Randal Walti, head of Oaktree Consulting in Rancho Palos Verde, Calif., specializes in CEO coaching, but he's also been a director of more start-up companies (particularly high techs) than he cares to count. What lessons has he learned in shaping and using the start-up board?
The start-up board usually begins with "the money people, those who are tied in with private placement sources, who can encourage them to further invest." But Walti finds that, aside from being the source of the company's capital, these money folks also make pretty good directors. "The money people are basically there to guide the CEO, but they usually don't micromanage. These are busy people, and they're more interested in their investment than in micromanaging."
Board makeup must change and grow with the company, particularly if it's a fast grower. "As you reach early plateaus, $10, $20 million in earnings, also look at the board. You want people who've run a company two or three times your size, with experience where you want your company to be next. And no attorneys, accountants or consultants--they should either work for you, or be on your board, but not both."
"Typically, it's naive to put the founders on the start-up's board. That's the biggest mistake you can make. What you want is outside help, not political insiders." If founders are on the board, they should leave it as early as possible. "In one start-up, I had a board of three founders and their three wives, and the wives lacked background in the business. This just confused the issues."
The start-up board is less formal than the established company board, though its input is often more critical, and it does less of this work inside the boardroom. "Be careful how you get these directors involved in a problem. Don't bring anything into the board meeting that you haven't pre-sold to them one-on-one before the meeting."
Demand a lot from your early directors. "In the early stages, the board should meet every month, but as the company grows you can spread the meetings out."
Bonus tip: "Start out with no more than five people on the board, at least until you get to $5 million in sales. After that you start growing into a real company."