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

84 comments to External directors boost startups

  • 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.

    • 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.

  • 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

    • 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.

      • 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.

        • catarinaalexon  says:

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

  • 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

    • 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.

  • 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

    • catarinaalexon  says:

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

  • 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.

    • catarinaalexon  says:

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

  • Tramerica  says:

    Absolutely true Catarina… what business without think tank!

  • 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.

    • 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.

  • 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

    • 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.

  • 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.

    • catarinaalexon  says:

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

  • 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!

    • 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.

  • 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.

    • 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.

  • 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.

  • 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

  • catarinaalexon  says:

    Good points Jane.

  • 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

  • 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

    • catarinaalexon  says:

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

  • 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

    • catarinaalexon  says:

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

  • 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.

  • 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.

    • 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.

  • 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.

  • catarinaalexon  says:

    Glad you agree with me Anil.

  • 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

  • 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!

    • catarinaalexon  says:

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

  • 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

    • 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.

  • 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!

    • 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.

    • 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.

  • 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

  • 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.

    • catarinaalexon  says:

      Thank you Yusuf. Glad you agree with me.

  • 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.

  • patweber  says:

    This is so wise Catarina. When I first went out on my own in 1990ish, for about 2 years I informally had a board of directors. A group of just 4 or 6 of us would meet monthly and we would rotate which of us was the focus of "board talk." We all started something at about the same time. I'm not really sure why we abandoned, but I suspect being soloprenuers, but my guess is we just got busy. Makes me wonder if our meetings were helping.
    My recent post Managing a Conference the #Introvert Way

    • catarinaalexon  says:

      Glad you had an informal board of directors when you set out on your own in the 90's, Patricia.

  • jacquiegum  says:

    Fresh eyes, and new perspectives on old problems…can't beat that mix! I think it's also important to see that the board is a mixture of different industries.

    • catarinaalexon  says:

      Absolutely, Jacqueline. Glad, but not surprised, you agree with me.

  • Beth Niebuhr  says:

    It’s a good idea, Catarina. I find advice from people who have a different set of skills from mine to be invaluable.

    • catarinaalexon  says:

      Yes, Beth, being surrounded by people with other skills does make a difference, doesn't it.

  • lenie5860  says:

    Having managed a charity, I naturally had a Board of Directors and it was wonderful if I came up against a stumbling block to be able to contact one of them for clarification, their opinion and in some cases, direction. To me a startup company having access to Board members skilled in different areas would be of tremendous help and would greatly increase the odds of a business succeeding- I think the hardest part would be finding professionals willing to participate in a start-up.

    • catarinaalexon  says:

      Glad you agree with me, Lenie. There are other start-ups out there in different niches that are willing to sit on your board and you sit on their.

  • boomeresq  says:

    This is an excellent idea, but it could be difficult to implement for a small cash strapped start-up. However, this concept works even outside the business model. My husband is a research physician and for major projects funded by the government, they are required to have an external advisory board and the rule is that members cannot be compensated in any way. Research scientists are willing to participate because they know that they will also need external board members for their own projects—-and as we know—"what goes around, comes around".

    • catarinaalexon  says:

      Good example of how having a "board" works in your husbands line of work, Suzanne. That's mainly how it's done with start-ups as well. Professionals who have started companies in different fields sit on each others boards.

  • emfoodcoach  says:

    This is such an interesting perspective. I've never thought of small companies having boards. As you point out, you can really only benefit from doing so. It really is impossible for a person to be an expert in all aspects of their business. Additionally, there is something to be said for setting yourself up as a big company, so you are already prepared as you grow.

    • catarinaalexon  says:

      Good points, Erica. It sure makes a difference for a start-up to have a board.

  • akandrewwriter  says:

    At a certain point you really need a board of directors, and beyond that you also need outside consultation. Trying to overreach is a dangerous route to go down. Accepting help is difficult for some people , but essential for business success. BTW Your new site looks great though the side slider bar does block some text. Congrats on the new site:-)
    My recent post Oscar Wilde:The 120th anniversary of Trials in National #Poetry Month

    • catarinaalexon  says:

      Thanks AK. it's not ready yet, but good enough for now since it is mobile-friendly. Have more work to do on it but it's ok to display it for now. Don't worry about the slider blocking some text. Just click on the picture and you will get to the article. Yes, we do need a board of directors even more when we are start-ups.

  • Ken Dowell  says:

    What would motivate talented people to participate on the board of a startup? Most startups are not going to have resources to pay outside directors so unless you are calling in favors or bringing in personal friends I think you have to offer some interest in the company. Otherwise you may be able to attract directors who see the growth of the startup as offering some potential business advantage for them. I have served as a director of a relatively new company for that reason. It was a tech company and their technology was such that it would possibly benefit the organization I was a part of at the time.

    • catarinaalexon  says:

      Other qualified people that have just started a new company frequently help each other out by forming informal boards, Ken. Needless to say top board members who earn millions and millions of dollars a year don't have the time. Unless of course it's someone near and dear to them.

  • cheryltherrien  says:

    I think having a board comprised of external members is a good idea. Perhaps the catch would be if those members want compensation for those positions before the fledgling company is profitable.

    • catarinaalexon  says:

      Professional board directors that earn millions of dollars simply don't have the time, Cheryl. Unless of course it's someone they know. But you have really qualified people who start new companies. They frequently help each other out by organising informal boards.

  • yearwoodcom  says:

    So smart Catarina! I don’t think I was half way through this article before I stopped and sent a friend with a new technology start up an email saying, “Have you thought about getting a board of directors?”

    As always good thinking.

    • catarinaalexon  says:

      Thank you, Debra. Most likely it would be a good idea to suggest to your friend to find other people with different skills that have just started a new company as well. They can then help each other out.

  • andleebakhlaqkhan  says:

    Hello Catarina
    When I read this post, first thing that came to my mind was, what will motivate others to join and be part of board of directors. Will they be paid or friends or as you said, people of like mind, with same interests???

    I think as the world is changing and with globalization, there is a need to be unconventional for success. As there is no particular formula of success but we have to try things out to check what clicks.
    Normally when I see around then I see that many people in business normally have their family members on board and lawyers and etc. are paid employees. But this is great idea to have them on board and get some help.

    Giving the agenda of meeting before hand is very necessary, otherwise, half of the meeting time will be waste in introducing people and I think all of sudden a better feedback can not be given, when the thing is not clear.

    I think, this is good suggestion for business people and I hope they will think about having a board.

    • catarinaalexon  says:

      Andleeb, the reason the first thing that came to mind is payment is most likely because you associate board of directors with huge multinational companies. Glad you agree with me that it's a great idea for start-ups to have boards. It's just a question of "you scratch my back and i'll scratch yours". This kind of cooperation can usually be organized through startup organisations.

  • pamela chollet  says:

    Catarina, I think a board of directors for a new company is a win-win situation. The non-profit organization probably would have an easier time getting board members than a public start-up company. But, if a start-up company had difficulty finding members a resource for them to consider would be local universities or colleges. Doctoral students in specialized fields could sit on a local board for school credit. I’m sure Master candidates working on their thesis would also be a good resource for an up and coming company.

    • catarinaalexon  says:

      Yes, it definitely is a win-win situation. Of course it's easier for NGOs. Good idea of finding senior people at universities to sit on startup boards. Mind you the students can't be too junior because that may turn out to be fatal:-)

  • William Rusho  says:

    I like the point you make that you cannot do everything yourself. Too many people start a project or a business, and build it up. The hardest part they have is when they need to rely on someone else, even for information. It seems like they cannot relinquish any form of power that they have obtained.
    Also, your paragraph on how to carry out board meetings was very useful, even though you could dedicate an entire series of blogs to that topic.

    • catarinaalexon  says:

      Thank you for giving us your thoughts on board meetings and running a company, William.

  • Jeannette Paladino  says:

    Catarina — many nonprofits have Boards of Directors, but they will also form advisory boards of volunteers who are personally interested, even passionate, about the organization's mission. I sit on one of those advisory boards. No one is paid but we get the satisfaction of helping the organization with new ideas and they benefit from the added brainpower.
    My recent post Use Images to Inspire Your Readers

    • catarinaalexon  says:

      Good example of how "external directors" can be organized to benefit an organisation, Jeannette.

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