Dear Founder,
Congratulations! You are officially a real company. Well, you already were a real company, but now you’ve raised outside money—and you’ll likely have to have to put together a formal board.
Caution!
If at all possible, stay informal—avoid having a formal board until you have to. One of our biggest breakout companies has a “board of one,” and the founder jokes about holding an annual board meeting in the Caymans, where he talks to himself. At WIN, I made the decision to self-fund for exactly this reason—I am accountable to myself and no one else (except my wife).
But let’s look at this realistically: unfortunately, most founders don’t have the immediate success or funds to enable them to forego outside money. If you’ve raised outside money, is it possible to get your first round without having to formally establish a board? If so, I strongly recommend going this route. I suggest having periodic meetings with key investors and running those meetings as though they were board meetings, but with none of the other members having voting authority and control. This keeps you in charge, and it also serves as a good litmus test; it gives you a chance to see how much someone is contributing and how well they interact with you.
Most likely, if you build a successful business, you won’t be able to get away without building a formal board for long. And when it comes time to create a board, you will find that it is one of the most pivotal decisions you make in your entire career.
Why? Ask most board members what their #1 job is, and they will most likely say it’s hiring or firing the CEO. Board members will cover all kinds of other things—providing strategic insight, opening doors, advice and counsel, and all of the regulatory obligations that come with being a public company—however, they will always say their #1 job is to ensure they have a great CEO in place.
So, for a founding CEO (or any CEO), building a great board is essential to your company’s—not to mention your own—success. While selecting an investor based primarily on terms is understandable, in the long run it’s more important to prioritize the person (and firm) and the impact they can have instead of the price offered.
When I was being recruited as the CEO of LiveOps, I was very clear that I would want to build a different board, and negotiated the ability to do that as part of my transition. We selected an offer for a Series C from a very trusted person and source—even though it wasn’t the best financial offer. Chemistry is crucial, and selecting the right board for the company’s new direction made all the difference in achieving what we set out to do.
Some things to keep in mind when building and working with a board:
Choose small boards over big boards, especially when things are early.
Less is more! Keep your board as small as possible. Build hands-on boards with members who are willing to help and provide advice, rather than board members who are trying to play “smartest person in the room.” It’s important to ensure that the board is engaged and treated with appropriate dignity and respect.
Just as you’re always assessing the talent that is on your team, you should be assessing the talent that is on your board.
What do you need now, and what will you need when you are much bigger? There are some seats (like investor seats) that are guaranteed, but most times board seats can be swapped, and changes should be made so that the best person possible is in every seat.
Select board members who fill in your gaps.
I always selected members based on some of my weak areas. I didn’t have extensive sales and marketing experience, so I added someone who had been a CMO of a big public software company and a sales exec at Hewlett Packard. Some seats are directly attached to a functional expertise, such as the head of the audit committee. I always tried to select someone who could excel at that role, but who was also interested in helping more strategically. If possible, put someone in an “advisor” role first so you can see how you interact.
Understand why someone wants to be on your board.
What are their motives for joining the board? Sometimes the best way to become CEO is through a board seat. Sometimes board members still want to run companies. Others want some ego gratification. None of these are good reasons. Most people who are eligible for boards are very accomplished; you need to know whether they want to provide advice and counsel—or whether they want to do operations. Are they willing to be one voice of five? Or would they rather have everyone do what they say? Board members wield a lot of power, and it’s very difficult to remove one. Choose the right individuals who want to be of service.
Pursue people who don’t want to be on a board.
This sounds strange, but is perhaps my best tip. Busy people with big jobs are great selections because they won’t spend all their time obsessing over your company, but make sure they will be willing to be available when you need them. Someone with a lot of free time might want to spend it with you—you don’t want that. I’ve found that often the people who talk the most and demand the most are of the least value.
Instead of dreading board meetings and seeing the members as “overhead,” put these great resources to work for you.
That was one of the most important things I learned as a CEO. I always took my biggest issues to the board, sought their input and then made my decision. Make meetings a source of affirmation and insight. Put the board to work on lead generation, problem solving and pattern recognition. Advice from seasoned veterans can also help you grow and operate as a manager and leader.
Make allies not enemies.
Appreciate your board in the best of times, so they are there for you in the worst of times. Board meetings and board assignments can either be very tedious and boring (when things are really going well) or very intense and crazy when things are stalling or in flux. When everything is going well and the CEO and company meet or exceed goals, it’s often easy to be a little arrogant with your board and see them as overhead. Don’t do that. Having great chemistry and trust is very important because when the tide changes (success is not usually linear), you want the board to feel informed and eager to help you.
It’s my fervent hope that you end up building a great board, one that helps make you and your company stronger, and one with which you enjoy spending time. As with everything, it’s all in your control!
All the best,
Maynard