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Common blunders founders make with their boards of directors, and how to avoid them

Posted by Shivali Anand

March 29, 2022    |     4-minute read (689 words)

A startup founder’s relationship with its board of directors largely determines whether the firm will succeed. Board members have the power to speed up or slow down critical strategic decisions, such as whether to raise financing or be acquired. By definition, a board of directors is made up of shareholders who have been elected. The board is the governing body that is in charge of overseeing and defending the firm's interests and assisting in developing the firm’s policies and strategy.

A solid relationship with the board of directors can confer unexpected benefits, such as providing access to investor networks and industry contacts. However, new founders, particularly those with little governance expertise, may be unaware of this and miss out on such opportunities.

The No. 1 error founders make

One of the most rudimentary mistakes new startup founders make is failing to shift their relationship with the board from one that is focused on a sales pitch (between founders and possible investors) to one built on cooperation and collaboration. By not recognizing the need to change modes, founders may obfuscate facts that they believe cast the firm in a negative light, leaving board members in the dark.

Further, when exaggerated depictions of a startup's performance are exposed, it could cause rifts among board members. A poll of more than 300 company founders and investors conducted in October 2021 for the Startup Snapshot report illuminated many aspects of founders' interactions with their boards.

How to make the most of a board of directors’ expertise

Here are three suggestions for navigating boardroom difficulties and tapping directors' knowledge.

1. Communicate regularly – The relationship between board members and founders must be based on good communication, and it should be continual rather than episodic. Indeed, entrepreneurs would benefit by recognizing that the board can prove to be a valuable resource in making challenging business decisions.

According to the Startup Snapshot study cited above, most entrepreneurs are not engaging in continuing contact with their board members. While most investors requested monthly coffee meetings, monthly progress reports and weekly messages from their portfolio firms, only a small percentage of entrepreneurs followed through.

Additionally, entrepreneurs are afraid to seek assistance and struggle to optimize investor value-add. While over 81% of board members want their firms to offer them assignments with which they can help, just 30% of startups seek any assistance, according to the survey.

2. Communicate honestly – An open line of communication is essential in every successful partnership. But the report finds that founder-boardroom openness is often restricted. Over 60% of founders said they are not totally upfront with their board, sometimes downplaying issues and waiting to inform them of obstacles to exercise authority.

Most entrepreneurs don't realize that board members can't contribute significant value unless they have total transparency and are aware of the firm’s problems as they arise. This suggests entrepreneurs must stop sugarcoating bad news or downplaying issues and instead be transparent with the board of directors. Founders should also strive to shift the communication climate toward one of problem-solving.

3. Communicate with purpose – While improved communication is beneficial to governance and helps maximize board value, founders should also ensure that their requests are simple to reply to. The board of directors has significant authority to assist founders and they are frequently ready to do so, but they do not always have the time. As a result, founders should aim to make it as easy as possible for directors to assist them by explicitly articulating their expectations.

For example, if you're searching for an introduction, making a list of prospective connections and assessing each one individually beforehand makes it easier for the board member to oblige. In addition, you could look up their contact information and other relevant facts. Once they're satisfied with the final list, founders could compose a simple introduction email or a brief bio that the board can simply forward.

Takeaway

If founders connect with board members successfully, they can gain significant insight and assistance. Entrepreneurs must be agile and learn to communicate more honestly and meaningfully to optimize the board’s value-add in today's unpredictable business climate.

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