For startups, your board of directors is one of your greatest assets. But, often, founders don’t use them effectively. “I don’t get the value out of my board that I should,” an experienced serial founder confessed. For some, reporting to the board has become a monotonous and time-consuming exercise. Others describe it as a source of stress. Over the past three decades, Shikhar Ghosh has sat on countless boards as a founder-CEO and an investor. His positions enable him to observe common mistakes that most founders make with their boards, including underutilizing members’ expertise. He sat down with serial entrepreneurs Lara Hodgson and Nick Grouf to discuss how founders can reap the benefits of their board’s experience. We devised practical steps to help you get more value from your board.
3 Steps to Getting More Value from Your Board
- Choose Investors Who Align with Your Expectations
- Reframe the Reporting Dynamic
- Leverage Expertise by Asking for Help Strategically
Choose Investors Who Align with Your Expectations
It sounds counterintuitive, but the best way to benefit from your board’s expertise is to think carefully about its composition. Whom you raise money from matters.
“A lot of people think that taking the highest offer is the best idea,” observes Nick Grouf. The co-founder of several tech-startups including Firefly, PeoplePC, and Clementine Capital—a tech-based incubator—sees that approach as short-sighted. “The people really matter,” he emphasizes because investors play a critical role in forming your board.
Do Investors Goals Match Your Vision for Your Startup?
Lara Hodgson, co-founder and CEO of NOW Corporation, agrees. “The most important thing is who you have on your board,” she stresses. When fundraising, think carefully about who aligns with your vision, culture, and approach before you accept funding.
In building companies, Hodgson learned to choose her investors as carefully as she chose her team. She “raised capital from folks who had funds but we asked them to invest as individuals.” She purposefully pursued that choice, because she had a firm idea of the life cycle of the company’s evolution.” And “I didn’t want it to become a mismatch for a fund’s life,” she confessed.
Balanced Composition Matters
As Managing Partner of the venture capital fund Alpha Edison, Grouf acquired a unique view of boards from both sides of the table. Founders devote time to building a strong and diversified team. “I wish they spent as much time thinking about the construction of their board,” he comments. Just as you want your team to have expertise in marketing, product management, or finance, he elaborates, your board members should possess unique expertise as well.
Entrepreneurs spend a lot of time thinking about the construction of that team. I wish they spent as much time thinking about the construction of their board.
An effective, high-functioning board brings diverse experience. Too much homogeneity, Grouf learned, can hinder your startup’s success. Too often, early-stage boards are composed of VCs and founders who hold similar perspectives. As a group, they lack “diversity of thought and life experience and perspective—whether that be gender or ethnicity or background—to really best position a company.”
The Dangers of Ineffective Boards
With decades of experience, Grouf advises “Your investors and board can make or break you.” Great board members become invaluable assets. But ineffective board members can take the company in the wrong direction by “focusing on areas that are tangential to the real opportunity.” In extreme cases, bad board members might have “incentives or other interests that diverge from the core interests of the company and its shareholders.” Many founders don’t realize that board members can do real damage.
Great board members can be invaluable. Bad board members can be extraordinarily destructive, taking the company in the wrong direction. Or focusing on areas that are tangential to the real opportunity.
Reframe the Reporting Dynamic
Hodgson admits that initially, “I felt like I worked for the board.” And, if you have a fiduciary board, you “answer to the board as the CEO.” But following that traditional dynamic—reporting to the board and asking for its approval—limits the value you can get from your board.
NOW Corp’s early board meetings, Hodgson recalls, adhered to a widely-followed practice that felt mechanical. Leading up to a board meeting, she sent a board packet containing the agenda, financials, results, topics to discuss. They followed a familiar and traditional dynamic, in which senior management reported out to the board. After listening, the board suggested tasks for the management team and departed. She recalls, “We were not really walking away with rich conversation” or any real insights.
Improve on Tradition by Flipping the Dynamic
As a new board member to a privately-held company, she observed that the CEO and leadership team flipped the dynamic. In addition to sending the board members a packet in advance, each board member received an assignment that aligned with their expertise. Some members reported on trends and observations. Others offered a market analysis. After the management team reported, each board member reported their findings.
The result is a two-way sharing of information. Board members “have to be extremely prepared to talk about trends, and how that might impact the company.” This keeps them actively engaged and utilizes their expertise. Additionally, Hodgson notes, “The management team, gets to hear about what’s going on that might impact their business.” They have a chance to learn from the board, which is valuable.
Actively Engage Board Members during Meetings
Following the flipped reporting dynamic, near the end of the meeting, board members also respond to the reports senior management gave. Hodgson emphasizes, “it was this really rich conversation among the management team and the board about potential challenges to the business, potential threats that nobody had been thinking about.”
Leverage Expertise by Asking for Help Strategically
Often CEOs succumb to pressure to make all difficult decisions themselves, but your board exists in part to help you navigate tricky circumstances. Each member has acquired years of experience. Most hold different perspectives and can help you identify trends that could influence your business.
Individual board members can help find the right people, get traction, and raise the next round of financing.
Involve Your Board by Giving Them Assignments to Complete
To fully utilize the expertise of your board, Hodgson recommends, giving them assignments to work on between meetings. For instance, when board members leave a quarterly meeting, ask each person to report on five things related to their area of expertise. Involving the board at this level and actively acknowledging their expertise provides “a much more balanced view of the board working for the company and putting value into the company.”
Communicate Anomalies or Mistakes to Your Board Promptly
When something goes wrong, Hodgson notes, “the faster you can tell someone about it, the less impact it has negatively on the board or the business.” At NOW Corp, she elaborates, as soon as she has an indication that the company may be off for a quarter, “or if think we may be off on the year, we let everybody know.” Then she and the board reflect on potential causes.
Grouf echoes the need for founders to communicate promptly and openly with their boards. He shares, “we aspire to earn the right to be the first call that an entrepreneur makes when something happens. And it’s great when something good happens. But when things get really difficult we want to get in there, roll up our sleeves and really help.”
Ask Other Entrepreneurs about Investors
At the end of the day, your choice of investors matters greatly. In most cases, they decide who sits on your board. How can you tell if an investor will help form a balanced, diverse board that can add value to your startup? Grouf encourages founders to “go speak to other entrepreneurs—and particularly speak to entrepreneurs whose companies did not succeed.” How did the investors behave under difficult circumstances?
He continues, “You’re looking for people who are going to lock arms with you when things get tough. Because companies at this stage face failure several times before they ultimately find success.”
Find out how the investors behave in circumstances where things grew difficult. You’re looking for people who are going to lock arms with you when things get tough.
Important decisions occur during times of stress. Your board holds a responsibility to shareholders to help your startup remain on track. As Founder-CEO, you have a responsibility to seek help from individual board members when needed. Be transparent with them about your needs and communicate with them regularly. Developing mentoring relationships with individual board members can give you clarity and confidence. It can build the board’s trust in you, and help you master board meetings.
Want to learn more about managing your board? Our series on boards of directors and advisors at startups includes tips on how to avoid common mistakes founders make with their boards and ways to improve your relationship with your board.
In “You Aren’t Getting the Most Out of Your Investors — This is How to Start,” Paul Arnold, angel investor and startup advisor at Switch Ventures, echoes the critical importance of developing a strong mentoring relationship with key members of your board and investors. He recommends, “The key to being a good mentee is being vulnerable. . . . Don’t be afraid of your investors.”
In “The Secret to Making Board Meetings Suck Less,” serial entrepreneur Jeff Bonforte who recently sold his latest venture, Xobni, to Yahoo, recalls dreading board meetings as a young CEO. He recalls feeling pressure to make all difficult decisions himself, but learned, “it’s also the board’s job too” and began utilizing the his board members’ experience and perspectives.
In “How to Be a Good Board Member” Mark Suster, encourages board members to take some responsibility for their relationship, or lack thereof, with the ventures they advise. The advice he provides on how to be a good board member dovetails with what CEOs and startup leaders should practice. This includes: make time to read the materials prior to the meeting. Communicate with the CEO and other board members before the board meeting.
In “Are Your Startup Board Meetings a Waste of Time? Here’s How to Improve Them,” Mark Suster, Managing partner, Upfront Ventures, advises, “you can’t take it for granted that your board members will naturally commit to building meaningful relationships with one another. Your role as a founder who brings on board members should be to understand the importance of the team dynamic and to try to foster better human relationships.”