How to design a Board of Directors

How to design a Board of Directors

How to design a board of directors

By Tom Nora

There was an article recently in VentureBeat about how much control the startup CEO founder has over his/her board of directors. Unfortunately, this actually isn’t true in most cases, especially for first time founders, for many reasons.

Many factors come into play in early board formation including the founder’s goals, investors, cofounders, early appointees, family, friends. A well designed board can be the critical driving force in making a startup successful; while the wrong board can create disagreements, misdirection, angry members, awkward board dismissals, power struggles and can actually bring a company down.

First time founders usually aren’t sure how to populate the board, and first money from FFF (friends, family, fools) blinds them a bit to their best instincts.

Typical Pre-Funded Board

Here is the typical order of board formation before any professional funding comes in:

1. Founder/CEO

2. at least one Co-Founder

3. FFF

then maybe…

3. a “grown up” – former boss, relative, early (non-professional) investor

4. industry luminary

This is the group that must help grow the company properly, attract professional funding and make industrial strength business decisions. Most of this 1.0 group don’t have much experience, i.e. what it means to be on a board, how to optimize it, what the points of leverage are, what a natural disagreement is vs. a problem of discord. Usually the group is not experienced or cognizant enough to optimize this asset early on.

A Better Way

Here I’ll lay out some key steps to making this organization an asset rather than one with little to negative value.

Step 1 – The Founding Team
It’s fine to have the founder and maybe one cofounder on the board; after all that’s all you have to draw from. The key to success here is to STUDY the topic, learn everything you can, follow proper board.

Also, internally you can determine if and when you actually have something worthy of funding – you must have a real business that is operating – product(s), spreadsheets, a team, Revenues?; asking outsiders to get involved too early can be the kiss of death. I see this happen a lot.

Step 2 – Get Outside Help
In any startup ecosystem these days there are many people who have an interest in your business. The word “Startup” now gets their attention. Among these people are professionals that can get involved as a board member, but how do you do it? Which ones should be advisors instead? Are there consultants that help with this? If you’re near Stanford or in San Francisco, every other person you meet almost seems appropriate, but don’t be fooled. You want people who are qualified but also who come to you via an organic process – you read about them, stumble upon them, meet them.

Listen to these signals. For example, in Los Angeles right now the problem is that a majority of those you meet fall below the level of “qualified” – they’re out there networking but have never sat on a real board or led a startup. Keep asking around and you’ll find the right people. And remember, make sure you have a real company first.

Contact me if you have a going company and this is a hole for you, I’m one of the people I mention above who can help. But not if you just have an idea, or are thinking about starting a company, those are a dime a dozen.

 

The Executive Summary; Loosen Up a bit.

 

1. The Executive Summary

I often get inquiries about getting involved in early stage companies here and around the country.

The beginning point to discussing a startup the Executive Summary of the company, which lays out the key facts about a startup in 1-2 pages. But I’ve noticed that in L.A. it’s the exception rather than the norm, people want to meet first. Real investors don’t usually work that way.

The Executive Summary is CRITICAL to getting prospective investors excited. Without it you have little chance of getting the next step – a meeting to discuss the project and funding, more team members, more ecosystem. It’s a key qualifier as a serious player in the startup world. You hardly ever see a Silicon Valley startup without one, no matter how early stage.

The pitch deck has replaced it lately, but that takes more time to read and it’s harder to find the key info quickly. (One exception to this is the deck Hank Cho sent me; one of the best I’ve seen in a while.)

So google “Executive Summary”, look at several and put one one together. Send it to me and I’ll critique it for you. Make it less words, more impact, numbers, facts, the team.

It will also show where your holes are.

 

1. Let’s Loosen Up

The current startup scene combined with our poor economic/job situation is causing many people to panic a bit. It’s understandable, but if it transfers to your persona as a startuper, it won’t help. Many people I meet are very rigid, look a little scared but fake a smile, unable to open themselves to criticism. This doesn’t get investors excited.

Sometimes a 20-30% change or add to your business can make a major difference. Not a complete pivot, that implies 90-180 degree change, but be open to suggestions by those who’ve been there before. Maybe change your name, change your graphics(!), merge/acquire/acq-hire, drop yours for another better one.

Let go of your ego, let go of some equity.

The goal is to build long term sustainable businesses and revenue streams. Add smart people to your circle for the bigger good of the company. Loosen up, smile, have fun. But make some money for everyone involved. Be better.

@tomnora

CEO and Senior Executive Compensation in Private Companies

  • The median private company CEO compensation package totaled $362,900 in 2011. To put this number in perspective, it is just 3.8% of the $9.6 million median compensation package given to S&P 500 CEOs in 2011.
  • Median total compensation for private company CEOs increased only 1.9% from 2010’s $356,133.
  • 80.4% of private company CEOs received a bonus in 2011.
  • The next most highly compensated positions in private companies by median after the CEO are, in order, President, Chief Operations Officer, and Chief Financial Officer.