Erevena’s “Dealing with Unknown Unknowns” breakfast series returned in June with an event looking at how to create a successful board. Julie Chakraverty, Founder and CEO of mentoring app Rungway, and Richard Gibson, a former Executive Chairman of SwiftKey who now serves as a board advisor, answered questions in a discussion moderated by Erevena Senior Partner Maria Josife, who heads the firm’s board and consumer practices. The discussion ranged over a rich variety of questions, which can be broadly grouped into the why, when, who, and how of appointing a board.
Entrepreneurs often ask: why have a board at all?
As a founder, it’s easy – and natural, and even to some degree good – to take the attitude of “We don’t need all that bureaucracy; it will only slow us down.” Many founders resist appointing a board, then end up doing so in a panic to help with fundraising – and thus miss the benefits that having a board brings. These include contacts with potential clients, investors, and employees, giving you the ability to attract the best people to your company in a crowded space. Independent directors also provide an essential outside voice: someone who is able to take a step back both from day-today operations and from investor expectations, taking a broader, longer-term view. These are building blocks that need to be put in place early to support the business as it scales up through its growth phases. The purpose of a board is to support the growth of the company and lend their experience to the broader strategic discussion. As a growing business, you cannot always afford talent that represents all your needs; a board allows you to tap into experienced resources to support your executives. That means a board’s make up should reflect the strategic needs of the company. For an early-stage business, the board should be able to leverage its network and knowledge to drive growth.
Rather than appointing non-executive directors, many companies look to advisors instead. But while advisors are valuable, and their role overlaps somewhat with that of board members, they are not the same. While advisors are useful for helping temporarily with a very specific issue, board members have a longer time horizon and a broader perspective (and, ideally, broader experience). Non-executive board members also have liability and reputational risk to consider. While this means they need time to learn everything about your company, it also gives them a greater commitment to your business, making their advice that much more valuable. As your company grows, experience in dealing with auditors, regulators and similar entities will become more important – as will the important preparatory work of having committees and other structures in place. You’ll need board members who are experienced in these areas, and the time to put them in place is before that need becomes urgent.
That leads to the next question about setting up a board: When?
And the answer to this question varies enormously from company to company. While you’re still a start-up, it can be helpful to set up milestones for when a board will be needed: revenue levels, commercial contracts, employee numbers, expansion into new regions. While informal advisors may be sufficient for the early stages, the importance of having a formal board in place increases as companies progress through fundraising rounds; it can smooth the transition and give institutional investors confidence that the company is serious about protecting their interests. Still, remember that you’re building a board to serve the company’s needs, not merely to appease external audiences. Look at the existing team and their skillset, and how confident and experienced they are. Find board members who can share the burden of doing the company’s discovery work, understanding the environment and listening skilfully to the market.
A related question to the “when” of setting up a board is how the board should change as the company moves through its lifecycle:
The composition and role of the board reflects the stage of business the company is in. To get the best value from a board, you should actively shape and manage it at the various stages of growth. Recruitment and remuneration strategies will vary as well. The time to start thinking about this is in the early stage. Long-term appointments of 3-5 years don’t feel appropriate anymore; non-executive like executive appointments should be stage appropriate. Yet it remains important to also have the consistency that comes from one or two independent members who can oversee the company’s progress. After deciding on the when, next comes the who: figuring out what kind of people you need on your board. The answers will vary somewhat for founders and investors, but in general, board members need to have the right contacts in your industry; the right personality (desire and ability to be an evangelist for your company); and the right knowledge of your product: You need to invest in teaching them the story so that they understand the nuances of your business and can answer tough questions about your growth plans. Experience in chairing committees, and other tasks in managing organisations of a similar or larger size than your company, is also helpful as you scale. And of course, mentoring and coaching skills are one of the most common reasons for appointing a board. Here the qualities and experience you’ll be looking for will vary, based on factors including how much experience the founder already has.Finally, board members need to be able to balance personal mentoring relationships with their corporate governance and other obligations.
Last comes the question of how you go about attracting and retaining those people.
Richard Gibson says his policy is to arrange a three-month and a yearly assessment with CEOs, and if necessary with VCs, to gauge what is working and what isn’t. It is important to frame a non-executive appointment properly to make sure they understand what you expect from them. What is their role in relations with prospects? With clients? With investors? What issues do you want them to challenge you on? Where do they add value? Get both sides’ expectations nailed down early, and realise that just as the board has a responsibility to guide the company, so the founder has a responsibility to flag anything that isn’t working and initiate a conversation. Defining expectations will then help you define clear roles for the board and each member, which in turn will help set up transparent communication and processes – both within the board and in its relationships with managers and investors. (The investor communication role can be key in companies run by younger entrepreneurs who may not have previous experience of managing shareholders.)
Expectations are also key when it comes to remuneration: Pay people properly, and hold them to account for their responsibilities as members of the team that is expected to deliver growth. Whilst paying non-executives may seem counter intuitive for early stage businesses, the exchange of money can be a very valuable tool in holding people to account for their responsibilities. If you view the board as a part of the team responsible for delivering a great business outcome, you naturally want the best people on the team. Why wouldn’t you pay for that talent and experience?
Finally, remember that putting together the right board is a journey, not a moment in time.
Getting the when, who and how right is difficult, and will require regular effort as your company develops. But once you understand the why, you’ll see that the effort is worth it. Independent board members are particularly valuable at times such as investment rounds or exits. By honouring their commitment to act in the best interests of all shareholders, board members can help guide those conversations to a successful conclusion.