Startups and boards: Build one before you think you need it

Many founders delay setting up a board for as long as possible because they view it as bureaucratic, slowing down the agility of a startup and hindering their decision-making power. The idea that a board is only necessary when institutional investors step in is common but can hinder growth. By the time you’re pushed to set up a board, assembling the right people quickly may become a scramble, potentially leading to the missed opportunity of building a board that adds real value.

As an entrepreneur, you’re likely focused on building your product, finding customers, developing a profitable economic model, and scaling your team. Governance might seem like a distant concern—something to be dealt with later when investors demand it. You may also view it as a control and compliance body rather than one that contributes to the company’s success. However, setting up a board of directors early can provide key benefits, not only for managing investor relations but also for guiding your startup’s long-term success.

The advantages of setting up a board

Expertise and networks: A good board offers access to external expertise. Board members bring insights across key areas such as scaling, fundraising, regulatory challenges, leadership team building, and exiting. Their networks can open doors to new partnerships, hires, or investors. Having this guidance early can shape your startup’s trajectory.

Strategic oversight: A board provides a broader view, ensuring the long-term vision aligns with the company’s actions. Startups often pivot as they grow, and experienced individuals outside day-to-day operations provide perspective to navigate major decisions and risks, often with little data.

Credibility with investors: A formal board signals professionalism and long-term planning. Investors prefer companies with strong governance, and an established board helps build that foundation, giving you an edge when raising capital.

Founder choice: Setting up a board early allows the founders to handpick individuals who understand their vision and complement their skills. As the startup grows, having this base can help identify the skills and styles needed for board seats that investors may nominate individuals for. Having a well-balanced group on the board could prevent future mismatches and misalignment, which often lead to power struggles.

Control and compliance: Startups are subject to the same corporate laws and regulatory rules as larger corporations and face similar penalties and sanctions if they fail to comply. Many founders are not familiar with these, putting the company at risk. Bringing in experienced and independent board members, including the chair, at the creation of the board is a good approach.

Setting up the right board

To maximize your board’s value, consider these steps:

Be strategic about composition: Choose board members based on your company’s specific needs. Whether it’s financial oversight, scaling operations, or fundraising, select individuals whose skills fill gaps in your team, rather than simply selecting familiar faces.

Balance independence and support: Your board should be independent enough to provide objectivity while working collaboratively. In many countries, board members must show that they are acting in the company’s best interest, not in the interest of those who nominated them or their other roles within the company, for example, shareholders. Striking this balance ensures the board is an asset rather than an obstacle.

Start with an advisory board: If forming a formal board feels premature, consider starting with an advisory board. Advisors can offer similar contributions without the legal responsibilities. As your startup matures, transition to a formal board structure.

Define roles clearly: Set clear expectations for board members. Ensure they understand both their legal responsibilities and how they can contribute strategically. Clear roles prevent misunderstandings and align the board with your company’s goals.

Create a board team: It’s great to have strong individual contributors on a board, but what’s most important is that they function as a team to benefit the company and its stakeholders. Encourage board members to participate in startup board training. Doing it as a group can be very beneficial, even for those with board experience.

Managing and leveraging a strong board

Once your board is in place, maintaining a strong and positive dynamic environment is key to success:

Run regular, efficient, and effective meetings: Board meetings are central to a board’s work. For startups, a monthly board meeting is customary given the company’s fast pace of evolution. The meetings should focus on decision-making rather than information sharing. Subcommittees, even on small boards, can be an efficient way to delve into complex topics and prepare decisions for the board. Board members should come prepared to meetings. These meetings should be inclusive and quickly documented in succinct minutes.

Have strong communications with shareholders: In most countries, shareholders nominate and elect board members. They also negotiate the right to quarterly updates in addition to the Annual General Meeting, as part of the Shareholder Agreement. The board, led by its President/Chairperson, is responsible for preparing and orchestrating shareholder communications. These live communications can be great opportunities to leverage shareholder connections and expertise. Additionally, regular communication keeps shareholders engaged, making them more likely to reinvest in the company, even if goals are not fully met.

Set and track key performance indicators (KPIs): Startups move fast. Board members must regularly determine the 4 to 6 leading indicators of the company’s progress. These should provide insights into the company’s direction, its performance against the plan, and facilitate board decision-making. At the same time, the indicators need to be easy to collect. Startup board members should feel comfortable making decisions while “navigating in the fog” and be street-smart. Having insightful indicators will also prepare the company for due diligence by potential investors during a fundraise.

Leverage board members’ networks: Your board likely has valuable connections that can help close deals, raise funds, or recruit talent. Don’t hesitate to tap into these networks as part of your growth strategy.

A startup board as a strategic asset

As this article describes, setting up a board early isn’t about relinquishing control—it’s about gaining expertise, building credibility, and positioning your startup for long-term growth. By choosing the right people and nurturing strong relationships among them so they work as an effective team, your board can become one of your most valuable assets, helping you navigate challenges and support your vision for success.

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