:quality(75)/cloudfront-us-east-1.images.arcpublishing.com/bloomberglinea/7UYDSECHWFF27OQQ75VP5HXWNA.jpg "For early-stage companies, it’s best to have 3-5 members on the board, says Paulo Passoni.")
Bloomberg Línea Ideas — Most startup founders take a very passive approach to building a board: it is often the result of who invests in the company. That can lead companies to have boards that serve no real function in supporting entrepreneurs.
A real board is one that begins with few but really trusted advisors. Trust is the key ingredient for board success. The members complement each other in mindsets, networks and experiences. They ask good questions instead of giving answers. They challenge founders in how they will create and sustain moats. The board takes care of the company’s #1 asset: its talent. It helps make major strategic decisions like M&A. It lifts founders when they are beaten down, and it dampens their egos when things are going great.
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The smaller the board the better the odds it will be effective. Group dynamics have the power of stealing the show and preventing real discussions. For early-stage companies, it’s best to have 3-5 members on the board. By the time a company goes public, boards should expand to about 7-9 members.
During Covid, boards went to Zoom. Virtual boards prevent social capital formation amongst board members, which in turn prevents trust from building. It is important to create social events around at least one board meeting in person per year in order to make everyone around the table more comfortable with each other.
Allowing for observers is a very tricky decision. It significantly increases the number of people in the meetings, preventing the board members from being candid. In general, observers are a bad idea (unless they are truly spectacular).
Choosing board members
First, board members must buy into the company’s mission. A lack of connection with the company’s purpose will lead to bare minimum advice vs. engaged commitments.
Second, companies and founders need people who care deeply. The best examples of caring are the late Bill Campbell (highly recommend the Trillion Dollar Coach book) and Shep Gordon (check out a documentary called “Super Mensch”; a mensch is a Yiddish word that refers to a person of integrity and honor).
It is essential to bring diversity of all kinds to the board, including people who have complimentary skills to you. Experienced entrepreneurs, a master in capital allocation, a strong lawyer, a product specialist, an end-customer connoisseur. Gender and race diversity is also critical to secure multiple perspectives.
Signing up awesome board members requires as much work as setting up your C-level. You are trying to solve for many things at once and it will require real effort to get it right.
Interviewing and replacing board members
Interviewing board members is delicate. For starters the best candidates could be more successful than you, which is not only intimidating but they believe the job is theirs just by you asking them.
When you interview a board member, get to know them personally. You want to know how they think, how they have helped others, the type of questions they would ask you and how they think of some of the different situations that your company is facing.
Nonetheless, remember that board members are not for life. As the company grows you will need different types of skills and advisors. Use new funding rounds to make changes. The same way you cannot hesitate to upgrade C-Level, you cannot hesitate to upgrade board members.
The board meeting
The most important part of the board meeting happens before the actual meeting.
Make sure that you prepare materials ahead of time, circulate at least two weeks in advance and schedule one-on-ones with your board members to discuss questions that might arise. This process forces everyone to prepare and frees up time for the real discussions. Consider making the CFO the “COO of the Board” – a person responsible for preparing all materials and making sure everyone has done their homework.
In preparing the numbers, remember that averages conceal instead of reveal. Make sure you have a proper analysis by product, by geography, by launch date, etc. The more granular and more tailor-made the numbers are, the better you and the Board will be able to assess what is going on and make sound decisions.
Lastly, seek constructive disagreements. If everyone is agreeing all the time, the Board is not serving its purpose. Ultimately the founders decide, but you want as many perspectives as possible to arrive at the solutions.
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