External directors boost startups

Why do so many people think having a board applies to public companies only? Having one is actually more important for a startup. External directors could be the difference between make or break for a new company.

board, external directors, startups, Bill Gates, Microsoft

You don’t have to be Bill Gates or Microsoft to have a board of directors. In fact new companies need external directors more than Fortune 500 companies do.

Nowadays when as many companies are set up as go bankrupt it’s essential to be surrounded by competent people that can steer you in the right direction. Let’s face it, nobody is an expert on all areas essential to successfully run a company. An entrepreneur may for instance not be the ideal person to handle finance and accounting.

Behave like a Fortune 500 company

Why should only listed companies have boards of directors? Time to go against the flow and behave like your company was a Fortune 500 company. There are no rules that prohibit a startup from appointing a board of external directors. Even if you are the only investor in the company, a board will benefit you tremendously.

You can’t do everything yourself

Frequently someone who just started a company has it all in their head and feel confident they know what they are doing. Well, do they? Reality is that some do and some do not. So it’s definitely worth while looking at the benefits of having a board of directors to make the company develop as intended.

Advantages of appointing external directors to your board

  • Larger network giving you access to competent people you don’t yet know
  • Different perspectives
  • Wider knowledge base facilitating decisions
  • External know-how is a huge asset

If you invite a lawyer to sit on your board, you have a legal expert with knowledge of and interest in your company succeeding. Far better than hiring a lawyer charging per hour for his services.

How to carry out board meetings

To begin with, having 4-6 board meetings a year should be sufficient. Make sure you let the members of the board know which issues will be discussed well in advance. That way they are prepared, which facilitate constructive discussions and enable appropriate decisions to be taken. Take notes of everything said and decisions taken, write protocols and distribute to all members. That will make people think before they venture an opinion and also facilitate follow up of decisions taken.

What’s wrong with being unconventional? Doing things the conventional way may result in failure. So like a Fortune 500 company, get the advantage of external directors that will be assets to your company. The difference between doing things on your own and having a board will be huge. Provided of course that you chose people that are able to and interested in contributing to developing your business. What will motivate them? Well, I leave that question up to you. If you can’t come up with an answer, maybe you should think twice about setting up a company?

Photo: Titanas – Flickr

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56 Responses to “External directors boost startups”

  1. Guy Says:

    An excellent post, Catarina. In fact, there is a strong push for companies to appoint independent Non-Executive Directors (or, external directors, as you put it). The latest UK Corporate Governance Code, for example, suggests that larger companies have a preponderance of independent NEDs (including a Non-Executive Chairman) and that even small companies have at least 2 independent NEDs on their board – for all the reasons you give. It's not just starts-ups: but all companies…

    Apart from anything else, as a business owner/CEO you're able to draw upon the extensive skills and experience of your NEDs, you will have mentors available to you and, very importantly, somebody independent to talk to (alleviating the loneliness of being at the top).

    A key point to remember, too, is that as company directors – even Non-Executive ones – these people have a statutory duty to act in the best interests of the company, whereas outside consultants have a duty to their own company first.

  2. catarinaalexon Says:

    Agree with you Guy. Just wish more startups appointed Non Executive Directors, to put it your way. They often need them more than large companies do.

    Good point about external directors having a statutory duty to act in the best interest of the company.

  3. Eric Saint-Guillain Says:

    Nice post Catarina. I totaly agree that small companies have to behave like a big company . By having worked for international companies, I can see the gap between both type of companies, for instance the lack of controlling and budgeting processes in small companies. One year ago, I joined the board of directors of a small non-profit organization as financial expert. There were a lot of things to do in financial and legal area, but sometimes, your advices are not always welcome. People are reluctant to change, and think that I want to apply processes as in the private sectors. I just try to make them understant that even a non-profit organization has to be manager in order to reach his goal successfuly.
    My recent post Change- responsibility and self-confidence

  4. catarinaalexon Says:

    Glad you agree with me Eric. At least the non profit organisation you are on the board of have the sense to, like a large company, have a board.

    But I do believe non profit companies can be difficult when it comes to finance. You are right, but many of them probably only care about the fact that they do not have to make a profit.

  5. Mikko Says:

    To me more important is the blend in mgmt and board. Many startups fail because external directors have same tech. belief structure as the founders. Engineer does not need another engineer to the board

  6. catarinaalexon Says:

    Agree with you completely Mikko. Obviously it's essential to have external directors with different expertise from the owners. If not, the whole idea falls flat.

  7. Eric Saint-Guillain Says:

    Thanks for your reply Catarina. Indeed, people in a non-profit organization are less concerned by the profit. The argument beginning to convince them is to say that the goal is to ensure the sustainability of the organization, the project. The goal is probably not to earn money, but certainly not to lose money too. This argument seems to be accepted as they are concerned by the sustainability of the organization,and of their jobs.

  8. Sherryl Perry Says:

    Excellent suggestion Catarina. Bringing in people who have a fresh perspective is excellent advice. As you point out, not only do you benefit from their expertise but you also potentially have access to everyone in their contact sphere.
    My recent post 8 Reasons I Do NOT Follow Like or Connect on Social Networking Sites

  9. catarinaalexon Says:

    Glad you found a way to make it work Eric. The word sustainability probably did the trick…

  10. catarinaalexon Says:

    Thanks Sherryl. Don't know why more startups don't do so? Would save quite a few of them from bancrupcy.

  11. Dennis Salvatier Says:

    I often think about this when meeting with clients who have boards. For example, I met with a chamber of commerce who is retooling it's efforts and has cleaned out it's board and replaced some heads. Their reason was that the original board was not working towards the same board, and even though the chamber is young is should conduct business as professionals and not amateurs. I was very impressed.

  12. Tramerica Says:

    Absolutely true Catarina… what business without think tank!

  13. catarinaalexon Says:

    Glad you agree with me Tramerica

  14. catarinaalexon Says:

    Good example of the importance of having the right external directors Dennis.

  15. Keyuri Joshi Says:

    Interesting post with your excellent idea. I have been active on many boards myself but never had one when I started my sole proprietership. Well, I didn't have a formal one. I did solicit the ideas and feedback from those nearest and dearest to me. They had various expertise that helped me in many ways.

  16. Susan Oakes Says:

    Good points Catarina. I actually don't believe start ups even think of doing this or they just talk to their accountants which is good but will only bring one view to the situation. Also perhaps it is the fear of being accountable to others that stops them.
    My recent post Dangers Of Being In Love When Marketing Your Brand

  17. Julie Weishaar Says:

    Great article Catarina. Not only does bringing in external directors bring in new perspectives, it also brings in unbiased & more neutral perspectives. Sometimes being too closely involved in a business inhibits a business owner from seeing the forest through the trees.

  18. catarinaalexon Says:

    That's one way of having a "board", Keyuri. The essential thing is to have access to outside people with knowledge that benefit the company.

  19. catarinaalexon Says:

    Agree with you Susan. Not sure why since for startups it's essential to have imput from external experts in order to make sure their company develops the best ways possible.

  20. catarinaalexon Says:

    That's so true Julie. Expert outside advice enable startups to see the forest through the trees.

  21. resumesurvislady Says:

    Great article! I'm in agreement with Keyuri. While I also have sought outside advice with my start up, I never thought about putting together a more formal "board." It's a great idea for advice and input and to share expertise. Thanks!

  22. catarinaalexon Says:

    Yes having a board is a good idea for a startup. Gives you expertise and advice from people looking at the company from the outside.

  23. Taral Vaidya Says:

    It would apply more to a company of a size above a certain level. Most small scale companies would have a prime mover in the form of owner who would have his own ideas and he would then add professionals once he has created a fund mass. Once, he has the need to grow, he would certainly need another head to take responsibility. Most times, middle level companies would not work if the external director and the principal body do not have ideas flowing in the same path.

  24. catarinaalexon Says:

    Taral, that may be true for some startups. However, many of them never get above a certain level due to the fact that the owner doesn't command all the expertise needed to get it there. That's why so many startups go bancrupt.

  25. Roger Brand Says:

    I understand the "direction" the post is pointed to but NED/INED is not key to it.
    The key is having a vested interest in the success of company and skill sets to contribute positively.
    The start-up individually has that but can be held back by two issues. One is the arrogance to assume no help is needed (difficult to work around that) the other is fear of the expense of getting help (most fears can be addressed).
    Help can come in various forms and be rewarded likewise. I would seek out an Angel investor as a primary source of help (suitably qualified of course). Such individuals contribute much more than a formal Board. This does two things.
    1. Makes you realise you need to share the business (emotional decision).
    2 .Makes you have to explain the business (never easy if you find a good Angel).

    So I submit external advice is essential but there are many sources available (Angel/ mentor/ interim manager / serial entrpreneur etc). There is also a focused way to cover the cost (don't use scarce cash resources). Shares in future profits or equity are excellent ways to reward good advice.

    NED/INED legislation has failed to live up to its purpose,. Too many high profile names are "given" positions (marketing approach to a compliance need?). Worse, too many NED's have taken on more appointments (often in addition to Executive positions) than they can possibly carry out with appropriate dilligence (demonstration of greed rather than savy advisory skills?). They attend a few Board meetings but rarely visit the "operations" of the business so have no hope of understanding first hand the needs and risks of the entity. The legislation ecourages a Western sickness = tick the box and I do not see the proposed legislation review curing the ailment.

  26. Oliver Tausend Says:

    Hi Catarina,

    I couldn't agree more with you. Entrepreneurial success is all about team work. We can't make it alone.

    Thanks for sharing your insights.

    Take care

    Oliver
    My recent post Freedom Or Security – What Do You Value More

  27. catarinaalexon Says:

    Good points Jane.

  28. Dev Says:

    Excellent Post, Catarina. You're sharing here some great points. I love the point #2 "Different perspectives". Great…

    Thanks for sharing this excellent info.

    My recent post How to add Google Plus one button to WordPress &amp Thesis

  29. catarinaalexon Says:

    Thanks Dev!

  30. Doreen Pendgracs Says:

    Very cool idea! I'm a firm believer in getting outside help and guidance. As a freelance writer, a board of directors isn't practical for my operation, but I certainly have an unofficial guidance committee that helps me in both my writing, and in my project in starting up a new Toastmasters club.
    My recent post take heed and listen to the signs

  31. catarinaalexon Says:

    Thanks Doreen. Glad you agree with me. Good luck with your new Toastmasters Club!

  32. findingourwaynow Says:

    This is a very good suggestion. I have done this in the past but had not thought about it for my blog. By having a board for my LLC, I could gain value brainpower over all to help me grow my business. I do have people in mind to do this and I know that would love to participate in what I'm trying to grow. :-)
    My recent post Makulu Iswithi Pinotage: Wine

  33. parrillaturi Says:

    Great post Catarina. I have done this in the past, and have avoided major headaches, by having the right people on the BOD. Hope those who read this article take heed, and apply these suggestions accordingly. Blessings.

  34. Geek Girl Says:

    I think this is a great idea! I suspect most don't do it because they are too busy running their companies, at least that's the excuse I would bet most give.

  35. akandrewwriter Says:

    Any corporation large or small should have a board. The key thing that you mention at the end is how to motivate people to actually take the time to come to meetings and give valuable input. The benefits are absolute. A lot of new businesses have trouble delegating and/or thinking they can afford to do without . Thanks for the post.

  36. catarinaalexon Says:

    Thanks Cheryl. You are most likely right. Also think that having a board for a start up doesn't even cross their mind.

  37. catarinaalexon Says:

    Glad you agree with me AK.

  38. catarinaalexon Says:

    Glad you agree with me Anil.

  39. catarinaalexon Says:

    Thanks. So do I.

  40. catarinaalexon Says:

    Go for it Susan!. Why not have a board for a blog!!

  41. JeriWB Says:

    Outside help an guidance is so important. I am realizing that more and more all the time as I continue down the path to working as a freelancer.
    My recent post Book Review: The Art of Racing in the Rain by Garth Stein

  42. catarinaalexon Says:

    True Jeri. Glad you agree with me.

  43. Laura Sherman Says:

    I can see how this would be very helpful for a larger company. I have a solo enterprise, I'm a ghostwriter. However I do find help from different directions. I cannot operate as an island, nor would I want to. I have advisers, assistants and people who help me with different functions. Maybe one day I'll have a board!

  44. catarinaalexon Says:

    Good for you Laura. Glad, and not surprised, we agree.

  45. morgandecker Says:

    Two heads are better than one! Collaboration is the best way to brainstorm and get some new ideas, and that is essential in the business world. No matter how small or large a company is, I feel like a board would always prove to be beneficial.
    My recent post What to Eat Pre-Workout to Help Burn Fat and Build Muscle

  46. becc03 Says:

    I think this is a great idea Catarina, but as a start up, wouldn't money be tight? I assume if you seek out investors, this would not be an issue. I would love for my husband to have a board, but it would be difficult to get people interested unless you were paying them and there is no way at this point in time that could happen.
    My recent post Celebrate Good Times, Come On!

  47. Andrew Clarke Says:

    Good point – money is always tight. yet if the Non Exec is committed to the future, rather than relying on their apparent, past endeavours, they can be afforded. My services have just been invited by a start up and I have offered a lower day rate plus a sales based rate upon company target achievement or more importantly over achievement. This says I have faith in myself, the strategy and the endeavours of those working in the business. And I do.

  48. catarinaalexon Says:

    Glad you agree with me Morgan. A startup needs a lot of input and hence look at the company from a different angle.

  49. catarinaalexon Says:

    A startup can get a board consisting of either executives who do it pro bono or for a low rate. If your husbands company is a startup he can try. But if he has been in business for some time payment will be essential.

  50. catarinaalexon Says:

    Good for you Andrew.

  51. Kelly Wade Says:

    These all seem like really good tips. Of course an entrepreneur who started their own company will want to have control and feel like they need to do everything, but thats just not possible. Delegating tasks and accepting helps seems like it would be beneficial.
    My recent post Why You Should Consider Unplugging from Technology for a Day

  52. catarinaalexon Says:

    Glad you agree with me Kelly.

  53. Yusuf Tokdemir Says:

    Catarina, it is a great article and fully correct. I agree with you. This is organizational innovation. So that you are hiring board of directors from different industrial or services fields that will bring their experience, know-how and personal skills. This will create right strategic planning, execution, competitive advantage and sustainable growth and profitability to survive in competing global economy. This is a change management and change leadership also.

  54. catarinaalexon Says:

    Thank you Yusuf. Glad you agree with me.

  55. Jessica Says:

    That is a great point Catarina. New companies NEED the board and I am sure such a board serves the purpose. There is nothing wrong in being unconventional. Trying to follow conventions is boring and does not give room for creativity.

  56. catarinaalexon Says:

    Glad you agree, Jessica.

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