I’m looking to form a board for my start-up. Generally speaking, how many people should you have on a board?
And what skill sets and knowledge should you cover off?
Congratulations on launching your entrepreneurial career. Now you have to change step and set your company up for sustainable growth. This is the time to establish good governance and clarity of vision.
Professor Bob Garratt, author of Thin on Top: Why Corporate Governance Matters says, “You don’t really need a board until either you have a number of different investors or you reach such a size that you may be thinking of floating on one of the exchanges.”
But he also says smaller businesses benefit from having a board because they can provide additional expertise and draw on the experiences of people who have done similar things before.
Having either an advisory board or a corporate board will shape the way that your operations are run. This is the chance to extend beyond your network of friends and associates. The key is to find the right combination of business connections, technical networks and future investors.
Marisa Leaf, the founder of Hubbub, a delivery service for local independent shops, had an advisory board before she even launched her business. “I identified people that had the experience and expertise that I didn’t have, so they could help me set up,” she says.
Even though Hubbub has received three rounds of funding and now has a formal board, the advisory board, which has about a dozen members, still meets once or twice a year.
Leaf meets with members one-on-one or in smaller groups if she needs specific help as her business grows.
Luke Hakes, principal at Octopus Investments, a London-based venture capital firm, strongly recommends putting a board together, even if you’re small.
“Once the business is operational, I think having some type of advisory element or board adds a huge amount of value. When you have a product prototype pulled together, I think the board starts to become useful.”
Board members should help steer time and money invested in the growth of your business and bring expertise that builds the capacity to create a customer base. The main business of a start-up is to create customers and build the capital base for the future.
In the initial stages, keep the number down to five. In addition to you as the founder, a financial advisor and a legal advisor, try to get one specialist in marketing and a consumer advocate.
At least one of the other four start-up board directors should be a critical friend or an outside director who can ask the awkward questions.
Your early board meetings should be relatively informal, providing a chance to explore options and constrain emotions.
When a board meeting is held, however, a written record (minutes) should be kept to document decisions that have been taken.
The new directors must ensure that there are complete and accurate books and records. When it comes time to raise capital or sell or merge the company, potential investors will review the corporate records during their due diligence.
Boards for start-ups are very different from boards for established businesses. In many cases, it may be that in the early stages the board is all about product definition.
This requires directors with a skill set that can help drive what the product should look like. Later on there will be a requirement for a director with international sales and marketing experience who understands how to take your business global.
Adding up to four additional directors as the company grows will ensure stability and add shareholder value.
If you are going to have a board that involves people other than those who are running the business on a day-to-day basis, you want people to help retain control of the business and your corporate development.