What do Startup Boards of Directors even do?

Well, it depends on the stage.

Over the past 15 years I have served on well over 20 startup Boards of Directors (BOD) and countless Advisory Boards. Anecdotally it seems to me that more people than ever are interested in supporting startups and joining startup BOD's but most don't really know what the job of a Startup Director really is. Even more concerning I find that most early-stage founders have not given this critical role nearly enough thought or consideration.

To state the obvious, the fact that a person is 'smart' or has 'good business sense' is simply not enough; especially if you think your startup has real potential to scale. Think about it, you would never hire a CTO or CCO or a CMO just because they are a 'smart person' but rather their intelligence is simply the foot in the door. You would evaluate their experience, relevant skills, unique knowledge sets, and their networks to list just a few. And for Directors, this may be even more important since Board Members do not have the time to learn on the job.

Thus, it seems obvious but too often forgotten, good candidates for a Board Director role need to have the right experience, relevant knowledge, and useful skills in the work of being a Startup Director.

So what do good Startups Boards do?

Stage 1 (Pre-seed) - Focus on the Founder(s). At this super early stage, usually before a seed round, the Board is often acting less like a Board and more like a group of highly vested individuals supporting the founder's growth, maturation, and rapid iteration of the core ideas. At this stage, it is likely that a formal Board has not yet been established, which is totally fine.

Stage 2 (Seed) - Searching for early Product Market Fit (PMF). At this stage, it is typical for initial Boards to formalize; often made up of the founders, one early investor, and an outside Director (usually a subject matter expert with relevant startup experience). At this stage, the best boards help founders narrow their vision and become laser-focused on finding initial Product Market Fit. At this stage, it is helpful to have Directors who are comfortable at that intersection of product, business, and sales as it is in those murky waters where PMF will be found.

Stage 3 (Series A & B) - Growth through Sales & Marketing. At this stage, the focus of the Board typically shifts from identifying early Product Market Fit to initial scaling and growth objectives. It is at this stage or soon after that most startups bring in a Head of Product (unless there are multiple founders, one of whom is in that role) and this person takes on primary responsibility for the fine-tuning of PMF, while the CEO and Board shift focus towards growth.

Stage 4 (Series C+) - Finance & Corporate Development. Somewhere between Series B and C, or sometimes even without the need for outside funding events, Boards must shift again. This time to focus on healthy and sustainable growth (finance, financial discipline, BI & deep insights into growth and cost drivers, etc.) and to begin to more seriously consider an ultimate liquidity event (Corporate Development).

At each stage of a company's maturation new skills and experience are needed on the Board and it is expected for membership of the Board to slowly change with each funding round. However, at this stage we often see the most dramatic expansion and a reshuffle of the Board (before IPO or Exit) as these skillsets are often quite different from those that helped the company reach PMF and achieve initial growth.

*While these stages are often correlated with funding rounds they are, of course, just approximations. Some startups arrive at these stages earlier or later depending on the funding realities of the times and of the founders and the fundamentals of the given business.

Other Thoughts and Lessons for Startup Boards

Outside Directors - Outside Directors are absolutely critical; even if Investor Directors say otherwise! At the end of the day, all good Boards try to manage by consensus, and as I like to tell Founders, if your Board is voting a lot that probably means things are not going well in the business. However, when difficult non-obvious decisions arise it is often the Outside Director who is the voice of reason. That is because when these large fork in the road decisions are approached humans naturally think back to their own self-interest. While proper Cap Table management and smart incentive structure go a long way in reducing non-alignment of interests, it is at these times when founders and investors from different funding rounds find that their personal financial outcomes and interests can come into conflict.

This is where a dedicated, experienced Outside Director earns their keep as the Outside Director is often the person with the least amount of personal down or upside. Thus they can be less conflicted and most importantly have the interest of the company itself at heart as opposed to the interest of a given founder, set of investors, or team member.

Decision by Consensus - I referenced this above but the best Boards make decisions by consensus and discussion, not by voting or back channelings. If consensus is hard to reach on your board you either need to change the strategy or the members.

Vesting & Terms - Every common equity-holding member of a startup family should be on a vesting schedule including Directors. This keeps everyone honest and more importantly protects the Startup itself. If a given member of the family cannot do what is needed the startup should get that equity back to find someone who can and this is of course true for Directors as well as founders and team members.

Terms are also very helpful. Startups are hard and thus one should always aim to reduce conflict, negativity, and bad blood whenever possible. Thus, terminating Advisors or Directors is something no founder wants to do. Because of this, I advise all of my founders to put all Directors and Advisors on terms, allowing the Director and founders to walk away as friends or to deliberately re-codify the relationship. A win-win for all parties and most of all for the company itself which needs to ensure it has a full complement of Directors with the relevant skillsets and experience for the current stage of the company's maturation. This process also allows the Startup to balance Director longevity with relevant knowledge.

Advisors & Advisory Boards - I could not in good conscience conclude this post without writing about Advisors. Advisors and Advisory Boards can often be of more value to founders than Boards of Directors; especially in the early days. The primary reason is that Advisors and Advisory Boards can be much more focused than BOD's whose fiduciary duties require regular review of financials, governance, legal risk, and other elements to protect from downside risk but that at the early stages do not directly support growth.

Just as importantly, Advisors bring a much more diverse and deep set of skills than is required of Directors whose primary skill is in company building and Directing. Whereas a good Advisory Board will be made up of product and sales experts, of storytellers and pitch coaches, of brilliant technical thinkers and expert designers, of subject matter experts who understand different types of client personas or technology stacks. In the day-to-day of building a business, these advisors can often provide more value more quickly and thus a great group of advisors is just as important as a great Board; maybe even more important in the early days.