Early stage companies tend to be innovative, entrepreneurial and willing to take risks. The founders of these companies often view a corporate Board as the construct that comes in to stall their innovative spirit; the equivalent of your parents accompanying you on your first date. While some Founders may view Boards as a corporate construct, they also are recognizing their value. To help Founders ensure they have the right people on their boards and understand how to best leverage them, Egon Zehnder gathered 20 CEOs and Co-Founders of growth-stage companies in Bangalore for a conversation about aligning the Board and management. Most of these companies had raised Series A or Series B rounds and cater to B2B or B2C product or services markets.
State of Start-Up Boards
The Indian start-up ecosystem is at a nascent stage when it comes to thinking and practices around Boards. Most Founders described Boards that were investor-heavy, with the Founder playing the role of Chair and CEO. Board meetings were described as focused on past performance, with an emphasis on financial and operational milestones and targets. In cases of investors with different time horizons, the dynamics at the board-level became more complex and even confusing. Most Founders admitted they didn’t look forward to board meetings and likened the week before the meeting as a frantic exercise in putting together presentations and other documentation. While intuitively many Founders felt this was not an ideal dynamic, they were unsure how to change it.
The Why, What and How
One of the common themes expressed by the Founders was the realization that a set of Advisors doesn’t translate to a functioning Board. While Advisors may be mentors and experts in individual domains, a Board is more closely and formally linked to the success, growth, and functioning of a company. The Board is at its best when the whole is greater than the sum of its parts.
To deconstruct the issue, we had a conversation around a simple yet effective framework: the Why, What and How of a Board. This approach brought forward the top considerations that founders find critical. While each company is in a different lifecycle stage, several common questions emerged.
Why do start-up Founders need a Board? Is it simply overhead that can be postponed to a later date?
A good Board strives to bring mentorship and support to the organisation. An effective Board goes further, amplifying growth channels through active introductions and recommendations and serving as a body that will bring operational, organizational, product, market and technology insights. In fact, as the custodian of shareholder interests and the long-term success of a firm, Boards can actually help save start-up leaders from themselves, as they scale and build growth. While not taking away from innovation and risk-taking that are cornerstones of early-stage companies, Boards can mitigate risks around talent and succession planning, enable effective capital allocation across time (and investor) horizons and provide continuity of thought partnership to the Founders, who may see investors as well as professional managers come and go.
What is the ideal composition of a Board? Is there a way to go beyond the natural universe of VCs and investors?
To help start-up Founders succeed and increase stakeholder value, proactively seeking experts in a particular domain works better than just having a Board comprised of investors. These are specific members suited for different growth stages, those who can multiply network effects and take the organisation through funding, growth, and exit. In some respects, Founders need people “who have seen the movie” from all perspectives, not just through an investor lens.
Said one CEO attendee who heads a fintech start-up, “The one thing I do feel strongly is that the role of the Board changes based on the scale of the company—dramatically changes. And most of the Founders including me, don’t fully understand the importance of it.” Put another way, it’s akin to Harry Potter, where the wand chooses the wizard, not the other way round. So you may have to actively choose your board.
How should Founders engage with their Board to maximise value and leverage? How can you make the time invested meaningful for both the Board and management?
At a minimum, Founders must build a regular communication rhythm outside of board meetings, engaging one-on-one with individual board members and seeking introductions to other portfolio founders. It is also key to ensure that not just co-founders, but also key leadership is engaged with the Board. Another CEO, of a fast-growing beverage chain shared: “I have realised one-on-one interactions with the Board members are way more important than what you do in the meetings.”
The Secret Ingredient: The Chair
We also explored what Founders considered to be the likely game changer for a Board. To this group, it appeared to be the role of the Chair. Most participants realised that they had not given much thought to identifying the Chairperson, establishing the role of the Chairperson, or leveraging the Chairperson to go beyond the CEO’s role.
In most cases in the room, the Founder, the Founder-CEO, or the largest investor defaulted to playing the role of a Chair. It was particularly revealing that many thought the largest shareholder deserved the Chair role.
Some of the Chair’s responsibilities include defining the right culture for the Board, assigning tasks to other Board members, and spearheading initiatives relevant to the company’s life stage. In addition, the Chair also helps to determine how the Board’s composition should evolve.
One Founder summed up the role of an effective Chair with a simple analogy to that of a co-pilot. An ideal Chair not only makes Board discussions effective, but also manages differing stakeholder expectations, therefore allowing CEO-bandwidth to focus on business.
Getting the Board You Need
If you could create your board from scratch how would it look? There are two main options: Expand the Board from a classic investor Board to include independent directors that fill the board’s current skill and experience gaps. Then identify an independent Chair. Alternately, identify a Chair at the beginning of Board formation and collaborate with the Chairperson to construct and grow to the ideal Board size and composition.
In each case, every start-up has a specific journey to take and the paths may look quite different. At Egon Zehnder, we get an opportunity to work deeply with both Founders as well as Board members. From our experience, we recommend that a growth stage start-up might find more value and leverage in identifying a Chair and then co-creating the Board. It will require time, effort, and a financial investment to overhaul a Board, but the overall result will be a stronger, more agile and resilient company.