In recent startup news, the virtual assistant startup Zirtual went from a bustling company with over 400 employees and more than $5.5 million in funding to a ghost town overnight. Without warning or explanation to employees or customers, Zirtual shut down all of its operations in the middle of the night on August 10. While business model scalability and quickly changing markets are major challenges for startups, it also highlights a larger issue in the sink or swim world of startups—the need for a rock solid board of directors steering the ship.
Every startup hopes for success, but long term sustainable growth and profitability is far from a given. Startups that do achieve long-term success all have one thing in common: they seek out and follow the guidance of a well-rounded board of directors whose knowledge, experience, and perspective shapes the direction of the growing startup. The board might not get the limelight often, but its crucial role is to make decisions on behalf of stockholders for the good of the company, while also advising the CEO.
Most U.S. based startups have boards with a unitary structure with an odd number of directors for voting purposes. While the specific needs of a startup’s board will vary depending on what stage of growth it’s in, as well as whether it’s public or private, here are six factors to consider when forming a BOD for your startup:
- Start Early: While establishing a board of directors is required by law when startups begin looking to raise outside capital, it’s a good idea to build the board framework early on, because it signals to potential investors that you’re serious about success. Longtime entrepreneur and venture capitalist Brad Feld shares useful advice on this topic in a Wall Street Journal article: “While you’ll often get advice to just have a ‘board of advisers’ at the beginning, I’ve found that the formality of a board of directors is helpful to the entrepreneur by creating an additional level of commitment from the directors.”
- Think long: Choose advisors whose past experience can influence where you’d like your company to be in six months, a year, two years—you get the idea. Seek out directors with experience scaling growth and revenue, rather than ones who may have previously only worked with early stage startups.
- Leverage your Networks: If you’ve always looked up to a successful entrepreneur or mentor in your field, consider asking them to be on your board. Leverage your investors’ networks, too: like all relationships, creating a good Board of Directors requires chemistry that’s best honed in real life, by cultivating word of mouth recommendations or existing relationships. Even if your startup is built entirely in the cloud, keep your feet on the ground with real life advisor relationships that you can trust.
- Fill Your Weak Spots: Play to your strengths by addressing your weaknesses, and seek board members who excel in the areas where you do not. If product design or business development are your strengths, great, but you’d do well to seek out seasoned experts in raising capital, advising investors, and any of the other key factors to startup success that are not your forte.
- Consider Culture: Not all startups are founded by your stereotypical jeans and t-shirts wearing computer genius types. While many startups embrace a more laid back work culture, your board members should create harmony with the personalities and values of startup founders. Finding a good fit from a cultural standpoint will help keep the lines of communication open and easy.
- Embrace Change: Successful startups change fast. Ideally a board of directors keeps pace with dynamic changes and continues to advise your startup accordingly, but realize that changes to the board are normal in startup territory. As your startup grows, so too should your board. And as your board grows, the individual stake and voting power of each member decreases, meaning it’s essential that every member of the board act with the company’s best interests in mind. Board members might step down as the company grows in a new direction or receives new rounds of funding. If you find yourself needing to fill a board seat along the way, consider the factors mentioned above. Likely your long term vision will have shifted since you launched your startup. Your network has probably grown. You may have identified additional weak spots. And your company culture may have changed along the way. Use change to your advantage as you ride the wave of your startup’s success.
Remember that a successful startup is only as strong as its board of directors. According to a new posting on Zirtual’s website, the company has now embraced a more transparent approach, with an FAQ page about how and why they ran out of money, and how they are reopening under acquisition by startups.co. Putting in place a stellar board of directors is a great way to mitigate roadblocks like this at your startup.
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