How to pick the right people for your board

Boards are set up to give a company direction and make sure a business is running smoothly. For start-ups, they can be especially beneficial as they give smart advice, add expertise and they can help a business grow.

When do you need a board

There is no set time for a business to form a board. Start-ups develop boards at different stages of growth, but having one from the outset can be beneficial.

Professor Bob Garrat, author of Thin On Top: Why Corporate Governance Matters says, "You don't really need a board until either you have a number of different investors or you reach such a size that you may be thinking of floating on one of the exchanges." But he also says smaller businesses benefit from having a board because they can provide additional expertise and draw on experiences of people who have done similar things before.

Luke Hakes, principal at Octopus Investments, a London based venture capital firm, recommends putting a board together, even if you're small. "Once the business is operational, I think having some type of advisory element or board adds a huge amount of value. When you have a product prototype pulled together, I think the board starts to become useful."

Boards for start-ups are very different than boards for established businesses. In many cases, it may be that in the early stages the board is all about product definition, so you need a skill set that can help drive what the product should look like. Later on, there might be a requirement for somebody around the table with sales and marketing experience and further down the line perhaps you'll be somebody who understands how to take your business global.

In the long run, having a board is also very beneficial. "If a business has a strong board it helps management operate better, but it is also important from a future values stand point," says Hakes. "When you go to exit the business or sell it, if you have a good strong board it is likely that the business is going to be in a far better shape for an acquirer."

It is important to note that boards should evolve. "As businesses grow, their requirements change very rapidly," says Hakes. "It is crucial to tailor the board to the requirements of the business and extract as much value as possible from the individuals around the table. With time, board members can become less effective as either their interest in the business wanes or their skills become less relevant for that stage of the business."

Advisory boards

If you are just starting your business, you may find it helpful to form an advisory board. This type of board does not have an official say in how the business operates, but it can be a great sounding board for ideas and give advice.

Marisa Leaf, the founder of Hubbub, a delivery service for local independent shops, had an advisory board before she even launched her business. "I identified people that had the experience and expertise that I didn't have, so they could help me set up," she says.

Even though Hubbub has received three rounds of funding and now has a formal board, the advisory board - which has about a dozen members - still meets once or twice a year all together, and Leaf will meet with members one-on-one or in smaller groups if she needs specific help.

Benefits of a board

Entrepreneurs and CEOs are often so involved in the day-to-day operations of the business that they fail to see the bigger picture. Board members from outside the business can really help them see the bigger picture. "Founders are right in the goldfish bowl, so board members should serve as a critical friend and be looking around for other innovative ideas, seeing what the competition is doing, thinking how you need to differentiate," says Jonny Goldstone, co-founder of Green Tomato Cars an eco-friendly private car hire service.

You should also bear in mind that starting a business can be very lonely. Having a board can make entrepreneurs feel like they aren't going at it alone. "We often find building a company is a very lonely exercise," says Hakes. "Having a board to bounce ideas off, to leverage from a network and a contact perspective is absolutely invaluable."

Who to select

Board members should satisfy the needs of your business and provide expertise you are missing. For example, businesses looking for funding should look for people with experience raising capital.

"What we look for in a board is really dependent on the stage of the business," explains Hakes. The majority of my investments are early stage investments. With those we are looking for boards largely that have direct operational experience or skills in the area that the business is operating within."

For boards of larger businesses, Hakes says he looks for good governance and oversight of core activities. On the other hand, with early stage or smaller companies management can always be supplemented with direct skills that are relevant to the industry they operate in.

Goldstone of Green Tomato Cars found that having a consumer of their service on the board was very valuable. "If you are going to have a board that involves people other than those who are running the business on a day-to-day basis, you want those people to be consumers who are looking at it from the opposite end of the spectrum in terms of experience, and the nature of their involvement," says Goldstone. He also believes having some sort of generational or experience gap helps you get different views and reduces the chances of over-looking important strategic opportunities.

To add new board members, Leaf recommends reaching out to your connections and network. When she was building her advisory board, she reached out to people she already knew and made cold calls to people she admired. She says, "As a whole people are really flattered to be asked. If you don't ask the answer is definitely no and if you do ask the worst they can say is no, but luckily everyone I asked said yes."

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