March 22, 2020

How a Board Member Can Add Value to a Startup

Through a post that I published on this blog, I share information about when to form a board of directors, how much to pay your board members, and how to work with your board outside of board meetings. With respect to the third point, Mike Volpi, general partner of Index Ventures, international venture capital firm with dual headquarters in San Francisco and London, authored an article that says "a board member can create value in a way that transcends the specifics of each company and its leaders" and a director's role "is to help the company create greater shareholder value." Importantly, directors "are not the CEO's boss. The role of the collective board is to be an advisor to the CEO and the management team, which, in some corner cases, is called upon to encourage changes in that management team."

Unless requested by the top executives, a director should not become involved in the company's operations. "CEOs, founders and management teams are far more versed in the business that they are operating than any investor," Mr. Volpi explains. "They know the internal details, the nuances of the business, the products, the market and the competitive dynamics. By and large, they are far better equipped to run the business than any board member could be."

Based on my experience serving on a board, I support the view "that the healthiest relationship between a board director and the CEO is one that is peer-like. The board member's function in that context is one where, as a good friend would, they are supportive but candid and transparent about their view on the state of the company, its challenges and its opportunities. In doing so, the dialog that occurs will be one which is genuine in nurturing the company rather than a cat-and-mouse game or a love-fest."

What is more:
Command of the context is one of the most important values boards can provide. While entrepreneurs have the deepest knowledge of their own business, they do not have the benefit of having seen many other companies that are like them. Especially in the startup universe where there are so many common patterns that recur regularly, the ability to provide the comparative context is very valuable. These recurring patterns exist in almost every aspect of a business. Whether it's in strategy, go-to-market, executive hiring and firing, market adoption versus monetization, and many other attributes, there are lessons that a new business can learn, both positively or negatively, from others who have walked in their shoes earlier on. Not all of those lessons apply. Each business is a snowflake — unique in its own way. But, for the leadership of a company, being able to compare and contrast the situations with those that have come before can be of enormous value in shaping the right business decisions.
Being available to the company's leaders is an impactful role the director may play in helping the business. According to Mr. Volpi:
Startups are real time. Issues surface every day and every moment. Leaders seek "micro-advice" in the moment, all the time. A board member should have the availability to respond to entrepreneurs when needed. Sometimes that means calls at 10 pm. At other times, that means five or 10 text messages in a day. Sometimes these "micro-advice" moments are extremely impactful: how to deal with a particular customer, how to close a candidate, whether or not to fire someone. At other times, they are not pivotal. However, they often provide the CEO with the ammunition to make a tough decision, or simply the ability to offer a moment of empathy. A director's ability to be available in those key moments is incredibly valuable and irreplaceable. Providing that level of availability can sometimes be a challenge for board members — after all, we all have action-filled busy days. But, the board member who is able to find the time earns the right to become the proverbial "first call" for the entrepreneur. Such "micro-advice" also provides the board members with the ability to be relevant at all times to the leadership team of a company. The moments when CEOs need another perspective don't show up neatly five times per year at pre-scheduled times.
In discussions with startup founders, too many have confided their disappointment about directors not being engaged with their company. Therefore, I agree that "board members should not view board membership as a list of icons on their LinkedIn profile, but as a subtle yet massively impactful role they play in the creation of great businesses. When these relationships function properly, the two parties become true partners in the entrepreneurial journey."

What recommendations do you have for how a board member can add value to a startup?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

No comments:

Post a Comment