Founders of a well-run startup invariably have multiple balls up in the air. One of the key aspects founders need to deal with is their Board. For some founders, Board members add little value and for some, they can be extremely useful.
Here’s an attempt to outline best practices for startup founders to leverage their Board members and Board meetings.
I have tried to assimilate the top 10 best practices from 30+ investments we have been part of and an even richer experience of some of the folks we have had the pleasure to interact with over the last decade or so.
For a change, I have tried to summarise the learnings in a prescriptive manner. Not everything will apply to every situation, so please tailor it to your company’s specific needs.
Send the Board material 24-48 hours in advance
Sending Board material a day or two days in advance allows Board members to come prepared vs. trying to understand and react during the Board meeting. For monthly Board meetings/ calls, an agenda and MIS should suffice. Add a presentation for the quarterly/ annual meetings.
Ensure that the Board has read the material before the meeting
This is a corollary from the prior point. If you have sent the material on time, it falls upon the Board members to read it before the meeting. Upfront, it may look tough to set this expectation with your Board. Try explaining the logic to them. As they see the merit in the argument, they will come around.
Ideally they should send their followup questions over email. If possible, the CEO should have answered as many questions over email/ phone as possible. This ensures transactional items take lesser time in Board meetings.
Keep the Board aligned on common goals of the business
If the Board is not aligned, Board meetings become dysfunctional. In some cases, I have found entrepreneurs conducting a separate “informal Board meeting” in a shorter group.
Lack of alignment can happen due to multiple reasons
1) Founders never sat with the investors to discuss common goals for the company. For example, in one company, founders were optimising for profitability while investors were discussing why the company’s GMV is not growing faster.
2) Investors have different exit sizes and horizon expectations. In another company, one Board member was looking for an immediate secondary, the second was looking for a three-year out exit and the third investor was looking to build the company for the long term. Imagine the plight of the founder in such a situation.
In the first case, it’s best to achieve alignment at the time of fundraising, and to have an open discussion anytime you feel you are on different pages. The second case is a hard one for founders – if you want to continue the business with a longer-term horizon, explore a secondary option for investors looking to exit.
To be clear, I am not suggesting that all the Board members need to be thinking the same way about the business. Diversity of views on the Board is very important.
Understand role of the Board in context of the discussion
Founders should take help from the Board depending on the context. Mark Suster in his famous blog provides a framework on different roles the Board can play. I resonate with that framework and hence am taking the liberty of using it here:
- Strategy – These are the important decisions you will take in your company-building journey. These are discussions related to fundraising, M&A, critical hires/ fires, change of business direction, and new areas to enter etc. In the earlier stages of a company, these discussions are more frequent. Once the business model is established, the frequency may come down. On these items, you want the Board to debate and arrive at a decision together.
- Advice – These are regular operating discussions like pricing, product features, key hires etc. Founders would want the Board to debate but finally they need to take the calls on these topics.
- Update – This is when you inform the Board on what the company is doing, going through the MIS etc. These discussions add a lot of value to the rest of the Board but little to the founders. Try to shorten these discussions by sending the material early on and restricting the time spent on them in the meeting.
- Approval – These are plain vanilla Board approval-oriented matters, things like annual audit approval etc. Unless there are red flags, these are routine matters – you present and get the required Board approval.
Set the discussion agenda based on what really matters to the company
In the same blog, Mark Suster also talks about how to use your Board’s time – “If you ask your Board to debate about your logo or brand color, they will debate it for 30 minutes.” Is that what you really want?
My advice to founders is to take control – these meetings are a valuable time to think through the future of your company. It falls on the founder to set the agenda and discuss what really matters.
Share the agenda with the Board a few days in advance. That will allow the Board to add/ edit items to the agenda.
Ideally, reserve 30 minutes to discuss business updates and spend most of the time discussing strategic and future looking items – insights from past iterations, key initiatives planned, business model changes, product road map, fund raising, organisation, any burning issues on CEO’s mind etc.
In Series A+ companies, get your functional heads to present one area to the Board and get inputs on big questions for that function. These can be done by rotating a function every quarter or all functional heads presenting annually.
Send key takeaways after the Board meeting on email to the Board, including action items for each Board member. Start the next meeting going over key action items from the last Board meeting.
Manage the Board meeting time well
I see most Board meetings run out of time. Few tips to avoid that from happening:
- Stick to the agreed upon agenda.
- Push discussions on topics that were not part of the agenda towards the end of the meeting, unless it is a last-minute urgent topic.
- Cover important items first, especially where you want inputs from the Board.
- Don’t hesitate to intervene if there is a digression into items you don’t deem important.
- Keep decks short and to the point.
Set the MIS format in advance
Set the format in advance after taking inputs from the Board. The MIS should ideally contain both financial and operating metrics. Try to have the same MIS format trickle down to each function. Have your functional heads share their MIS with you a few days before the meeting. That way, the founder’s job in creating an MIS is less cumbersome.
If you are a startup beyond Series A stage, track cash flows in MIS. You will be surprised how many times founders are not aware of cash in the bank and cash stuck in working capital.
Revisit the MIS format every six to 12 months since key metrics will likely change as the business evolves.
Set a predetermined frequency of formal Board meetings/ calls
Frequency of once a month call (one hour), quarterly (two-three hours) and an annual Board meeting should work well. There will be exceptions when a company is going through transitions/ tough times/ fundraising etc. and you will want more frequent interactions.
Be aware of purpose of side conversations with the Board members
Whether founders should have side conversations with Board members or not is context dependent. It makes sense to have these side conversations if
- There are areas in which one Board member has specific expertise and you want to get his/her input. For example, If someone has built an inside sales team before, spending 30 minutes with that Board member will help you avoid obvious pitfalls.
- You want to understand the underlying intent/ objections of the specific Board members in detail before the topic is tabled in the Board meetings.
It does not make sense to use these side conversations as decision-making discussions on important areas. Those discussions are better held together so that everyone gets to share their point of view. I have seen some founders do this deliberately, and some unconsciously while trying to avoid a debate in the Board meeting.
If you try playing divide and rule, it will lead to politics at the Board level. Board members will figure this out soon, leading to lack of trust in the founders.
Keep the Board size as small as possible
In my opinion, anything beyond four to five investor Board members leads to too much discussion and low value of output. It is hard to limit Board sizes, but be conscious of this fact as you onboard new Board members.
Independent Board members can work very well for Series B+ stage businesses. Keep the following points in mind while onboarding an independent Board member
- He/ she should be filling a gap that you are missing from the current Board and is of strategic importance to the company. For example, finding a person who has scaled a SaaS company from $25M ARR to $100M ARR.
- He/ she should be aligned to value creation in the business. Ideally if you can have them invest a small amount in the company, the alignment increases.
- Ensure that they understand your stage of the business. Several large corporate oriented Board members find it hard to adjust to the realities of even a Series C stage company.
- Spend informal time with the potential candidate to get comfort on the points above. It is hard to undo this choice since egos can get hurt.
- Keep the tenure of these members to 1 year, to be renewed by the Board at the end of the year. That way feelings will hurt less when you part ways.