18 Feb Founders: Don’t be scared of building a board early!
When we invest in a company, we often find ourselves in conversation with founders about the value of a functioning board. I believe that the sooner a company constructs a great board, the better. It sometimes takes years, however, for us to align on the matter with our founders. Founders’ reticence (and sometimes staunch resistance) typically stems from 2 reasons:
(1) Founders consider boards to be a waste of time and are not convinced that building a board early in the company-building process leads to better outcomes. Such founders often believe a set of advisors can deliver the same value as a board.
(2) Founders nurture a deep fear of ceding control. They see the creation of a proper board – and the addition of independent board members – as a tool wielded by investors to gain more control, curtailing founders’ influence on (and potentially even removing them from) the company.
These are pretty reasonable concerns, and both can be valid. Boards can be frivolous and dangerous.
But they need not be!
Consider a world in which your board is the greatest driver of value for your operations. Consider that as your company scales, the quality of your board becomes a differentiator, a secret weapon — an additional reason why your company might continue to win, find ways to tackle inevitable challenges, and be bold on strategy and conservative on execution — all while continuing to serve the vision of the founders.
A world in which *not* having a great board could be fatal to your business.
When I launched Romulus a decade ago, I had many of the same reservations about boards. If I’m speaking to a founder every couple of days, I thought, why is a quarterly board meeting necessary? It seemed archaic. I also understood founders’ fears of giving up control of their businesses because, frankly, I have the same fears for my own business.
As I built the firm, however, I realized that (a) boards were inevitable, (b) great boards could be both inspirational and incredibly value-additive, and (c) bad boards could literally destroy companies and shareholder value. Given those realizations, I consciously began to spend more time with companies earlier in their history to ensure we ended up with a great board. Over time I have helped build a dozen boards; the following are some of the benefits I’ve seen accrue to the respective businesses:
(1) Creating alignment and accountability around performance targets
A formal board meeting forces everyone to sign off on an operating plan. This plan includes revenue targets, executive hiring plans, budgets for each department, etc; essentially, what to do, what not to do, and when to do it. The management team can then use this plan to drive the entire company toward a set of clear targets. A great board meeting will reverberate positively across the company, even when you’ve had a tough quarter, because it creates clear alignment and plans.
(2) Attracting the most exceptional people to the company
Great board members – especially independents – usually could be doing many other things with their time. They choose to invest time with startups because they like the founder(s) and believe in their vision, and because they believe they can contribute positively to the company. But, they also like the tag of being a ‘board member.’ It carries more social currency than does being an advisor. People understand that being a great board member is a skill, and they want to hone it. Indeed, board participation is rarely about the economics; instead, most board members care more about the hefty title and the responsibilities that accompany it. You may be able to attract great people to your company by offering them the title of “advisor,” but you will attract the best people – and have them commit to spending time with you – by offering them the title of board member.
Having exceptional board members in turn further helps you attract the best executives as well.
(3) Utilizing the synchronous (often in-person) time of insightful people to engage on strategic matters
The best board meetings help the management team solve strategic problems by giving them insight through high-quality discussion. A great board meeting convenes 5-10 incredibly insightful individuals who have diverse and rich experiences, but who are also incredibly busy. Getting vibrant discussion in real-time on these important strategic topics can change a management team’s perspective on what is important to focus on or how to solve a lingering problem. All meetings are not created equal; do not underestimate the power of a board meeting to fuel your entire trajectory.
In my next post on the topic, I will talk about what I believe makes a great board and how to consider some of the fears you as a founder may have.