10 tips to turn your startup board into a secret weapon
Over the last last 9 years I’ve been involved in 20 different boards, mostly start-up boards. Sometimes my role was lead investor, others non-lead investor, chairman, or independent director and in 1 case (at La Nevera Roja) as founder & CEO. It’s been ~100 board meetings (BoD), that imply ~300 hours in meetings and a few thousand hours in board-related work, which is quite a lot of time. This is one of the reasons why I’ve been thinking a lot about how the perfect startup board and board member should look like.
At Samaipata we truly believe a well functioning board can be a very powerful weapon — even a competitive advantage — for a startup when i) the members are adequate for the startup at a given stage and ii) the board is well managed. Unfortunately it can also be the opposite
Generally speaking, the actual decisions a board makes should only be either administrative or highly strategic, such as M&A, financing, etc. However, besides the pure formal decision making process, a board can be extremely helpful to give founders/management business strategic input, help you attracting talent, giving fundraising advice, help out with connections, etc. Ultimately, for the vast majority of the decisions (others than those legal/administrative/highly strategic ones), after board gives input, founders/management should decide autonomously what’s better for the company.
However, sometimes it is in those very strategic decisions, where massive amounts of value can be created or destroyed. Thus, you’d better make sure that, when that moment comes, your “extended team” AKA “the board” is fully aligned with you.
In this context, I’ve tried to come up with a list of learnings and best practices that could potentially help you as a fellow entrepreneur to get the most out of your board.
Disclaimer: the following recommendations are meant for founders at pre-seed or seed stage that want to gradually improve board management skills and board performance from random informal friends and family catch-ups over a few beers to a professional/institutional board of directors right after raising a big Series A from tier-1 investors. The sooner you start thinking of BoD management as a value adding work-stream that can be a competitive advantage and can be continuously improved, the better. Obviously no one should expect you to have all these recommendations implemented at pre-seed or even seed stage (so don’t freak out ;))
1. Communication is the most powerful way to drive alignment
As per the title of this article, a well functioning board could be a very powerful weapon for your business. For that to happen, there’s a crucial pre-requirement which is alignment. By alignment I mean having a group of people thinking as a team and working in the same direction. Communication is the best way to achieve it.
While co-founders are working 24/7 together, they know every single detail of their businesses, they speak all the time and have many informal ways to communicate with each other; board members have way less access to business information and to informal communication channels with founders. Thus, the possibilities of misalignment between founders and board members are way bigger.
That’s why I strongly suggest to continually look for ways to improve communication such as:
i) fostering personal relationships among board members to increase trust and communication e.g. through spending “social time” together (lunch, dinner, etc.)
ii) holding one on one’s prior to the-board meetings and post-board meetings to align positions and avoid misunderstandings and gather feedback,
iii) frequent informal communication through slack, Whatsapp, calls etc.
iv) frequent and well structured reporting (mentioned below)
The goal is to keep always communication channels open and create a sense of trust
In an ideal world, not only the board but also top management and the rest of the team should be completely aligned at any point in time through OKRs or any other tool so everyone understands how everything done on a daily basis is connected to a long term inspirational vision. That kind of alignment drives productivity and ownership/motivation at every level.
2.When picking board members think like a coach: pick the best players for the game you’re playing (at each stage a new game begins)
I think the best way to approach board composition is with a coach mentality. As said before, your board should give you valuable input as well as be involved in key discussions and decisions, so you better pick the right members. Bear in mind that most of the times when picking your investor you are also picking a future member of the board, that’s why making your own investor due diligence is so important. That involves interviews, frontdoor and backdoor references, etc.
Below you will find a quick framework to help you decide which board members you should pick for your startup.
4 main variables are relevant here:
i) Attitude: Represented in the X axis.
On the right end of the spectrum you have this super nice, optimistic cheerleader that will always tell you how great you are, and that everything will be alright. On the left end you have this pessimistic, negative guy who always sees the glass half empty, thinks everything is always wrong and/or is always demanding more no matter what. This kind of board member is never bullish about anything. In the middle of this spectrum sits an individual able to highlight things that go wrong and praise you publicly when something goes right.
ii) Expertise and/or network: Represented in the Y axis.
For a board member to be able to add real value to your board she needs to have one of these experiences or -ideally- a combination of all of them: a) successful entrepreneurial experience, b) relevant start-up board experience c) start-up related high value network or d) real deep domain expertise about something relevant to your business.
iii) Skin in the game: Represented by the size of the balls.
In order to really add value, the board member will need to be able to allocate a relevant amount of time to your company. That means allocating a few hours to prepare each board (reading materials etc.), have calls between boards (sometimes late at night or during weekends) and attend board meetings in person (dial in not ideal, so far). Obviously, the more senior and highly skilled the person, the more complicated to allocate time. There’s also a trade off, but you’d better take that into consideration. There are ways to ensure there’s real skin in the game: money invested in the company, stake held, personal commitment, etc
iv) Personal fit:
This one is obvious and quite binary. You either have it or not. You either want to have lunch/grab a beer together, or not. That’s why it is not represented in the framework. You just don’t invite someone to your board if you don’t feel there’s personal fit.
As you’re probably going to have a few board members, make sure the composition is balanced. Maybe you can have 2 board members that combined work very well because they complement each other even if separately can be problematic or too weak
3. Keep a cadence, schedule board meetings 1 year in advance and stick to it
Typically board members have very busy agendas (e.g. other boards, trips, etc.). The most efficient way I’ve found to do it is scheduling boards 1 year in advance and try to stick to it. For instance every 3rd Wednesday every other month.
Try to synchronise your accounting/reporting cadence with the board’s cadence. For instance, if it takes you 2,5 weeks to close monthly accounting/reporting, schedule always boards for the 3rd week of the month so you review numbers that are 3 weeks old instead of 6–7 weeks if you schedule board on the 2nd week of the month (this happens sometimes and I find it completely suboptimal as in the startup world 7 weeks is forever)
In order to do this in an efficient manner, you can use doodle or a similar tool. Trying to close dates individually with each member will be be just a nightmare most of the times.
4. Take materials’ preparation seriously and send them together with the agenda 48–72h in advance.
Without the proper preparation from founders and board members, boards end up being a complete waste of time: board members asking stupid questions, founders frustrated, no decisions made, etc.
To avoid that, sending the board agenda and materials 48–72h in advance is ideal so that every director can allocate time to read them. You should actually expect that from all of them so that you don’t need to walk through every single detail during the meeting.
Protip: when the board is very complex in terms of topics to discuss or people involved (typically post-Series B stage), some experienced founders send a pre-read document, (longer than the board deck itself) 3–4 days in advance and kindly ask every member to read it. That allows to go for a shorter deck during the meeting and be more agile.
Obviously the more mature the company the more complex the materials. At the beginning, a well thought 5–10 slide deck (or amazon-style 6 page memos) + updated reporting should be more than enough. At the beginning you will probably need to do everything by yourself and I’m sure you won’t have much time to write long and beautiful ppts. Don’t worry, nobody should expect that from you.
When I was a founder CEO preparing board materials, I liked to see board preparation as a great opportunity to take a big step back and allocate some time to think of the vision, big picture, etc. For founders I believe it’s worth allocating 1 day every 2 months to big picture/strategic thinking and analysis.
In order to extract as much value from meetings as possible, having a smart and well structured agenda is very useful. There are many ways to do it, below a quite common structure that works well:
i) Business update: CEO insights - Highlights and lowlights/ challenges
- This part typically involves a general update on the business and/or the vision. It is very important in this part to be quantitative and focused on the “so whats” that come from the data/facts instead of being descriptive and/or qualitative.
- In this part, big events or changes in numbers should be described in an analytical way: for instance instead of saying “sales dropped a bit last month“ you can say “website conversion rate went down from 5% to 4.1% due to page load time caused by a technical issue related to AWS servers, that fact caused a sales drop of ~20% last month, we have fixed it already and now we’re seeing week on week growth again and expecting to close this month +10% above pre-issue levels”.
ii) Deep dives and strategic discussions
- This is the part where you can gather more input from the board. Ideally you’ve sent some materials so members can read them in advance and be prepared. You present a topic that you’re worried about, you have doubts, you want a sparring or simply just want to trigger group thinking.
iii) Board members only time
- As explained below, you can invite some team members to the previous sections of the board but there should be a time were only board members are present and can discuss freely.
iv) Legal decisions/ voting
- As stated before, most of the decisions of the board will be either administrative or super strategic (M&A, financing, etc.). In any case you need to allocate enough time and make sure the decisions are discussed and taken. This part, typically is also board members only time.
v) Non-exec only board time
- It is healthy for the company and for the board that Non-execs have time during/after the board meeting to discuss among themselves both about the company and the board quality. This applies mostly to boards where more than 2–3 Non- execs are present and not to boards at the very beginning of a company’s lifetime.
vi) Post-board social time (lunch/dinner)
- Again this is something more necessary as the company grows in complexity and the number of people involve also grows. But bear in mind board members are humans and social interactions will improve communication and will make it much easier to discuss and agree on difficult topics when the moment comes, and in startup land tough times always come (in some companies more frequently than others)
Finally, make sure you allocate time proportionally to the importance of the topics you want to cover. I’ve seen many boards in which the most important topics are left for the end and we have ended up rushing when the key decisions have to be made
5. Push for in-person attendance, specially if you expect something from the board
It is very hard to have a productive Board when some of the members are over the phone and some in the room. There are exceptions though and technology is improving fast, so maybe one day this won’t be the case anymore. Nevertheless, in general terms, it’s hard to expect the same from someone next to you than from someone over the phone.
Unfortunately I haven’t come up with any tips to solve his problem other than encouraging members to do so and making sure people is going to be really involved/committed before allowing them joining the board. (Any ideas welcome).
6. Limit the number of members: the Sunday 11pm rule
When I try to explain this to entrepreneurs I use “the Sunday 11pm rule”: imagine you have a BIG crisis on a Sunday night and that you need to take a highly strategic/legal, very tough and non-obvious decision and for whatever reason you want to take it very fast (I hope it never happens, but let’s imagine it for one minute). Now imagine you just need to convince your co-founder/s (easy right?). What if you need to convince your co-founder/s and 1 investor?. Now imagine convincing your co-founder and 2 investors. Now 3… Well, I guess you get the point. The level of complexity you will need to manage does not grow proportionally to the number of board members, but -believe me- exponentially! (I’d say it grows to the tenth power). Another simple example is trying to agree on something during a board meeting with a lot of people around the table vs a limited number of people… So you’d better limit that number if you want to stay agile.
As a startup you need to move super fast and be agile at all levels, I’ve seen founders really struggling at the beginning of their business due to the complexity at board level. That’s what we call governance, and btw a complex governance structure is a clear deal-breaker for many VC’s when investing.
Needless to say that having more people around you can and will probably help you gather more input and make better decisions, but you also need to limit complexity. That potential value does come at a cost.
As a rule of thumb, I typically say 4–5 members is the ideal maximum board size prior to Series A — B. Obviously, the more experienced the founder the more complexity he will be able to manage.
Note that apart from non-executive board members, involving the management team in board meetings can be a very effective way of motivating them and will also help you to better feed your board with relevant information, thus maximising the input you can gather from them. However, as said before, make sure you leave some “only board members time” in every board and also limit the number of people in the room when certain discussions come up.
7. Reporting cadence and transparency
I like to think of reporting as a language to express your business through numbers. You read numbers to understand how the business is performing and also send numbers to the board for them to understand the business by themselves. (It’s true that some complex businesses are harder to explain through numbers, but -in most of the cases- numbers can explain the vast majority)
For this reason, I think it is extremely important to set up a comprehensive/exhaustive monthly reporting dashboard that goes from very high level metrics to financial and cash-flow figures early on (obviously the complexity will depend on the company and the stage). As this is the way you read the business, you should use those same numbers to allow investors to read the business using the same language. By doing so you improve communication, directors understand your business better, and ultimately they can be of greater help and value.
Worst case scenario is when founders see reporting as an administrative burden and end up reporting to investors late and using a different dashboard/ set of KPIs than the one they use internally. In this case it’s like founders were reading one book, and board members a different one, and late. Imagine what could happen when an strategic decision needs to be discussed and made on this scenario…
8. Do wrap up: legal minutes and operational minutes
On the one hand there are standard “legal minutes”, a short standard legal document where the legal decisions made by the board are included. Not much to add here as it is a legal requirement and many board meetings don’t involve legal decisions.
Only tip here is always having a general counsel (a lawyer) that you trust close to you to ask any legal question that you may have and/or overseeing legal matters. At the beginning that person will just give you some tips and review some docs while after series B (this will also depend on the legal jurisdiction your company is) you will probably want her to attend as observer so you make sure every legal/ administrative decision is done according to law.
Parallel to the legal minutes, I like the companies that send a very pragmatic and short document (mainly bullets) where main non-legal topics discussed/ decided, next steps, etc. are included. You can think of it as “operational minutes” of the board. Again I see it as a very useful tool to align members and make sure everyone is aware of main takeaways. And again, the complexity of all this should be proportional to the stage you’re in.
9. Board meetings are not fundraising meetings, board decks are not fundraising decks
Unfortunately, I’ve seen this many times and I’m fairly against it. The board should be a place to give input to the founders/ management, help them and take legal decisions, but not a fundraising presentation. By transforming boards into pitching sessions, the nature of the meetings is corrupted and the culture of the company is also damaged, driven by a purely commercial/ political approach to everything and preventing self criticism, transparency and healthy discussions.
It is true though, that board composition will very much affect the tone and dynamics of the board and the amount of value added. Since many times board members will be VC’s and some can be more risk averse/ finance driven than others, founders will be tempted to make everything seem ideal and rosy (sales approach), specially if those very people attending the meeting are the decision makers for the next round.
Just bear in mind there is a trade off, the less transparent the board the less useful, as board members should be there to help.
10. Be a brain-picker and help-picker: gather as much input and help as you can
In an ideal world, you’d be able to have committed and experienced profiles at your board. If that is the case you should use each meeting to pick their brains and gather as much input as you can both regarding the business and board dynamics. Same thing with matters that board members could help you with, ask for help naturally.
Finally, it’s also very important to keep in mind that board members are there to help, especially those that show commitment, remember you’re in the same boat. Any comment made challenging the business typically won’t be meant to criticise you or your work, so it’s important to not take it personally, I know it’s hard when you’ve been working so many hours on it, but just listen to it add it to the shaker and then make your own cocktail.
I hope you find this post useful, please let me know any suggestions or comments you may have, at Samaipata we also try our best to learn and improve everyday as board members from both other board members and reading.
If you are founder building the next great marketplace or DNVB, you can send us your deck here
Great resources on board management:
- Brad Feld: Getting the most out of you board
- First round capital: The Secret to Making Board Meetings Suck Less
- Sequoia Capital: Preparing your first formal board deck
- Mark suster: startup boards
P.S: Thank you very much to Iñigo Juantegui and Sebastián Fernandez for reviewing an early draft of this post.