All founders know that there is a lot to think about when building up an early stage company. Creating a board may feel like it’s quite far down your list of priorities, but it could be the most important step you take to set yourself up for success.
Nurole joined forces with London & Partners to host a discussion exploring why, how, and when start-ups should look to bring in a board. How do they add value? Who do you need? And how much should they be paid?
Nurole’s Ned Cummings was joined by Tamara Rajah, the founder and CEO of Live Better With, and Simon Guild, who has sat on more than 20 boards for early-stage companies.
Why do you need a board?
For Tamara, her board keeps her focused on the bigger picture (at a time when the day-to-day can feel overwhelming). “I found it a very good way of having a frequent formal forcing mechanism to not only think about performance over the past couple of months but make myself think about the forward direction strategically, and to articulate in a way that I can bring others along with that.”
Her challenge as a founder was to, “proactively figure out how additional layers of support can help the business go faster.” A good board, she believes, “adds another dimension” to both strategy and execution, and she is certain that, “diversity of thought that has really helped shape a better direction for the company.”
When should you create a board?
Both panellists agreed that when it comes to building a board, the earlier the better. In Simon’s experience, “governance can be close to nil” in the early days of a new venture, and experienced board-level leaders can help by, “ensuring there is a bit of discipline.”
He goes on, “It doesn’t have to be heavy-handed, but sometimes you’d be surprised by what blind spots exist in early stage businesses. Bringing in someone senior can head off some of those blindspots before they become a problem.”
Tamara recognises this value too. “You don’t know what you don’t know and I think that is one of the key things of a board early on,” she says. Both agree though that building a board early is only worthwhile if that board then meets regularly too, working directly on solving problems rather than existing for the sake of it.
Who should join the board?
Simon and Tamara also agreed that two is a good number of people for an early-stage business’ board – Tamara found that set-up was “very constructive and efficient” when she started out.
When considering who to bring in, Tamara advises that you, “Think about your board as a panel. Is each person contributing something you can name?” For her, she sees two broad types of directors as being useful:
1. People with specific expertise of a sector, function or technology. “They have seen it before as a non executive or done it before as an executive. They know what good looks like and where the potholes are.”
2. Generalists with experience from a wider range of organisations. “They bring a broader perspective, bring comparables and benchmarks and have deep networks.”
Simon cautioned though that “pattern recognition” may not always be a useful contribution. “I have heard VCs say that pattern recognition is the biggest bear trap of all because you try and duplicate what you have seen somewhere else but you miss the critical differences.”
Get on to get on
A supportive and constructive relationship between those first board members and the founder(s) is critical, Simon explains. It’s one of the key things he thinks about before taking on a new role, as he has to be convinced that, “the founder and I get on, respect each other and feel we can work with each other.”
Tamara agrees that you need a certain chemistry, which helps when the tough decisions arise. “If you have that chemistry then it doesn’t matter how much you disagree, you can still have a really good discussion around it,” she says.
How the board helps with investor relations
If you are going through funding rounds, the presence of experienced board advisers can be crucial, Simon says. For a start, it’s useful to have someone else in those meetings with investors, and it can build trust between both parties if there is already some basic board-level governance in place.
But Simon also plays a role in helping founders understand their relationship with investors. “I help founders see that with investors, you are not the client. Their client is the person who has invested in their fund, so they are facing a different direction. That’s not a bad thing, it’s just the reality and it’s important to remember that as a founder.”
His job as chair is to make sure the founders’ and investors’ motives are aligned as much as possible, but to be honest and point out where they diverge. “The unsaid can be quite powerful. You need to get these things out and then you find where the common ground truly is.”
This sort of input is hugely beneficial to a founder like Tamara, who appreciates the different kind of support she gets from non-investor board members. “Their skin in the game is different – they are in it for the passion and feel they have something to contribute,” she says. “Their advice is very independent, very impartial.”
Managing the board
Tamara says that as she became more confident as a founder, she became more explicit in what she needed from her board. “I would set them homework and give them specific actions to help the business given what they know or who they know.”
Simon agrees that a board relationship has to work for the founder, or the whole thing is a waste of time. “I don’t want the companies I work with to feel like the board is some sort of imposition that is going to make their life really complicated,” he says. “I want board meetings to be interactive and constructive. They are there to add value, not as a weight on management’s shoulders that they have to worry about every month.”
How do you pay them?
Remuneration would usually be a mix of equity and cash, “skewing much more to equity for smaller and early-stage things,” Simon explains. An equity share is likely to be diluted through investment rounds, and so Simon tries to work out what equity he wants at the start to leave him with somewhere between 0.5 and 1% when the company scales up.
He does have a day rate which he also uses to evaluate offers, but he is very clear that chairing an early stage business is not a good move if money is your main motive. “If you want a really good day rate, go and be a consultant or the chair of a big PLC. This is about taking a risk on equity and enjoying the ride of building a great business.”
What happens if you make the wrong hire?
If a board hire doesn’t work out, you need to act fast. “You should see it in the same way as your team, even though it’s a different dynamic,” Tamara explains. “You wouldn’t let an underperforming member of your team stay. You have got to have a board that works for you and you need to control that dynamic.”
Simon agrees and recommends you put something in place at the start to cover this eventuality. “If it doesn’t work, make sure there is some sort of exit mechanism that doesn’t make you all feel bad on the way out.”
To this end, Tamara recommends putting certain check-in points into a board member’s contract, whether that be a funding stage or a certain growth level. This allows everyone to reassess the relationship and make sure it’s still working.
What about advisory boards?
There has been a recent resurgence in advisory boards and both Simon and Tamara see the benefits. Tamara keeps her advisers more loosely organised than a formal advisory board, going to them 1-1 to get “specific expertise at specific points.”
Simon cautions that while advisers can be useful, it’s perhaps wise to limit the number of people you listen to, so as to “reduce the number of moving parts in your business.”. He agrees with Tamara that advisers are most useful when they feed in on specific problems. “You have to be very disciplined,” he says, “or it confuses things more than it simplifies.”
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