Board of Directors can add great value if they focus on the right things. I have served on over a dozen BOD’s over the years and have found 5 key inflection points that matter in the evolution of a startup; 1)raising money, 2)hiring top talent, 3)getting initial customers, 4)doing strategic business development deals, and 5)Exit and acquisition.
The monthly Board meetings are necessary for guidance and fiduciary responsibility to fellow investors. Small course corrections can be made, and some tough choices can be debated. Boards can give some comfort to startup CEOs that they are on the right track, and really encourage them when they are down, or feel alone. These are all important things for startup CEOs. But, the 5 key inflection points are where Board members can have the most impact.
Raising money – It is always tough to raise money. Don’t let anyone kid you about that. The stories of raising more money than you need in a week are “one in a million” and usually only happen to serial entrepreneurs who are rock stars. For the rest of us raising money involves finding the right investors who have experience in your market segment and have a personal relationship with you. Investors invest in what they know and who they know. See “Why Investors say no 99% of the time…and you do too”
Hiring Talent – Good investors have great networks of people they know and have worked with in the past. Hiring the executive team and top contributors is key to the success of the company. Investors should be able to add value here and save a lot of time. At a minimum, good Board members should be able to interview top hires, give good advice, and get good background information on potential hires.
First customers – Getting your first customers can be the hardest part of starting a company. Choosing the right customers can determine success or failure. The “right customers” are the ones that are excited about your technology solution, want to be a part of shaping the vision, willing to take risks, and be patient with deployment. These traits are of less importance with a free web application, but still do come into play. Board members many times have trusted relationships with CIOs or big company execs that can make this whole process much easier for startups.
Business Development – A few key business development deals can put a new startup on the map. Again, Board members often know key people in big companies and can help move the process along. Big deals like this can sometimes constrain a startup, or take it in a whole different direction. This can sometimes lead to painting yourself into a corner, and ultimate failure. Good Board members can see this coming and prevent it from happening.
Acquisition / Exit – Every investor writes a check with the end goal of a successful exit. Only a tiny percentage of companies end up as stand alone “cash flow” companies that never go public or get acquired. Unfortunately, for most investors, the most common exit is a total failure or wipe out. We don’t talk about it much since investors are eternal optimists, but it is the most likely outcome. Board members can have the most impact and value by getting involved in planning the exit. Successful investors have done lots of exits, while most startup entrepreneurs are lucky to do it once in their lives. Experience matters in this case. It can sometimes make sense to pass on a $30M acquisition proposal and hold out for a better unknown exit 3 years down the line. The future is always unknown. Board members with vision and experience can rely on some guideposts to help navigate the way to success.
Advice to entrepreneurs – When you are deciding on your investors or choosing Board members, ask them how they can add value in these five key areas. Investors need to bring more to the table than just writing a check. Board members need to add value beyond the casual advice at monthly board meetings.
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