Why start-up boards are here to stay
Start-ups are a new concept, business is not. Disruptive ideas still need structural backing to become as revolutionary as many start-ups promise. This means maximizing traditional management models to realise the radical.
Start-up boards, however, are often overlooked and underappreciated. Most boards are made as the start-up scales, making for a haphazard path to managerial administration. Further, appointment quality varies as there are no hard or fast rules when it comes to filling board positions.
This is starting to change. Industry experts demonstrate good boards make even better companies. Boards comprised of industry insiders and independent experts work to control founders and keep stockholder interests front-and-centre. Finally, both founders and investors are taking note. Let’s explore why start-up boards are here to stay.
The makings of start-up boards
There should be no ifs or buts about boards – they must be legally implemented by every company from start-ups to multinationals. Due to the nature of start-ups, however, they are not prioritised nor formalised as in other sectors.
Advisor boards are a group of highly experienced individuals whose primary role is to provide guidance on the overall strategy of the business during the more formative and transitional stages of the business.
Boards are ultimately responsible for making critical decisions for the company. These range from decisions related to fundraising, acquisition, and overall strategy. So make no mistake — who sits on the board is critical. In return, the business owner should be able to leverage off the extensive networks, strong influence, deep knowledge and industry experience of the advisory board members.
The why of start-up boards
The wisdom of thinking offered by advisor boards should no longer be undervalued by start-ups. Their mere incorporation into any given start-up equates to better business decisions and sound future-proofing, unlocking industry experience with connections to other helpful companies, individuals and resources.
The “who” of start-up boards will change with more funding and time. For example, start-ups in seed funding might only require three people with two founders and an investor. Later, start-ups at Series C might create boards with five to seven people across expertise.
An entrepreneur could add a lawyer for additional legal advice, a public relations specialist for branding or marketing advice, a former founder for advice on growing a company and selling to an acquirer, an industry specialist for depth of knowledge and partnership development.
General board guidance may be tough to quantify but make a considerable difference to newer companies navigating their respective fields. Boards make the company more attractive to investors, help to avoid the typical pitfalls of growth, facilitate the management of crises and ultimately significantly improve the performance of the company.
Boards help in the journey from start-up to scale-up – so, why are they underestimated by many start-ups today?
The struggles of start-up boards
Independence and objectivity should be the aim of the game for any board, but many are not comprised to act in the best interests of the company. In fact, board members with vested interests compromise overall decision making of the board itself.
A report into start-up boards uncovered that many founders lack the experience to properly formulate teams of advisors. The report, which looked into the Australian start-up ecosystem, noted just one in four Australian start-up survey participants have independent, non-executive directors on board. Further, gender diversity continues to be problematic for start-up boards.
Start-up boards do not receive the respect they deserve – which is strange, as they play a vital role in long-term success. Independence and diversity are core problems which start-ups and board members will need to work through in the coming decade.
Independent valuations should be a high priority for businesses which do truly aim to change the world. This is because board members do not have millions of dollars riding on the outcome, unlike any given founder. They are truly independent in judgement and deliver better outcomes to start-ups who have them than those that do not. Sage advice and deep industry connections are undoubtedly the most likely path toward the realisation of lofty ambition.
It is important to note that many start-ups do experience major success without proper advisory oversight – however, many of these same start-ups have a tendency to spectacularly crash and burn. Poor management and failure to move with the market are familiar elements behind the most infamous start-up crashes of recent memory. While not all start-ups can be saved, a good board goes a long way to insulate businesses from themselves.
It is not enough to simply have a great business idea. Rather, it is the industry know-how to flawlessly execute said great business idea which decides eventual winners and losers. Human capital often decides start-up success stories and this means backing from professional management teams.
Evidently, start-up boards must no longer be an afterthought in the 2020s – and this requires founders to re-evaluate the role of advisors if they are realistic about their ambitions.
By Max Lyadvinsky is the chief executive officer of start-up funding platform Bloomio