In launching or growing a startup, there’s one tool every entrepreneur needs in their startup toolbox: A knowledgeable, honest and trusted advisory board.
Startup expert Ricardo Weizs, a consultant at Florida SBDC at FIU that specializes in startup growth and access to capital, believes many startups lack industry expertise – and that is a big problem. While having a founder or key team members with experience in going to market in the industry of your company is the best scenario, the next best is to form an advisory board with deep industry expertise that you can tap for advice whenever you need it. And you will need it.
As your company grows and if you are raising capital, a board is not a nice to have, it’s an essential. That’s when you need to choose your board members like you do your investors – carefully – because it could be a five-year relationship, or longer.
Last week at a CEO Summit, several startup experts and investors discussed what startups should consider in establishing their first board, whether in an advisory capacity or as part of their fiduciary and legal responsibility if they have investors. The advice from Monique Villa of Build in Southeast, Victoria Treyger of Felicis Ventures, Lo Toney of Plexo Capital and Erik Rannala of Mucker Capital included these nuggets:
- It’s a good idea to establish at least a 3-person board at the earliest stage of your startup journey, even if you are not raising capital yet. It’s like having training wheels. This way you get used to being organized, having board meetings, making presentations, and keeping them informed, and in the meantime it adds that industry expertise you need. At this point in your startup journey, an advisory board is like an expansion of your team.
- Once you have raised venture capital, your board will now be formal and will likely include your investors. At that point the expectation is that the CEO reports to the board, prepares a report ahead of time, and makes a professional presentation to the board on at least a quarterly basis.
- The No. 1 job of an early-stage board member is to keep an eye on financial hygiene, and make sure that the company doesn’t run out of cash and is hitting its milestones and set up for a successful next fund-raise.
- Choose your board members carefully, from the earliest stages through your growth stage and beyond. The human dynamic is key to how you work together and establish trust. You can talk with your board members about not just the good stuff but the hard things, too.
- Boards help keep the big picture in focus. In addition to paying attention to finances, such as the cash burn rate, and compliance and regulatory issues, boards should also help keep an eye on the company’s internal culture and legal issues and let the team know of potential problems as soon as they see them.
- As the startup grows, CEOs might want to have a separate, personal board, a group or individuals who are a safe zone that they can consult about anything because they have experience on both sides of the table. They can also coach CEOs on best practices on how to work with the formal board of directors, such as ‘how should I approach this with the board?”
- Formal boards of directors will grow in number and shift in composition as a company grows. Some of your earliest board members will likely fall off the board, but they can continue to be part of the co-founders’ inner circle of advisors or the CEO’s personal sounding board. If they have the all-important industry expertise, they could also be part of an Industry Advisory Board. The best advisors are knowledgeable, honest and trustworthy, and they will stay with you through thick and thin.
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