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September 20, 2016

How to Build and Manage a Startup Board of Directors

Every public company and most large private companies have a board of directors. These directors help with governance and give recommendations to keep the company growing. It may seem like a board of directors would only benefit large companies, but to ensure continued success, small companies and even startups should have a board of directors or an advisory board.

What does a board of directors do?

The board of directors is elected by shareholders to oversee the management of the company. The day to day management is usually handled by someone the board puts in place. Typically in a new startup company, it will be the original founder. As the company grows, the board may choose to hire an experienced CEO and/or CFO, while the founder focuses on growth of the core business.

Does my startup really need a board?

Yes, your startup should have some type of board in place to help your company grow. They will take a different look at the company and provide recommendations you may not receive without a board. If the startup founder does not know much about interpreting financial data, it would be in their best interest to find someone with a CFO background. The right board in place can help grow your company, and give you credibility when looking for new investors.  If you are not ready for a paid board of directors, you can look into an advisory board to benefit from outside advice.

How do I select board members?

To start, usually investors will want a seat at the board for investing in the startup. The owner of the startup will then want to pick members to fill seats that have experience or skills in areas the owner may be weak in. It’s also important to ensure members have a good reputation in the business community; look for people who have ran multiple companies successfully and have diverse skill sets. A good number for a startup board is around five members. The more diverse the board, the more advice and recommendations you will receive.

Using the board’s advice

Be willing to make changes if the board advises something. They are there to help you succeed and give you counsel you would not have on your own. The board may not always back the CEO on every decision, so be prepared to handle those situations.  Creating a structure for the board, and documenting what the board’s role is and governance policies will help in understanding each member’s role.

Though a startup may not always need a board in the non-revenue phase of the company, it is a good idea to start vetting potential directors right away so you have a good network to create a board quickly as the company grows. For more information or assistance with understanding the benefits of having a board of directors for your startup, please contact an Anders Advisor today.

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