Building the Board

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3. The best boards are 'a mile wide and an inch deep.' That's the assessment of Michael E. Frank, a general partner at Advanced Technology Ventures, a venture-capital firm with offices in Waltham, Mass., and Palo Alto, Calif., that typically considers about 5,000 business plans each year -- before choosing 20 or so companies to invest in. With that amount of exposure to the market, Frank has a pretty good sense of what works and what doesn't.

"What you're looking for in an effective board is a group of mostly outsiders who have been through the entrepreneurial process many times. They understand the generic operating issues that a growth-oriented company typically faces," says Frank. "Good board members also have a very broad range of contacts that they can reach out to, which may include possible financiers, strategic partners, or even potential customers."

Others recommend not limiting your search for board members to your community's equivalent of Bill Gates or Warren Buffett. "Companies can get tremendous benefit from thinking outside the box, which may mean approaching business executives in very different industries, or someone like a journalist who tracks the world of business from a very different perspective," advises Jeff Simmons, a partner at Raphael and Raphael, a Boston accounting firm.

The bottom line here: it's the breadth of contacts and experience that brings the best payoff to growing companies, rather than specific knowledge of any particular product or tiny market niche. When you have the right big-picture group in place, you can always supplement its expertise with an advisory board. "We might encourage one of those to be set up that would be focused around one particular product or technology, if that seems necessary. But you don't want to waste a valuable board seat on this level of expertise," Frank advises.

4. Look for board members who can complement, rather than replicate, insiders' strengths. One helpful exercise recommended by Patrick J. Boroian, a general partner at Sprout Group, the New York City­based venture-capital subsidiary of Donaldson, Lufkin & Jenrette, involves creating a candid list of your own strengths and weaknesses. "Very few entrepreneurs have all skills. It's rare for someone to understand operations, finance, sales and marketing, and human resources, and to be a great leader as well," he notes. "So what makes the most sense is finding board members who can complement your own skills set."

In some cases, especially if your company is small or a start-up, you may not be able to attract the right kind of board members, at least not on your own. In those cases, setting up an informal team of advisers can provide you with valuable outside guidance. But upgrade the group as soon as possible, perhaps with the assistance of an outside investor or with a strategic business partner, once you form ties to more well established companies.

5. Remember that your board is your company's face in the outside business community. According to Vogelgesang, prospective investors frequently analyze the caliber of a company's board before deciding whether or not to get involved. "It's not at all uncommon for them to pick up the phone and call board members," he says. "If they wind up speaking to your brother-in-law and your best friend from kindergarten, that's not going to speak too well of you or your company."

Be prepared to make changes if necessary, especially as new investors get involved. Depending on the size of their financial stake in your company, investors will often insist on at least one and sometimes two or more seats. Some venture capitalists and other private-equity firms will go a step further and require reconstruction of the board -- from scratch -- and sole veto power on selecting its members. Although business owners may object to an investor's inflexibility on that point, the result is probably in everyone's best interest. After all, strong boards usually help build strong companies.

Jill Andresky Fraser is Inc.'s finance editor.

The ABCs of building a great board

You want to do it, but you don't know how. Here's a blueprint for creating the kind of board that can help your company achieve its growth objectives.

The legal side is simple. Depending on state regulations, creating a board of directors can be as simple as filing a descriptive amendment to your certificate of incorporation or corporate bylaws, or including a description when you file for incorporation. So don't delay because you're worried about the cost or time involved.

Scheduling rules are flexible. If your company is growing fast or facing a range of complex business or financing issues, you may want to meet as often as every four to six weeks. For very young or mature companies, quarterly meetings will probably be adequate.

Size can kill. Don't load up your board with so many people that you'll never get anything done. A good rule of thumb: Five to seven well-qualified members is all you'll need.

Compensation really matters. To attract the best team to your company, be prepared to pay for travel expenses (so that you won't be tied only to local talent), a token stipend (up to $1,000 per meeting), and a small stock-option package, if that's appropriate to your industry and growth plans.

Professionalism is essential. Once you've set up a top-quality board, treat its members accordingly. That means holding meetings as scheduled, promptly reimbursing them for expenses, keeping accurate minutes of meetings, and otherwise doing everything you can to help your board work well for your company.

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