Agile Insights Blog

4 min read

Building The Board Of Directors

Apr 30, 2015 4:04:14 PM

A leader of a Boston venture capital firm once said to me that the number one responsibility of a Board of Directors is to hire and fire the CEO.

I have never forgotten that statement.

As a CEO, it can be a very discomforting thing to hear, but I took it to heart. Having served on various boards throughout my career, I understand just how important it is to establish a strong Board of Directors in the early stages of a start-up tech company.

One of the most important responsibilities of a CEO is to establish corporate governance, management oversight, and fiscal discipline from the very beginning by forming a Board of Directors. It provides a checks and balances system and supports the growth of the company.

Making the Decision

Sometimes CEOs, for whatever reason, decide not to create Board of Directors.

If you choose to forgo the traditional board (and I have seen this first hand), there’s a very real risk of developing what’s called "founder's syndrome." This occurs when a founder wants full control over the company and resists input from others, ultimately thwarting the company's growth and stability.

I have heard of many situations where companies have an excellent product and a lot of opportunities in front of it. However, they face an uphill battle right from the start because there is not a Board of Directors - everything is being controlled through the lens of the CEO. The problem with this is that there’s no supervisory aspect of the company. The angel investors of the company, who would normally be represented on a board, lack the ability to have input and oversight. Therefore, the investors aren't privy to inside knowledge of what is happening within the company. The company is also lacking the benefits of network connections and experience in the marketplace that a Board can provide. Those personal contacts and perspective can really positively impact a company’s early growth.

I’ve also seen companies create a 'quasi-board' that includes a chief executive officer, another leader such as a CTO, and an outside person. They think this group can do the job of a board, but I’ll tell you... that is not a Board.
Sometimes the question isn’t whether to create a Board, but rather when. If it’s going to take multiple years to develop your product and you have adequate early funding, it’s feasible to consider holding off on establishing a Board of Directors.

That’s the only exception, in my mind. Otherwise, the bottom line is that building a strong Board of Directors will benefit the entire company. It’s imperative.

Creating Your Board of Directors

Here’s my formula for creating a Board of Directors: Look for experienced, trusted, and broadly skilled partners early on. Invite them to become initial investors and join the Board. We did that at Vennli. Each Board member was chosen for their experience, and they also made a financial contribution to the company.

We have Board members who represent all different sectors including private equity firms, advertising, software experience, and the local university network. The accessibility of a deep network is very important to us; it expands our reach to get our product into the marketplace. Having made a financial contribution, they are also intensely incentivized to assist in our growth.

The Life of a Board

Once the initial Board of Directors is established, be prepared to go through several phases of change reflective of the stage of your company:

  • The Start-Up Phase: The initial Board of Directors is comprised of individual angel investors or representatives of investor groups. They are instrumental in establishing the vision and initial growth of the company. It’s common that founding members of the Board eventually transition to advisory groups once their term limits expire or a venture capital firm comes on board.
  • The Venture Capital Phase: Once there is financing from a venture capital firm, members of the VC firm assume Board seats. This certainly changes the dynamics of the Board as these venture capital representatives have a lot of experience serving on Boards. They often have specific ways they want Board meetings managed, as well as how they want the information and materials presented. It’s not uncommon for the Board to decrease in size at this point.
  • The Public Phase: Once companies go public, another set of dynamics set in. The venture capital representatives usually leave their seats and another set of visionaries come in to establish a new vision for running the newly public company.

Making it Work

Regardless of what phase you’re currently in, at the very core, having a well-run Board of Directors is about investor respect. The Board represents the interests of your investors, and, as CEO, it’s vital to respect the financial and time commitment they make to your company.

While it’s expected that you’ll report to the board on a quarterly basis, ongoing communication of company news is also important. This ensures investors feel secure and connected to the company. (Bad news travels fast.)
It’s also important to recognize your Board of Directors externally – such as on the company's website. When I’m interested in learning more about a company, I go the website and look at the leadership team, including their Board. That tells me a lot about the company, because I might recognize names and corporate affiliations.

Having a Board of Directors creates a forum where outside voices are clearly heard, enhancing the overall vision and growth of the company while providing important management oversight. While I may be leading this company, I am firmly accountable to Board of Directors, and I know that the company will be better because of it.

Topics: General

Written by Vennli

Post a Comment


Subscribe to Our Blog

Stay up to date with the latest and greatest marketing and content planning tips, tricks, and news.