How To Build A Good Board

I've been sitting on early stage company boards for over 15 years now and I've been on plenty of bad boards and good boards. As I've learned the difference between the two, I've insisted on certain things when we negotiate the composition of the board. That has significantly increased the number of good boards I am on.

Here are the 10 key things I've learned (plus one because it's hard to stop at 10). They are all appropriate for an early stage company board, but maybe not all are appropriae as a company gets much larger.

1 - Have at least one founder on the board. Many VCs like to move the founders out of the way. They think they will be difficult and meddle. That's always a risk, but the benefit of having founders on the board vastly outweighs any downside in my mind. Having too many founders on the board is bad too. You want a diverse set of people on your board, not any one concentrated group.

2 - Keep the number of VCs on the board to two or three. The number of VCs on the board is in inverse proportion to the success of the deal.

3 - Local board members are better. They will come to the meetings. Avoid too many board members who live elsewhere. They'll call into the meetings. Trust me. And that sucks.

4 - Have at least one and ideally two industry insiders on the board who are independent of the founders and the VCs. They should bring operating experience. They should be mentors to the CEO. They should be local so they come to the meetings.

5 - Do the meetings first thing in the morning when people are fresh. No laptops and no blackberries other than the laptop that drives the presentation if one is needed.

6 - Bring the senior management to the board meetings. They should know the board and the board should know them.

6 - Try to do a dinner the night before at least four times a year with all the directors attending. Don't bring senior management to these dinners. They should be for board bonding which is key to a well functioning board.

7 - Always send the agenda and board materials at least one day in advance of the meeting and expect/demand that the members read it before coming to the meeting.

8 - Do not spend the meeting going through the materials slide by slide. People can read, expect that they will.

9 - Do spend the meeting reviewing where the business is, where it needs to go, and what strategic decisions need to be made to get there.

10 - Remember that the board works for the Company as much as the management works for the board. Expect board members to do what you need from them and manage them to make sure they do.

11 - Keep your board to seven members or less. Five is ideal in my experience but sometimes you need seven to get the right diversity. Two insiders, one to three VCs, and one to two industry people is ideal once the company gets to a certain scale.

Comments

[PRoales]

For a second there I thought I was reading another numbered list from Guy Kawasaki...

[Nic Brisbourne]

A great list overall and I couldn't agree more with your last point. There can be a tendency for boards to grow that should be resisted.

Useful to have all the points in one place too.

[Karen E]

Another great business insight from your specific experience relevant to other fields and aspects of business. Founders are like the apple's core - the necessary heart of the business, complete with seeds that get in your way! Also a good plug for 'agendas ahead of time' and keeping people (even VIPs) mindful of their commitments.

[JayR]

Great post (you actually had twelve points because you had two "6's", but I think they are all important). A couple of them I don't think are universally adopted and should be. In particular, number 10, especially when it comes to the "industry designee". Too often you see companies get caught up in the same mindset as when they look for a "world-class" CEO and you get a celebrity board member who looks great on paper but has little interest in attending meetings or doing any heavy lifting other than the cradle on the phone every once in a while to make an introduction. I wonder if early-stage companies spend enough time actually interviewing independent board members before choosing one.

Another point - while having multiple founders on the board can be useful (and sometimes necessary), certain situations can be a little delicate when one of them is clearly in a subordinate position to the other. When the time comes to shift the lower-ranking board member in the management structure, it is harder when that person is on the board.

[jackson]

Most of this will improve any business meeting, specifically 5, 7, 8, 9.

[Darren Herman]

Fred, great post. I think your point about having two industry experts/insiders is extremely valuable as they can champion your business in their respective industry and also, have a non-operational viewpoint, much like consultants. Great post!

[Sacca]

You nailed this, Fred. I see way too few non-VC directors these days.

[darren]

Great post. I would be interested to hear which of the boards you sit on have board meetings that you think are productive and why.you never really hear much about that

[Eric Jackson]

Hi Fred:

You're bang-on with these. Too much of the discussion about board governance since Enron has focused on structure -- not process. Your points cover the important process factors, which can't be legislated or measured -- unless you went into board meetings behind closed doors.

One point I'd add though: there's got to be a dynamic in the board discussions of a willingness to question assumptions and challenge. Too often, there's a spirit of consensus-building and politeness. The best boards debate issues intensely -- without taking things personally (often very hard for founders to do!).

Thanks,

Eric

http://breakoutperformance.blogspot.com

[Roger]

Fred, terrific list. As a "young" entrepreneur it is great to get your perspective. It is gratifying to see that we are doing most of these things already at my company, though certain of your points (the dinners, the timing of the meeting) represent good food for thought.

[Dave Liu]

Thanks for the education! My own startup is at a very early stage - still fine tuning the beta prototype - at what point in time do you think early-stage startups need to begin to build their boards? Are there any rough guidelines for timing?

-Dave
http://daveliu.org/blog (BLOG)
http://faqqly.com/dave (FAQ)

[bobby orbach]

Fred,
Great post!!
I have been on many boards... the succesful and helpful boards are a huge asset to any copany, so your rules of engagement are right on/// BTW you have # six twice
my fav...is #10

[Maureen Rogers]

Great list. Excellent point about having the industry insiders mentoring the CEO. I was a senior manager in a non-VC-backed company but with industry insiders as investors and board members. We had a real rift in the team on how open we should be with our board: Should we open our kimonos and go for transparency and really tap our board for advice? Or brazen it out pretending we knew more than we did(and were doing better than we actually were) so that they'd think we were the "real deal." Well, we came down on the brazen it out side, and we are no more. Don't know if things would have turned out different if we'd been really willing to use our board more effectively, but I sure wish we'd taken that option....

[Tom Evslin]

Fred:

Right on. Only thing I'd change is to strengthen the part about getting board material out early. It should be a week in advance so you can INSIST, not "expect" that it be read (you'll know I'm preaching what I didn't practice).

Riffed on this here http://blog.tomevslin.com/2006/11/getting_the_mos.html

[Kris Nair]

Awesome :-)

[Jarrett Collins]

Let me second Tom Evslin's comment on #7: I've never had the problem of getting Board materials too early! Management should give itself a deadline exactly 1 week ahead of the Board meeting date and then press "Send" to email whatever materials they have gathered until that point.

What happens in real life (all too often) is that management *intends* to do this but other urgencies come up, the CEO/CFO finally sends out the package 2 days ahead, an influential Board member is traveling and doesn't get the materials on the road (or doesn't get the time to read them thoroughly, whether or not s/he'll admit it) and the Board meeting degenerates into a forced march through the PowerPoint deck that leaves exactly 10 minutes for strategy discussion at the end. At that point -- perhaps 3 or more hours into the meeting -- most of the participants are feeling too fried to contribute much of value anyway... Meeting adjourned!

[Barry Shalley]

Some interesting + practical insights on managing another level of relationships.

You wouldn't have more than 8 people reporting to you so why are board members that different; an inverse hierarchy that assist the various management verticals, be they business development, finance + undertanding the owner's needs (eg the investor vs the founder).

[Joahn]

Good job, here and there!!! Keep it up, I like your guestbook!!! Please add your comments at my :)

[Tetcher]

Where did you find this guestbook by the way??? I'd like to have one like this on one of my sites!!!