When Change Is Good

For entrepreneurs, the individuals they bring on to their board of directors is one of the most important decisions they will make over the life of their company. A board can either become a group that they lean on for support and feedback, or it can become a source of distraction and frustration.  It can either help create focus and prioritization, or suck management energy that is better spent on the business. It is important to make it the former and not the later.

The challenge for founders is that the composition of an early stage board is often driven by fundraising considerations, more than board considerations.  In other words, board seats go to the lead investors. As companies grow, however, they often look to bring in “outside directors” who are neither part of the management team, nor investors in the company.

Based on my experience, I have two general observations about the addition of outside directors.  One observation is that existing boards (and management in particular) are often very reticent to mix things up — standing by the old credo of,  ”If it ain’t broke, don’t fix it.”  The second observation is that such additions, if done correctly, can be not only beneficial, but catalytic to a company’s growth.

So, how should companies go about selecting an outside director?  While every situation is different, here are a few things I have learned:

  • Make sure they have time. The best candidate on paper will be completely useless if he or she doesn’t have the time to engage. And engaging doesn’t simply mean attending meetings.  It means showing up to meetings prepared to discuss key issues, making introductions and connections on behalf of the company, and taking the time to stay current on the business and the industry.  If a CEO cannot pick up the phone and call a director, then they have done themselves a great disservice.
  • Seek a different point of view. While it is always good to find someone from the industry in which you operate, think broadly.  Is there someone who is trying to solve similar problems, but in a different industry?  Is there someone operating in a different part of the same eco-system?  In other words, don’t look for someone with your same view of the challenges ahead.  Look for someone who sees them from a different angle. New perspective is important.
  • Don’t ask a friend. Given the opportunity to bring on an outside director, I have seen several founders look to a friend.  After all, who doesn’t want an ally in the board room?  The problem is that a CEO doesn’t need a friend, they need an independent and honest point of view.  Don’t be short-sighted. Don’t settle for someone who has your back. Look for someone who can help you win.
  • Be clear on your expectations. As I said above, it is important that a board member has the time and energy to commit to the cause.  The only way to be sure, is to have a clear discussion about expectations.  In addition to giving time, a board member needs to be a champion for the company. They need to help knock on doors and dig deep into their Rolodex.  If they are not comfortable leveraging their relationships and connections, then you should know that up front.
  • Change is reason enough. Even if you do not feel like there is a missing element on your board, change can be good.  Like any decision making group, boards tend to get stale over time.  Past decisions and historical performance have the tendency to lock people into positions, create alliances and keep the group from thinking outside of the box.  Often times, a fresh perspective is all it takes to push beyond these boundaries.
  • Don’t be scared to make another change. If an outside board member is not a good fit, then don’t leave the company to live with the mistake.  In the world of start-ups, there is no time to waste.  In addition, as a company grows, its needs will change.  A company scrambling to land its first customers is not looking for the same person as a company planning to go public.  Find the right person for the right time, and don’t hesitate to move on.

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