before they invest, don’t take their money! Seriously, I’ve learned this lesson the hard way with one of my previous companies. In the long run you’ll be better off choosing an investor who you want as a board member vs. an investor who offers a slightly better valuation but who you can’t see yourself enjoying meeting with and taking advice from regularly. In terms of non-investor board members, I’d recommend only choosing people who can truly bring a perspective to the table that you and your investors cannot. For such a non-investor board member I prefer someone who has either (a) successfully navigated a startup as CEO before (has walked in your shoes), or (b) someone who has invested in and worked with a number of startup CEO’s (has insight into both sides of the table).
- Limit your board members to at most 5 people, including yourself. Anything more than 5 people is too many to manage. I get to the 5 number as follows: (a) Odd numbers are good in case there is ever a vote. (b) You’ll need to give 2 seats to your investors. 2 for Common (management) and 1 for an outside board member. (c) Anything more than 5 people is too many schedules to have to manage. (d) Think of it this way: If each board member is going to speak for about 15 minutes each board meeting (asking questions, providing advice, etc.), that’s 60 minutes of air time for the other 4 board members each meeting.
In terms of board composition, as noted, my preference is 2 + 2 + 1. A lot of entrepreneurs fall into the too-many-investors-on-the-board trap. This doesn’t have to happen. When raising money insist that the board will only have seats for the 2 largest investors. Some potential investors will not like this but ultimately if they want to invest in your company they will acquiesce since the logic is sound, especially since adding 1 board members actually means adding 2 to maintain balance.
- Drive the Agenda & Set Expectations. As CEO you always want to be driving the agenda for the board, not vice versa. This means you need to take an active role in communicating to the board around what topics the board needs to weigh in on and when. You never want to be stuck in a situation where the board is coming to you to demand the BOD discuss something. It’s your job to be on top of things and to drive the board agenda.
This also means that you are responsible for setting expectations around types of communications.
I prefer to do this as follows:
I let my board know that I will send them informational updates / status reports regularly. These are just information only and do not require board action. No response expected or required. My current preference is to just forward my weekly internal “by the numbers” update to BOD members; sometimes I’ll slap some BOD-specific commentary on top of the update, but not always.
I’ll occasionally also send board members action items. These will be marked clearly as “BOD ACTION REQUIRED” in the subject of the email, and then the specific action required by the board members will be called out in bullet points in the body of the email. My expectation is that such action items (e.g. returning signatures) will be completed within 48 hours.
I do not engage the board in debate via email. I may solicit some BOD opinions via email but I do not expect to have an email debate with the board.
I expect board members to make themselves available within 72 hours if I need to get on the phone with them one-on-one to get their advice. This is reasonable.
I expect all board members to attend all board meetings unless they are on vacation.
- No surprises. A big key to cultivating good entrepreneur-BOD communications is consistency in communications. Don’t surprise your board. Tell them what you are going to do, repeat it, and then do it. One of the most painful boards I was ever on was when the CEO always had a different strategy each board meeting. The worst part was that we left each board meeting feeling like we had decided one thing and then the team always went off in a different direction. The only thing they were consistent about was at surprising the board.
- Count on your board to do what you tell them to do. Don’t count on your board to do what you don’t tell them to do. Your board members are not executives of your company. As such, you cannot expect them to be working every day on behalf of your company. In fact, you don’t want them to be doing work on behalf of your company that is not directed by you. As such, you need to give you board members assignments and expect them to complete them, but also don’t have any expectations around your board members doing work for you outside those assignments.
- Time your board meetings to coincide with key company milestones. There’s no reason to meet before there’s data to look at. Don’t have meetings just because it’s the designated date on the calendar, rather have meetings when there’s real business to review.
- Establish a budget at the beginning of the year and measure progress towards it. Keep using that budget until the business changes so much that the numbers are dramatically wrong, and then do it again. The point is, you always need a baseline to measure against and don’t move the baseline each month.
- Use telephonic board meetings for status updates in between in-person meetings. My current preference is to do quarterly in-person meetings and a telephonic board meeting once or twice in between, depending on what business needs to be attended to. This model seems to work really well for early stage companies. As the company matures it may make sense to move to every-other-month in-person meetings.
- Always have the real board meeting before the board meeting, aka: Don’t debate big decisions in the room for the first time. Whenever there’s a big decision to be made, I strongly suggest having individual briefings and meetings with board members prior to the meeting. That way everyone is educated and able to ask you questions one-on-one without any board member to board member posturing, and you know where you stand going into the big decision. The worst way to make big decisions with your board is to spring a big topic on them in a board meeting that they haven’t had any time to prepare for. When we pivoted Fab.com earlier this year it went down like this: 4 individual 60 minute phone calls where I briefed board members on the proposal and then one 45 minute board call to agree, adopt the resolution, and move forward.
- Your board member is not your friend. You may have friends on your board, but they are a board member first. Their fiduciary responsibility is to the company, not to you.
- Length of board meetings: I prefer 3 hours for in person, 1 hour for phone calls. 3 hours in person gives you time for 90 minutes of management presentations, 60 minutes of board input (which might be during the 90 minutes) and then 30 minutes of board business. In an early-stage company, if you can’t fit the board meeting into 3 hours, then you’re sharing too much details with your board. In my first company we often had 5 hour board meetings which i found to be 2 hours too long in hindsight.
- Board Observers: Yes, if they add value. Board observers should only be allowed if they are there for a specific reason and if they consistently provide valuable input on a specific topic or area. There’s no other reason for a non board member to hang out and just listen. They can get a report instead.
- Independent Board Members: Yah, Sorta. I prefer to have an independent board member who is independent in his/her wealth, has an ownership position in your company, but is not a lead investor. He/she should be there because he/she has unique experience and perspective that he/she can lend to both you and to the other directors.
- Board decks/metrics and dashboards/ prep for meetings. I used to do this all wrong and provide a detailed management report to the board. I realized after a while that this was getting board members too stuck in the weeds and resulting in really long and frustrating show+tell board meetings. What I was wrongly doing was having a staff meeting with the board. Instead, I suggest giving board members a very short (10 slides?) deck that you expect every board member to have read fully prior to the meeting. The materials should be a launching point for discussions on specific agenda items. You should let board members know that they need to read the materials and suggest additional agenda items based on the materials prior to the meeting.
- For operational issues, focus the board on 5 key metrics / drivers of your business. No more.
- Provide a product overview and roadmap summary in the board meeting, but don’t have a product meeting with the BOD. What I like to do is to dedicate at most 30 minutes during the meeting to review product metrics and to provide a glimpse into upcoming features. Then, invite interested board members to stay around after the board meeting for a product deeper-dive if they wish.
- Invite key managers to provide updates at the board meeting. This is an important part of the board meeting from the standpoint that it shows the BOD that the company is more than just you, and it provides lift to members of management who get to present to someone more senior than you.
- Don’t ask board members for advice on basic operational issues. It’s your job to figure those things out. Ask your board members for strategic advice and to help direct you to people they know who might be able to consult with you on operational matters.
- DO: Share weekly or monthly KPI updates with your board. DO NOT: Share Google Analytics, Salesforce, etc with your board/advisors. Again, that puts them too much in the weeds and treats them like managers instead of board members.
- Have dinner before or after board meetings. Talking shop outside the office can often be more valuable then the actual board meeting itself. Board members will also be more free to discuss wide ranging issues with each other when there’s not a specific time-limited board meeting agenda.
- Reach out to individual board members in between board meetings for occasional one-on-one phone chats even when you have no specific business to discuss. They’ll appreciate it.
- Send an email to non-board-member investors when the company hits key milestones. Again, they’ll appreciate it. You don’t have time to call them all, but you should proactively share some data with them when the company hits a major milestone or has big news. It’s always best for them to hear news from you before they read about it elsewhere.
What are your experiences? Agree or disagree? What points did I miss?
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