The 5 Traits of an Ideal Board of Director Strategy for Startups
What Entrepreneurs and Startup Founders Must Know
As a founder, you’re well aware of the fact that your board of directors (BOD) is critical to your success. The success of the startup depends upon the BOD.
In this article, I’ll discuss some of the key factors that I believe are important for startup BODs. I have personally served on BODs for startups and am currently serving on the BODs for two startups.
My views are very much shaped by my work as an investor and advisor to startups.
Before we begin, let me give you a brief overview of what I mean by startup BODs.
By “startup”, I mean a company that is starting up with the intention of raising venture capital or other growth capital to support its operations (such as private equity).
This article does not apply to small companies where there is no intention to raise outside capital (i.e., bootstrapped companies).
While it may be possible to apply many or most of these points to non-startup companies that are looking to raise growth capital, this article is aimed at startups that are looking to raise outside capital.
In my view, the startup BOD needs to have a number of key attributes. In no particular order, here are the top attributes I believe a startup BOD should have:
1. Diverse expertise:
One of the biggest challenges that startups face is their inability to attract and retain the best talent (be it for senior or junior positions).
Attracting and retaining the best talent is important because great talent makes all the difference in startups and there is often a scarcity of great talent.
In my view, it’s not enough for a startup BOD to be filled with people who have expertise in different areas.
A BOD with experts in different areas also needs to be diverse with respect to backgrounds (such as having both an engineer and an MBA on the board).
It’s important for startup BODs to have diverse backgrounds because they will likely face challenges that are new and unique.
As such, it’s important for them to come up with new ways of approaching problems and situations where existing solutions may not apply or may not be optimal.
Having diverse backgrounds on your board can also help you identify a diverse set of potential candidates for key positions.
The startup BOD needs to be committed to the success of the startup.
As a founder, you’re likely to know the other members of your BOD better than anyone else in the company.
You’ll likely have spent more time with them than anyone else in the company and will have a sense of how committed they are to your success.
That said, it’s important for you to recognize that they may not be as committed as you are (even if they seem to be). You need to be prepared for this possibility and plan accordingly.
It’s important for founders and CEOs to keep in mind that being on a BOD does not require as much time commitment as being on the management team or even being an executive officer (such as a COO or CFO).
In my view, serving on a BOD should take less than 10% of your time (and preferably less than 5%).
That said, most board members I know put in more time than this. In my view, you should only expect your board members to spend at least 2–3 hours per week on board matters. This is a very low commitment.
3. Good Communicators:
One of the most important things that a BOD can do is to provide effective communication to the management team.
This is true both for routine communications as well as critical communications.
A BOD needs to be able to effectively communicate with the management team and understand what they are saying and where they are coming from.
It’s important for the board members to understand not only what is being said but also why it is being said.
In my view, effective communication requires good listening skills and empathy. In my experience, these skills are often lacking in startup BODs (especially on early-stage boards).
I’ve seen a number of cases where one or more board members were unable to understand what was being said or unwilling to try and understand what was being said.
As a result, there was a miscommunication and lack of understanding between the management team and the board which led to a lack of alignment between them (in some cases).
As a founder, you need to trust your board members because you need them to help you with some of your most important tasks (such as recruiting top talent, financial planning, fundraising etc.).
You also need them to help you with tasks that aren’t so important (such as dealing with legal issues, accounting etc.).
Trust is important because it allows you to focus on your key tasks without having to worry about things that are not important. Trust is also important because it allows you to take advantage of your board members’ expertise and advice. In my view, trust is the most important attribute for a startup BOD.
I believe that a startup BOD needs to be trusted by the management team and by other stakeholders (such as investors).
I also believe that it’s not enough for a startup BOD to be trusted by the management team.
The board needs to be trusted by other stakeholders as well (such as investors).
If there is a lack of trust between the management team and the board, this will inevitably lead to problems. It’s not uncommon for startup founders to have a lot of power (both formal and informal) and this can cause problems when there is a lack of trust between them and their board members.
As a founder, you may know what’s going on in your company better than anyone else in the company.
- You may know what issues need attention and what new opportunities exist for your company.
- You may know what your competitors are doing and how they are positioning themselves.
- You may know what your customers want and how they use your product.
That said, you may not be aware of some of the issues that the management team is facing or some of the opportunities that exist for your company.
It’s important for you to understand that you don’t have all the answers and you need to be open to receiving input from other people (such as your board members).
In my view, it’s important for a startup BOD to have a certain level of insight into what is going on in the company (such as challenges, opportunities etc.).
Insight can help you develop better strategies and solutions for challenges and opportunities. It can also help identify talent which is often hard to do without insight into what is going on in the company.
I believe that a startup BOD needs to have the above attributes. I’ve seen cases where some of these attributes were missing from the BOD and this led to problems. In my view, these are the most important attributes for a startup BOD and startups should be careful when choosing their board members.
About the Author
I am the Founder of Cudy Technologies (www.cudy.co), a full-stack EdTech startup helping teachers and students learn better. I am also a mentor and angel investor in other Startups of my other interests (Proptech, Fintech, HRtech, Ride-hailing, C2C marketplaces, and SaaS). You can also find me on Cudy for early-stage Startup Founder mentorship and advice.
You can connect with me on Linkedin (https://www.linkedin.com/in/alexanderlhk) and let me know that you are a reader of my Medium posts in your invitation message.