Easy Strategies for Setting Up Your Company's Board of Directors

Tips for organizing a board of directors prior to seeking funding from angel and venture capital investors

Q.  My spouse and I are planning a retail company which has the potential to expand into other cities.  Should we organize a board of directors before or after we raise money?  Also we keep hearing that investors who sit on company boards can fire the founders anytime they want.  Is this true?

A.   Not too long ago I read about world-acclaimed opera singer Luciano Pavarotti.  When asked about his fears, Pavarotti said something like this.  "Am I afraid of high notes? Of course I am afraid!"  Still Pavarotti kept his fears in perspective and sang the high notes anyway.  

In just about every conversation I have with ambitious, first-time entrepreneurs, venture investors are represented in one way or another as distrustful and ruthless.  Entrepreneurs have heard all the horror stories.  They worry that board members and investors will take control of the company, change its creative vision or dump the founders on a whim.  They look at the board as a time-consuming requirement rather than a source of strategic advantage.

So when should you start to organize your board?  How about today?  What attributes should you look for in your first two or three non-management board members?

*   Independence. Skip friends and family members, even if they are considered "high powered."  Go after board members who provide you with an "independent voice" and challenge you to think bigger and smarter about your business.  Again, you want a constructive devil's advocate, not a head bobber.

*   Expertise:  Identify board members who have already achieved some of your stated goals and know what it is like to operate at your "next level" of desired success.  If for example you want to expand through franchising, then find a former franchise executive to share proven time-saving, money-saving strategies.   Seek relevant experience.

*   Balance:   The best functioning boards have management directors, independent industry-oriented directors and investment partners.   If you expect to raise money from angel groups or venture investors, don't waste a board seat by bringing in financial expertise.  It will come with funding.  The same is true for legal expertise.  Lawyers function best as corporate counsel, not voting directors.

*   Governance: Good board members know their job is to provide tactical guidance for high level issues such as raising money, forming partnerships, and making capital investments, not managing day-to-day issues. 

Entrepreneurs who bring together a cohesive, high functioning board gain early respect from potential investors.    Actually the most promising entrepreneurs seek to leverage their board in every possible way.   They frequently call board members to ask questions and discuss strategy.

Lastly, what are your chances of getting the unexpected boot from disgruntled board members?  In my experience there is one secret to maintaining board confidence.  Simply, don't hide problems.   

Business founders who take the immature position that they can solve big problems on their own are heading for trouble.  No CEO ever has all the answers.  And let's face it, when a business is spiraling downward, it's safe to say that the founder already lost control of the company.   The board didn't put the founder in peril, the founder did.

So if you want to keep center stage, it really is all about facing the high notes (and your board of directors) without fear. You can do it!

Write to Susan Schreter at susan@takecommand.org for great funding tips and resources for startup entrepreneurs and small business owners.

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