A board of directors provides valuable insight and guidance if you know how to communicate with them effectively. In today’s fast-moving economy, where disruption or surprise can arise at a moment’s notice, business leaders need to be agile and tap into the expertise of their board.
This is especially true for startups. According to Harvard Business School, the failure rate for startups is 30% to 40% if failure means liquidating all assets, with investors losing most or all of the money they invested. If failure refers to failing to see the projected return on investment, then the failure rate is 70% to 80%. And if failure is defined as falling short from declared projections, then the failure rate is 90% to 95%.
With startups facing such steep odds, it is essential to assemble a top-notch team. Your board should be an integral part of that team.
I have clients on both sides of the equation—startup founders and board members. Ideally, they should be partners with the same strategic goals. Founders can utilize their board of directors as a vital resource if they avoid a few common mistakes.
No news is good news is not a good adage to follow when it comes to communication between a founder and their board. Particularly in those first few critical years of a startup, things can move quickly. The marketing tests for your product or service might not be accurate. Unforeseen complications can emerge. If you need your board for advice or additional funding, you do not want them to have to play catch-up—or even worse, be kept in the dark during dark times.
Communication between directors and founders/CEOs must be ongoing and not episodic. Even when a company is experiencing smooth sailing, the board should remain fully engaged and informed. It is important to celebrate small victories and to include the board in that process. They are along for the ride regardless of the forecast.
I had a client who postponed his board meeting because he felt he had no significant news to share. Meanwhile, he was closing deals with Fortune 50 companies and then just moving on to the next thing. I encouraged him to get a gong and ring it after every win. This triggers a mini mindful celebration, and the sound of the gong reminds him to reach out to the board and share the victory. The board loves receiving good news so why keep them from that? Startups need to cultivate a celebratory culture and to ensure the board feels a part of that culture.
Sugarcoating bad news
At the opposite end of the spectrum, some founders go dark or avoid communicating with their board during tough times. Founders are fearful of how negative news or bad performance is received. Even worse, they attempt to put a positive spin on the challenges any startup is bound to face.
Sugarcoating bad news is tempting because there is so much pressure on startup founders to project an image of success to the public. However, your board is not the public, but rather a partner. They need and want to be kept in the loop. They agreed to serve on the board because they believe in you and your company. They bring a wealth of experience to the table. They have likely benefited from the advice and counsel of others in the past and are happy to pay it forward.
Often, I see young founders get in over their head with a problem because they waited too long to seek counsel. Moreover, when they do decide to go to the board, they ask them what they should do. This behavior amounts to ceding authority to the board, which will inevitably erode the board’s confidence in the founder.
Instead, founders should offer a solution and then ask the board for feedback.
They should say, “I have a problem. Here’s what I’m thinking about. What are my blind spots? What am I missing?” With this approach, founders can retain operational control, and keep the board confident in their ability to problem-solve.
The board of directors is there to provide broad guidance and governance, not to run the company. Smart founders are confident enough to lean on the board for advice before things get out of control. Founder and board are partners with roles that are complementary but different. Having clarity about those roles will give each space to do their job successfully.
Not seeking diversity of opinion
A startup’s directors are insiders in that they have agreed to invest time and expertise in the company and should always be kept in the loop. Yet if you have done your due diligence in assembling a strong board, they should also represent points of view outside your familiar circle.
A good board is inside but also independent. As such, they are there to give constructive feedback. Founders must remain open to a range of perspectives and be willing to acknowledge blind spots. A good board can save you from yourself. By way of example, according to some accounts, Facebook ignored early warnings from their board that user data was vulnerable to being compromised. This led to the Cambridge Analytica scandal.
Transparency and trust should guide a founder’s relationship with their board of directors. Keep them abreast of new developments. Lean on them but do not expect them to do your job. They are there to guide and expand options. It is your job to own the problem and identify solutions. As long as you have a clear understanding of your respective roles, a great board of directors can be an invaluable resource that gives you a winning edge.