Good to Great: Being an Independent Board Director in a Venture-Backed Startup

Photo credit: Glassdoor

A startup board is an unusual ecosystem where unstructured roles, personal chemistry, differing degrees of knowledge and expertise combine in a mission-critical function. Admittedly, all the real work of building a company happens outside the boardroom. But at the same time, a good board can be a force multiplier for management — and a dysfunctional board can add friction for management or even destroy an otherwise good company. (For a broader description of start-up board roles and practices, please see the following posts by Fred Wilson and Brad Feld.)

A lot has been written on the role of investor directors (where lead investors typically negotiate board positions as part of their investment), but much less is said about the role played by the independent director in venture-backed startups. Everything an investor director says is loaded — because it comes with money. That’s why having an independent director as a “lower stakes” sounding board and coach can give a founder/CEO an extra tool as they go through their journey. The best independent directors know when to be guardrails, when to push for extra performance, and when to function as empathetic listeners.

Independent directors are often brought in for their domain expertise and company-building skills. Sometimes they’re invited in just to complement the functional skills of the founder. Before a startup begins to generate significant revenue, it’s common to find small boards that are only comprised of founders and investor directors. But space for “Independents” (as independent directors are sometimes called) is often included as early as the closing of the Series A. Before making a commitment to one another, always test personal AND group chemistry because a director is likely to be sitting on the board for at least a three year term.

I’ve had the pleasure of seeing how great independent board directors can make a difference. Here are the attributes they display:

  1. Real knowledge of the Business. Independent directors often go through “boot camp” to get up to speed on the company. They come in because of some unique skill, knowledge or expertise — but it is hard to bring that unique skill without context that requires getting to know the business, the market, and the people. They are “disadvantaged” relative to investor directors in that they don’t join the board after a full investment and due diligence process so the cultivation of broad industry and product knowledge comes by reading, thinking and talking about the company and its market. I recommend meeting each member of the management team to understand their perspectives, priorities and challenges. Scott Petry on the Return Path board is a great example; as the founder/CEO of Postini, he came to the job with deep knowledge of the email ecosystem but stays current by engaging directly with the market.
  2. Strategic Insight. Both into company strategy and the approaches that have worked and failed over the years. An independent might have acquired this attribute from running businesses or sitting on other boards. They also might have cultivated this ability by reading about the development of some of the world’s great companies and applying in practice the strategic theories of leading business thinkers. I recall a strategy conversation with Dave Kellogg, an Independent Director on the board at Alation, in response to a strategy conversation. He exclaimed, “This is a perfect opportunity for the three plus one encapsulation strategy,” and directed us to read a blog he posted on the subject.
  3. Operational Insight. That involves “doing the work” of not only reading the board book, but shaping what analyses get done and deciding on the presentation of the material. Directors need to understand what’s working and what’s not. Some of the best questions may have to wait for offline data collection and further analysis. While many independents are experienced startup CEOs, boards should also look for candidates who possess “go-to” areas of functional expertise — especially when they complement the founding team of a startup. Since most founding teams are product-oriented, many startups are looking for specific market expertise in sales, growth/marketing and business development. Karen Richardson, an amazing sales leader who now focuses on board work, was an incredible resource for Chandran Sankaran at Closed Loop Solutions, especially when it came to her understanding of sales strategy, hiring and planning.
  4. Hustle. In all the critical ways. While directors aren’t full-time employees, it is still critical to “add value” in tangible ways. They should be ready to help in sourcing and closing great hires or finding prospective customers. They should also be willing to offer assistance in sourcing, negotiating and building business partnerships. Robin Josephs on the QuinStreet board is a great example of someone who does the work that keeps a board — and, therefore, a company — going strong. Whether it’s chairing the compensation committee or serving on the (never fun) audit committee.
  5. Perspective. A director’s job is to help see the forest through the trees. The best directors help keep the company focused on a 12–18 month time horizon. They seek to make sure that product plans, sales and marketing plans, growth and burn rates all fit together. Matt Glickman did this at Guardian Analytics as an active chairman and helped keep the company moving ahead during a CEO transition. Many directors concentrate on sales and finance but Matt also played a pivotal part helping the company focus on product roadmap and delivery.
  6. Silence and Restraint. Sadly, this needs to be said: Directors need to know what they know — and know what they don’t know. Directors aren’t there to run the company — and management level decisions should be left to management. A Director who comes across as a know-it-all will be less persuasive and less effective. Keeping focus on the most important issues is essential and any Director who drags the company into the weeds repeatedly is wasting precious time. It is up to the CEO and/or Board Chair to set the agenda because as Scott Weiss from Ironport once said, “We’ll eat what you feed us.” Getting the balance of asking good questions and letting the group find its flow can be a delicate balance — but one that is important to get right.
  7. Empathy. Building a company is an extraordinarily challenging task for management — especially for the CEO. Board meetings are where truth gets spoken, which can be a primary source of CEO angst. Threading the needle between setting inspirationally high expectations for performance and providing guardrails can be really challenging. Often, investor directors who are significant shareholders point out things that aren’t going according to plan or don’t appear to make sense. A great independent that listens well and builds trust with the CEO can have conversations that are not “loaded” by coming from the source of capital and can create a safe place for founders to get input.

The right independent can add a great deal to the company and to the board. But it is important to understand what skills the board is missing and find the personal and team chemistry that lets them bring their best.