Why every startup needs a Board of Directors
It’s common to associate a board of directors with bigger companies and fast-growing organisations where the role of an independent board is crucial to the success of the business. However, a startup or small business can also reap substantial benefits, yet so few have an independent, diverse board of directors – which is a big issue.
The UK is Europe’s leading startup nation, attracting €17.2bn in venture capital funding in the first half of 2021. What’s more, we’ve seen a surge in startups since Covid-19, but we also know that the odds are pretty much stacked against success. I have had the pleasure of sitting on many startup boards and am currently on the board of Hanx, vegan certified condoms, as well as Spktral, pay gap analysis specialists. I have seen first-hand how tough it can be to run a startup and, in my experience, startups often fail because of operational implementation and scaling prematurely – two things a board can help to steer.
How Can a Board Add Value?
Diverse and independent board members have proven to add value to a company in many ways. Bridging skills and experience gaps is one of the key benefits. Founders are often overwhelmed by the number of different hats they need to juggle. Having a board of directors gives you easy access to expert guidance, from someone who really understands your business, in areas which aren’t your strong suit, be that finance, legal, HR, marketing or strategy. A carefully curated board will also help you to expand your business contacts and network, crucial for early-stage startups.
A board of directors will also add to your credibility and legitimacy helping you to attract investors. Rebecca Ganz, a Women on Boards UK member and portfolio NED with several Board appointments, is also an advocate for startups having boards. She says: “Independent advice is critical as it gives investors assurance that important decisions are being made solely in the interests of the company and free from any conflicting interests that can compromise judgment.”
Rebecca has helped several entrepreneurs balance the need for ongoing innovation with sustainable, accelerated growth. Having a board can help immensely when it comes to attracting and retaining talent. In Rebecca’s experience getting independent board members to interview talent is very appealing for candidates as it gives them a wider picture of the company vision beyond the founder. She says, “It’s beneficial beyond the recruitment stage too. A board provides oversight that you have the right HR systems and policies in place to ensure you’re retaining talent by looking at renumeration and incentive structures as well as training, rewards, and systems for tracking employee progress.”
How to Pick the Right Board?
Here are some other considerations:
Picking a diverse board is crucial for success as we know diverse thinking increases creativity and innovation among other factors. Many larger companies struggle to overturn embedded cultures which do not harness diversity. A recent report, The Hidden Truth: Diversity & Inclusion in the FTSE All-Share, revealed a lack of diversity across companies outside the FTSE 350 with less than half (48%) of companies meeting the target for 33% women on boards, a shocking 54% of companies have all-male executive leadership teams, and only 3% of board members in the FTSE All-Share ex350 are ‘directors of colour’ (male or female). As a startup, you should take advantage of a lack of baggage and ensure you recruit board members with different professional experience and a range of perspectives to embed diversity of thinking from the outset and capitalise on what is a competitive advantage.
Remember the “nose-in, hands-out” rule. It’s important to know that you’re not hiring a CEO. Board members are there to steer and guide strategy. They should be enabling the CEO to do the best job they can, not acting as your ‘boss’. If they’re having to get their hands dirty on a regular basis then you know that the balance is not quite right.
Select the right board for you. For many entrepreneurs and smaller businesses, an Advisory Board might be better suited versus a fully mandated board. An advisory board do not have any legal responsibility, they are there to advise and give feedback only.
I’ve met many entrepreneurs over the years who can sometimes be hesitant to get outsiders involved, after all, part of the appeal of running your own company is independence and freedom from process. However, there is no doubt that startups with professional boards have shown to be more resilient, as well as more attractive to investors and talent.
Michel Valstar, CEO of BlueSkeye AI, a startup from Nottingham that uses ethical AI to change the way medical conditions are monitored, admits, “Having independent advice has been invaluable to us and I wish we had recruited a NED sooner. Among other benefits our NED has helped us to set up rigorous recruitment processes, monthly reporting systems as well as clarity around strategy and differentiating between long-term and short-term goals.”
Michel echoes the feelings of hundreds of entrepreneurs I know, so get started on your board recruitment today. An independent board can make your startup more resilient, scalable and profitable.
