There is no prescription for the right time to put a board of directors in place. While many startups wouldn’t be here if they didn’t have a board from the start, it's also true that there's no expiration date on a well-run company that does not have one.
However, here are seven reasons I have found to be true of a growing company’s and CEO’s need for a board:
1. Brains and Talent: You're Not as Smart as You Think You Are
Yes, I said it. The old adage is true: Together we are greater than we are alone. Although most entrepreneurs possess a stalwart optimism and stick-to-it-iveness, the collective wisdom of a well-vetted board will trump your individual opinion, experience and talent every time.
Good boards think offensively when you are stuck and defensively when you need someone to watch your flank.
2. Table Stakes: Experience Costs Too Much to Learn on the Job
As businesses progress, sadly, too many CEOs push forward and learn as they go. After all, it’s worked so far.
Realistically, the skills to get from $0.00 in revenue (startup) to $10 million often take one set of skills, $10 million to $30 million another and $30 million to $100 million yet another. I do not particularly subscribe to “experience is the best teacher,” but experience is certainly the most costly teacher.
Improve your odds of success by getting a few board members who, as my kids say, have "BTDT” (been there, done that) and have the brass rings and scars to prove it.
3. Self Awareness: In the Shadow of Your Greatest Strengths Lie Your Greatest Weaknesses
As CEOs, we often bring a unique discipline, mindset, gifting or bias as to how to run a company. Many of us have been forced to become generalists. However, when you roll out of bed and your feet hit the floor for the first time every morning, you wake up a certain type of person: a CEO, or leader. As such, and as my colleague and mentor Darin Leonard so aptly states in this business axiom, "Often in the shadow of your greatest strengths lie your greatest weaknesses.” Simply put, if you wake up a sales guy you'd better find an ops guy, if a marketer, find a finance guy, if a visionary, have a pragmatist, if a technician, have some strategists to sit on your board ... you get the picture.
4. Perspective: Forest, Trees, Bark
Another associate, friend and mentor, Dave Parker, has a blog for tech startups entitled ForestTreesBark on his website, DKParker.com. CEOs depending on the evolution of the business they are running will find themselves navigating between each of these proverbial views. Although many would prefer to be missional or visionary leaders (forest), sometimes we can only see the trees (operational and tactical complexities) or we get mired in the bark (urgent, firefighting, crash or "bark-eating" avoidance).
I would like to add roots to Dave’s insights when it comes to board service. A good board will not only keep the company leadership oriented at whatever level of view is needed, i.e. strategic, but will often call for periodic assessments of the overall health of the company, from the roots on up. In short, can the roots support the CEO’s plans? The roots are the management team, banking and financing structures, capacity, cap-ex, merger and acquisitions strategy, market alliances, etc. Perspective is hard to achieve in the middle of the day-to-day. Boards are helpful here.
5. Proper Mix to Serve: Serve Your Company and Yourself, the CEO
Personally, I am fond of the nonprofit language of "board service," which pretty much says it all. Ultimately, the CEO and the board need to possess a servant mentality to serve the best interests of the company, its stakeholders and shareholders. To that end, the needs of the company should be considered first, then the desires of the CEO.
Just as product mix is important to your sustained profits, so too is board makeup and mix. Are you in hot water with your bank or growing at a 30 percent clip? You'd better have a banker or finance guy on your board. Revenue flat? You'd better have a sales guru on your board. Need new products to compete? You'd better have a new product development specialist. Bleeding money out the plant door or product returns killing you? Get an operations and quality guru on your board.
You see, board members are there to serve the company, not hang out with the CEO or provide a stamp for management’s decision-making.
As my granddaddy was fond of saying, "Advice is typically for the benefit of the giver,” which I believe to this day was his kind way of expressing the old adage most of us know as “advice is cheap" ... without service. By having a board serve the company, it will automatically serve the interests of stakeholders and shareholders because without a thriving company, there are no stakeholders or shareholders.
6. Change It up: Be Relevant and Nimble
I have seen a few companies have the same board members for 30 years and legitimately ask why they are having the same old problems or bemoan that 1980s management decision-making is no longer moving the needle for their company.
The world has changed. If your main customers or buyers are now Gen Xers or millennials, you better have one or two “crazy-silly-smart-tapped-in-ones" on your board for their insights alone.
If your competition can get on Elance.com or ODesk.com and hire 10 people for three dollars an hour to do the work you are paying one person $30 an hour for domestically, and yet you don’t believe global competition has reached your door, you had better get a board member who has global competitiveness knowledge and reach.
The world is changing rapidly and your board needs to keep up to date or they are no longer serving your company.
7. Board Member vs. Trusted Advisor: Ne’er the Twain Shall Meet
Objectivity is a funny thing. We all claim to have it and to be able to maintain it. However, be it accountant, attorney, financial planner, wealth manager, banker or consultant, as long as a portion of what you are paying your trusted advisors for is to serve you or your ongoing operations vs. giving you truly objective advice (for a board fee or not), they have lost a degree of objectivity.
Your CPA might be a long-time trusted advisor, so keep paying him or her to give you advice they are responsible for, i.e. tax and cashflow modeling, etc. However, they cannot simultaneously serve you through fees and offer you 100 percent objective board-level advice.
To be clear, I am not drawing a distinction between the legitimacy and honor of profession, trusted advisor or board member, but merely clarifying that the company is not best served by having one person wear both hats — the conflict is imminent. Remember Arthur Andersen simultaneously auditing Enron and coaching them how to set up off-balance sheet shell companies. Not a good plan!
The bottom line is this: The buck stops with you as CEO. So make sure your board has your back, and ensure your company and those depending on you will be around for a good long time by carefully vetting a board and committing to regular meetings.
Build the board your business needs.