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The No. 1 mistake startup founders make with their board of directors, and how to avoid it

Posted by Kanika Sinha

February 4, 2022    |     4-minute read (747 words)

A startup can thrive or meet its end based on its relationship with its board of directors. Board members can accelerate or derail key strategic decisions, including whether and when to raise capital or be acquired. By definition, a board of directors consists of elected individuals who represent shareholders. It is the governing body that provides oversight and protects the interest of the business in addition to helping set business policy and strategy. 

A board can be an invaluable resource, and a healthy relationship with the directors helps the founder reap significant unanticipated benefits, such as tapping into investor networks and connections. But this is something new founders, particularly those with no governance experience, do not understand and may, therefore, miss on availing some great benefits.

The founder’s biggest mistake 

One of the biggest mistakes new startup founders make is not transitioning the relationship with their board — that is, from one based on a sales pitch (between founders and potential investors) to one based on teamwork and collaboration. By holding on to a sales-focused mindset, founders end up obfuscating information that may put them or their startups in a bad light and leave board members in the dark.

Additionally, unrealistic pictures of a startup’s performance can create rifts with board members when finally brought to light. An October 2021 Startup Snapshot report that surveyed more than 300 startup founders and investors provided several surprising insights on founders’ relationships with their boards. 

How to tap into the expertise of directors 

Here are three tips to help navigate the challenges in the boardroom and tap into the expertise of directors.

1. Communicate frequently – The shift of the relationship between board members and founders needs to be founded in better communication — one that is ongoing and not episodic. In fact, founders would do well if they realize that board members can be an untapped resource and help make difficult business decisions.

The Startup Snapshot report found that founders are not active enough in their ongoing communication with their board members. While most investors reported that they wanted monthly coffee meetings, monthly progress updates as well as weekly texts from their portfolio companies, only a minority of startups do that.

Additionally, founders are unwilling and hesitant to ask for help, and struggle to maximize investor value-add. The report also revealed that, while over 81% of board members want their startups to give them tasks to help with, only 30% of startups ask for help.

2. Communicate truthfully – Open communication is a crucial factor for any successful relationship. Despite that, data in the report shows that transparency in the boardroom is limited — over 60% of founders reported that they are not completely transparent with their board, often downplaying difficulties and awaiting to notify the challenges to assert a sense of control.

Most founders don’t understand that without complete transparency or knowing the real struggles and obstacles as they come, board members cannot provide any substantial value. It is, therefore, important for founders to stop sugarcoating bad news or playing down challenges, and instead be completely honest with their board.

Founders should also work toward changing the communication environment from being one of sales to that of problem-solving. This is the only way the board will be able to provide significant value and help drive the companies to greater success.

3. Communicate purposefully – While increased and improved communication is good for governance as well as tapping into board value, founders should also make sure their asks are easy for board members to respond to. The board has the power to greatly help the founders and are often willing to help but don’t always have the time to do so. Hence, founders should try making it easy for the directors to help them by clearly defining their expectations.

For example, if looking for an intro, mapping out a list of potential connections and vetting them individually to ensure each intro is relevant can go a long way. It is also a good idea to dig into their contact details and other relevant information. And once they are confident about the final list, founders can write a simple intro email or a short blurb about themselves, which the board can just forward.

Takeaway

Board members can provide valuable insight and guidance if founders communicate with them effectively. And in today’s uncertain economic environment, founders need to be agile and learn to communicate more transparently and purposefully to maximize board value-add.

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