Why Your Startup Doesn’t Need A Board Of Directors

Cartoon Illustration of Board of Directors or Businessmen Meeting

“How many people do I need on my the board?” I asked our attorney Marcia when I was incorporating our company.

“You need to have a board of directors, but it doesn’t have to be large. In fact, you can be the only member of your board when you’re starting out.”

“Really,” I answered.

“The investors will make you have a five man board. But for now, make your life easy,” Marcia suggested.

 

You don’t really need a board of directors when you’re starting out.

 

So I took Marcia’s advice, and we had a one man board consisting of just me. That decision saved me a ton of headaches because the other option was a three man board of me and my cofounders (“Jim” and “John”).

I can’t even imagine what would have happened if I added Jim and John to the board because a few months later they quit and stole the company’s IP and left me for dead. I guess they could have voted me out of my own company and then I would have literally been dead.

Companies are very fluid when you’re just starting out. The team is changing, and your focus is changing.

 

If you have a board when you’re starting out, it’s likely going to be comprised of you and your cofounders.

 

Yeah, I hear you. You and your cofounders are going to work together forever. However that rarely happens. Over 50% of all founder relationships end badly.

So you have to ask yourself, what value is having a large board of directors when you’re just starting out going to provide you? The answer is not a lot.

You can talk all you want with your cofounders without having the overhang of a board of directors making things worse.

 

You’ll need a board of directors when you take professional investors money.

 

We ended up with a five man board just like Marcia predicted once we closed our funding. The two investors who put in $12M each took a board seat, I had a board seat, plus we could nominate two independent investors.

 

Having a board of directors is useful to a point.

 

Every six weeks or so our board met. I kept the discipline of meeting with each board member before every board meeting to make sure they were never surprised with bad news.

The board meetings were useful as a tool to keep us disciplined. We had to present our results versus our plan every six weeks. That’s really valuable because of the accountability it brings.

 

But don’t expect your board to run your company for you or provide you with great strategic advice.

 

Yes, we got oversight from our board, but the pretty much left us alone to run the company. On the other hand, I’ve been part of what I will call overactive boards where some of the board members still think they are operational.

Instead of guidance, the CEO gets directives of what to do. This creates a lot of problems because it’s virtually impossible for someone attending a board meeting every two months or so to run your company.

 

Remember, your investors have the true power, not your board of directors.

 

The old saying, “Follow the money,” is so true for startup CEOs. As long as you need money from your investors, they hold the true power of your company, not your board of directors.

For more, read: http://www.brettjfox.com/why-try...

 

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