Recently, I was contacted by a friend looking for some governance insight. She had been approached to be the Chair of a young, fast growing start-up. Although she didn’t have any Board experience, there were many logical reasons the start-up had reached out to her. My friend wanted to understand everything she could about being a good Chair.
Five Questions For a Start-up Board Chair
Ultimately, I think there were five questions we discussed that helped her the most. They were:
- Why does the founder of this start-up think she needs a Board of Directors?
- What are the key strategies this start-up must do to be successful?
- What are the key risks that could kill it?
- What people do you know who understand the business, the strategies and the risks involved in this business?
- Can you be objective?
Here’s a quick summary of what we discussed around each question:
Governance vs advisory Boards
There isn’t start-up in the world that wouldn’t benefit from the oversight that a governance Board provides. However, most founders bristle at the oversight while they tend to be open to some advice. Advisory Boards are far less formal and easier to run than governance Boards. Start there.
Getting Strategic About the Business – Even a start-up
By their nature, start-ups have a world of decisions to make correctly before they succeed. Having a context for those decisions – from product design to funding – makes those decisions easier and more consistent. Strategy doesn’t have to be called strategy to be helpful.
Understanding the risks
Unmitigated risks kill companies. Every board-aided company that’s ever failed, has failed because its Board missed a key risk and didn’t help/direct its management to do something different. Stay paranoid. The sources of risk are legal, financial, external market and internal operations. Remember, most start-ups don’t ever come close to making it.
People on the Board
Lots of start-ups use Boards seats as incentives/rewards for investment. However, investing and running a successful start-up are two different things. Whether advisory or governance, Board seats need to be filled by people who understand the strategies and threats the business is facing. Keep this in mind when you’re talking to a VC.
Friends, parents and friends of parents make lousy Directors because they have a vested interest in keeping the founder happy. That’s not helpful. The best Directors aren’t related; they can call the world as they see it. Objectivity is the key to a high-functioning Board.
Bottom-line Five Questions for the Board Chair
Bottom line, Board Chairs don’t have to be business experts – they have to be experts at leading a Board. Understanding the business, the Board’s role and the risks are a good start. The right Directors are key. Staying objective – and paranoid – is vital.