How to Create and Manage a Startup Board

Paulo Passoni, a big believer in Latin America’s potential to produce innovation, shares his view on how big boards must be to better serve the mission of startups in the region

Posted on
January 12, 2022
by
Paulo Passoni

How to Create and Manage a Startup Board

Paulo Passoni, a big believer in Latin America’s potential to produce innovation, shares his view on how big boards must be to better serve the mission of startups in the region

Most start-up founders take a very passive approach to building a Board: it is often the result of who invests in the company. That can lead companies to have boards that serve no real function in supporting entrepreneurs.

A real board is one that begins with few but really trusted advisors. Trust is the key ingredient for board success. The members complement each other in mindsets, networks and experiences. They ask good questions instead of giving answers. They challenge founders in how they will create and sustain moats. The Board takes care of the company’s #1 asset: its talent. It helps make major strategic decisions like M&A. It lifts founders when they are beaten down,and it dampens their egos when things are going great.

Setting up the board

The smaller the board the better the odds it will be effective. Group dynamics have the power of stealing the show and preventing real discussions. For early-stagecompanies, it’s best to have 3-5 members on the board. By the time a companygoes public, boards should expand to about 7-9 members.

During COVID, Boards went to Zoom. Virtual boards prevent social capital formationamongst board members, which in turn prevents trust from building. It isimportant to create social events around at least one board meeting in personper year in order to make everyone around the table more comfortable with eachother.

Allowingfor observers is a very tricky decision. It significantly increases the number of people in the meetings, preventing the Board members from being candid. Ingeneral, observers are a bad idea (unless they are truly spectacular).

Choosing board members

First,board members must buy into the company’s mission. A lack of connection withthe company’s purpose will lead to bare minimum advice vs. engaged commitments.

Second,companies and founders need people who care deeply. The best examples of caringare the late Bill Campbell (highly recommend the Trillion Dollar Coach book)and Shep Gordon (check out a documentary called “Super Mensch”; a mensch is aYiddish word that refers to a person of integrity and honor).

Itis essential to bring diversity of all kinds to the board, including people whohave complimentary skills to you. Experienced entrepreneurs, a master incapital allocation, a strong lawyer, a product specialist, an end-customerconnoisseur. Gender and race diversity is also critical to secure multipleperspectives.

Signingup awesome board members requires as much work as setting up your C-level. Youare trying to solve for many things at once and it will require real effort toget it right.  

Interviewing and replacing Board Members

Interviewingboard members is delicate. For starters the best candidates could be moresuccessful than you, which is not only intimidating but they believe the job istheirs just by you asking them.

Whenyou interview a board member, get to know them personally. You want to know howthey think, how they have helped others, the type of questions they would askyou and how they think of some of the different situations that your company isfacing.

Nonetheless,remember that Board members are not for life. As the company grows you willneed different types of skills and advisors. Use new funding rounds to makechanges. The same way you cannot hesitate to upgrade C-Level, you cannothesitate to upgrade Board members.

The Board meeting

Themost important part of the board meeting happens before the actual meeting.

Makesure that you prepare materials ahead of time, circulate at least 2 weeks inadvance and schedule one-on-ones with your board members to discuss questionsthat might arise. This process forces everyone to prepare and frees up time forthe real discussions. Consider making the CFO the “COO of the Board” – a personresponsible for preparing all materials and making sure everyone has done theirhomework.

Inpreparing the numbers, remember that averages conceal instead of reveal. Makesure you have a proper analysis by product, by geography, by launch date, etc.The more granular and more tailor-made the numbers are, the better you and theBoard will be able to assess what is going on and make sound decisions.

Lastly,seek constructive disagreements. If everyone is agreeing all the time, theBoard is not serving its purpose. Ultimately the founders decide, but you wantas many perspectives as possible to arrive at the solutions.

  

Watch Paulo's session on how to create and manage a startup board at the SoftBank Group Operator School here: https://www.youtube.com/watch?v=DWw3HRS7pYI

Paulo Passoni
Managing Partner, SoftBank Latin America Fund