Why do start-ups need the Board?
At first sight, it may seem that the Board as a collegial management body of the company is specific to large and mature companies only. On the contrary, this is precisely what the fast-growing innovative business is often lacking to ensure its stability and sustainability.
Andris K. Berzins, the Partner of Latvian venture capital fund “Change ventures“ and the speaker at the start-up event “Startup Fair. Change 2019“, during the interview reveals why it is important for start-ups to have the Board, how to form it and how to ensure productive board meetings.
Often start-ups, especially in the early stage, only focus on the production of the product, by putting aside commercialization and the structural issues of the company. However, you on the contrary advice to create management structures at an early stage, such as setting up the Board of a start-up. What are the reasons?
Even in the early stage of a start-up, when all attention is paid to product development, it is necessary to have the commercialization strategy for that product or service, to know which people working in the company assume the main responsibility for the company’s development decisions made.
If the early-stage start-up plans to develop its business in the future with the help of external investors, I highly recommend to pre-purge the structures of internal processes, for example, to establish the Board and to select the most important decision-makers of the company who are most concerned about the company’s performance and results to hold the post in the Board.
You must also consider the following options before setting up any internal control model of the company: if the future investor of your start-up will only have a very small portion of the company‘s shares, maybe it is worth proposing to such the investor the position of the Board member, without the possibility to vote, only to advice? There are various opportunities. However, with a clear structure of the team that makes the decisions, it is possible to build discipline in the company management.
Of cause, if the early-stage start-up decides not to seek for additional external investment in the future, but to use only its own capital available, then, in my opinion, the issues concerning the structure of the company do not represent the priority of the start-up.
One thing is to have the official members of the Board. But it is quite another matter to have such the Board that works a lot and in good faith for the benefit of the start-up. How do you think the start-up developer should select who could belong to the Board?
In my opinion, the Board must consist of three categories of members: start-up founders, investors, and independent managers. When selecting an investor, it is important to take into account the experience he or she has acquired in working with start-ups – whether or not that person was the member of the Board in other start-ups, what visible benefits he or she managed to create. To confirm these answers, I recommend contacting the start-ups in which your future investor held the position of the member of the Board and ask them to provide feedback: what are the personal qualities of the investor, whether or not he or she is able to be constructive and helpful in making decisions.
A more advanced start-up requires independent members of the Board. This is the stage in which a bigger investment in the company‘s activities is sought. The independent member of the Board can then make a great contribution to decision making when disagreements arise between the start-up developer and the investor. When selecting these individuals to hold the positions of the members of the Board, I highly recommend paying attention to their experience namely in the field in which the start-up itself operates. The independent member of the Board must have excellent knowledge in the industry of your area of activity and must have experience in dealing with the various challenges that arise in it.
You argue that productive meetings of the Board are the key to company success. Please explain how to prepare for a good meeting of the Board so that its benefits can be well noticeable during the start-up development?
Extremely responsible readiness of the members of the Board to deal with the issues raised represents the most important factor of efficient meeting. I have 20 years of experience of attending meetings of the Board and therefore can recommend a number of important elements. Three days before the meeting, in the worst case 24 hours before the meeting, all members of the Board must be informed about the subject of the forthcoming meeting and must be provided with all the necessary information in order they could make themselves acquainted with it. Abiding by this rule will allow you much more effectively discuss various issues with the decision makers during the meeting, and you will have more time to formulate the strategy.
What can the start-up founder expect and demand from the members of the Board?
Good members of the Board must provide helpful strategic-level advice to the start-up founder in dealing with critical issues of business development. They, however, must also be sincere and tell in a constructive manner and without offending that the previous decisions and/or processes are not working properly, especially when the member of the Board notices major strategic gaps that the start-up founder does not see.