This is the first installment of an eight article series focused on helping early stage investors coach founders on building the best board dynamics they can.
There are reams of advice pieces out there warning startup CEOs that they must pick the perfect board. For early stage startups this advice is theoretically sound but practically useless. As early stage investors know, mature companies may be able to pick a dream board, but startups don’t have a lot of flexible slots open to allow for shaping.
Startup boards are typically fairly small (usually three to five directors) and they are typically constructed by formula. Startup boards virtually always contain one or two directors who are management (founders), one or two directors who are investors, and one independent director, hopefully someone with industry expertise. Given that formula, there is obviously not a lot of room for creative tinkering. However, CEOs do still have some options for maximizing the value of their board and minimizing the risk of board dysfunction.
First, CEOs can make the most of the choices they do have to shape the early board. They can choose good co-founders to build their business with. They can choose good investors and therefore good investor representatives for the board. And there is a role for advisors in helping founders be thoughtful with the selection of the independent director.
Secondly, and equally importantly, a CEO can shape the joy and value they get out of the narrowly-prescribed board by knowing how to hack the way the board works.
Advisors should coach that there are four basic aspects to hacking the board:
1. Preparing well for meetings;
2. Running good meetings;
3. Insisting on good director conduct; and
4. Leveraging the board cycle for investor relations.
We will cover all four in this series, starting with meeting prep.
Board Meeting Prep Advice
Pick and set a smart calendar
Face to face meetings are the most efficient and impactful sessions, but it takes advance notice to make in-person meetings happen. Suggest that the CEO set a schedule that looks out a year in advance and try to revisit and extend it a couple times a year so they are always booking a year or more out when calendars are more open. For most companies, monthly board meetings are too frequent and quarterly is too infrequent, so a good approach is one longer face-to-face meeting per quarter with one shorter telephonic meeting in between. Suggest they also try to add a team-building board dinner the night before two of the four in-person meetings per year.
Write a good agenda
A good agenda is short and clear. It should contain standing items like a review of the previous meeting’s minutes, a quick review of the dashboard, and approval of any option grants. But its focus should be on the one or two deep discussion items, with an emphasis on forward-looking strategy questions, not implementation details and tactical issues. The CEO should not burn a lot of time on backward-looking reports and accomplishments. And when the CEO writes the agenda, make sure she marks each item as being for information, for discussion or for approval – it gives focus and clarity to each section of the meeting.
Get a good board package out
For a meeting to be strategic and forward-looking, the entire meeting cannot be wasted conveying basic information about the company and its recent performance. This is the primary job of the board package. The secondary job of the board package is to protect the company and the directors from liability by demonstrating good process, good information, and the opportunity to consider matters in advance so directors have time to think before they vote on them. A good board package will update the directors in standard format and provide them with the materials and considerations they will need to come to the board discussion educated and prepared.
It is also very helpful to report business performance based on Key Performance Indicators (KPIs). A management dashboard that highlights KPIs is an essential tool for evaluating company performance against targets in an objective way. To allow for comparisons, CEOs should include the history of performance over the past year, a comparison of performance relative to plan and forecasts going forward. Spreadsheets are fine for financial data, but charts are a better visual tool for spotting trends and sparking discussion. There are several items that most board packs have in common: 1) minutes from prior board meetings, 2) financials and 3) a slide deck with key strategic discussion topics and company status update.
Set reasonable expectations
There are two different sets of expectations at play. CEOs need to think through their expectations of both the meeting and the directors themselves. Being reasonable about what can be accomplished at a meeting goes a long way toward being satisfied with the result. In reality CEOs will be lucky to have one really successful in-depth discussion at a board meeting, let alone two. It can take some time to get everyone on the same wavelength, using a shared vocabulary and accepting the same assumption set. Overcoming biases and unhelpful pattern recognition is always a challenge, and getting people to load a common set of variables into their “mental RAM” can take some time and effort. Advise the CEO to try to be patient and focus her efforts and preparation on getting one good in-depth discussion per face-to-face meeting.
A CEO’s expectations of the directors themselves can and should be more exacting. It is reasonable to expect them to come prepared. It is reasonable to expect them to help, and to expect them to have done the tasks asked of them at previous meetings. We will talk more about director conduct in upcoming segments of this series, but hacking good board prep includes insisting on good advance prep and work from the individuals themselves.
Next we’ll tackle how to run a good meeting.
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