Sunday 25 September 2016

When to take on a board of directors - and when not to

Dylan Collins

Published 16/04/2015 | 02:30

Ask the hard questions before you even consider a board
Ask the hard questions before you even consider a board

In general I don't find dentistry terribly inspiring. Other than a particularly challenging encounter where I had a set of wisdom teeth removed - which resembled an archaeological dig located in my mouth -- I struggle to think of any memorable dental moments.

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It may explain why rappers have tried to glamourise the whole affair with jewel-encrusted grills.

However, dentist visits are a bit like the search for a board of directors. It's entirely possible you may never actually need one. But having a board (combined with regular brushing) may prevent the build-up of issues which cause company failure.

The role of boards and non-exec directors is one I continue to evolve my thinking on.

I get asked to be on quite a few, which generally fall into two different categories: early stage startups and mature companies. In general, I don't see as many in the middle category, possibly because the management teams are too busy.

(Ironically, this is where boards are probably most helpful.)

As an early startup without investment, you almost certainly don't need additional directors beyond the founders.

I've had quite a lot of people pitching me to be on their board at this stage.

Honestly, don't bother. Focus on traction instead.

A good time to consider bringing on a director is when you take your first VC money. (This could be seed funding or it might be 'Series A' funding, depending on where in the world you're reading this.)

In general, VC money also results in a board seat. I recommend adding an experienced industry person for every VC round. It's a healthy balance to maintain and most sensible investors won't have a problem with it.

At any one time, I have a list of people I'm thinking about for our boards. The best people are often those who you'll need to convince over time.

That being said, I'm a big believer in try-before-you-buy. One of Silicon Valley's greatest innovations has been the 'advisor' role. If you value people's advice and connections, compensate them as an adviser (usually a small equity or options slice). It's a great way of testing their real value.

When your company is growing or evolving rapidly, there's a lot to be said for maintaining a flexible advisor structure. Often what you need in Q1 is not what you need in Q2. Things can change that quickly.

If you realise advisors can genuinely add more value or you find yourself constantly turning to them, perhaps it's time to take the relationship to the next level. A few obvious caveats apply though.

So don't ever put someone on your board:

• Until you've known them for at least six months

• If they're someone who has not disagreed with you multiple times

• If the candidate cannot list at least five interesting mistakes they've made

• When it's a person who you can't call on a weekend or in the evening

• If you can't trust the candidate to act in the best interests of the company

Don't overlook people because they're not industry-specific, either.

Look for the gaps that your company has and think about your board or advisory panel (or both) accordingly.

There are three further important distinctions to be made:

Firstly, make sure you distinguish between the company's requirements and the need for a CEO coach. They're not mutually exclusive but they are different.

Secondly, although they should always be public cheerleaders of the company, directors aren't there to be your friends. In fact part of their value comes from being able to give you objective advice possible only as a quasi-outsider.

Finally, make sure your board and you understand the relationship: boards should be there for guidance and advice, not to actually run the company. The CEO is running the company. This point invariably gets forgotten at some point (and not always temporarily).

At some point, I'll write a separate piece about the role of chairman as I've always felt that there's a difference between that role and a 'regular' non-executive director.

The chairman can be a variety of different things, from a figurehead to a coach to therapist - it really depends on the company and the 'fit'. Are you looking for a chairman (small 'c') or a Chairman (capital 'C')?

Adding external directors to your board is one of those things you should rarely move quickly on, even if you're being pushed by your investors.

Good directors are unquestionably a major asset. But run your own process to find the best fit.

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