Tiny startups need tiny boards / by Gavin Lau

I got a call from a brilliant young French entrepreneur the other day asking me about composing the board for his startup as he was closing his seed round. It seemed like every angel writing a check wanted to be on the board as well as some notable industry players. Here is what I told him: resist the pressure!

 

Optimize for speed

As an early stage startup, speed is probably your core KPI. Of course you need to carefully consider your strategy given that you’re acting with limited resources, but the reality is that you’re having to make important decisions ALL the time. Recruitment, product, pricing, fundraising, co-founder issues, you name it.

Having a tight group of board members allows you to convene a board at the drop of a hat and make informed decisions quickly. Aim for zero complexity in reporting, organising board meetings and making decisions. Speed will give you a decisive advantage, starting at the top.

 

Optimize for intimacy

In the early days of a company, having a very tight relationship with a small number of advisors will ensure that

  • any advice you receive is on point and highly informed
  • you can take real risks
  • you can change course on the fly

The last thing you want is a mildly engaged board who doesn’t fully understand the realities of your team and business and is likely to respond to fear as soon as the going gets tough.

The ability for you as a founder to be totally transparent, including about your own fears and shortcomings, with a small group of engaged partners is key. It breeds the trust and for lack of a better work, intimacy, that you will need to thrive.

 

It’s easier to add than to substract

It’s easy in the early days to yield to all the well-intentioned pressure to “build a strong board”. It’s important to bear in mind though that it is much easier to add board members later on than ask an existing board member to leave … especially if your company is doing well.

France is a particularly bad offender when it comes to massive boards. No one EVER wants to leave a successful company, and incoming investors are typically so clubby that they don’t apply brute force to keep the board small.

So you will routinely find Series B companies with 7 board members. I came across a consumer finance company recently that already had 9 (nine !) board members and was looking to add two. All the names looked great on paper, but I shuddered at the thought of having to sit through marathon reporting sessions with 11 people around the table. There is a time for structured governance and large boards, but seed ain’t it. You will need an iron fist to run a board that big efficiently, and you’re most likely not ready for it !

 

Advice on adding board members early

If you are going to add talent to your board in the early days, here are a few recommendations:

  • limit the number of investors reps hard
  • make sure board members have an annual term and not an open appointment, so they need to get re-appointed every year
  • Incentivise them through annual grants instead of a four-year vesting programme (0.1% to 0.25% range, depending on what they commit to)
  • Have a clear discussion on what you expect, in terms of time commitment, candidate recruitment, use of network, strategy sessions etc.
  • Be absolutely clear that this is not for life and that you may ask them to step down at the next round and fully expect them to honour their commitment to do so.

 

Conclusion

Complexity kills, speed matters, trust and intimacy leads to better and faster decisions. Any deviation from these core principles needs to be thought through carefully. At seed, small truly is beautiful.

In the same way tight engineering teams outperform big ones, smaller boards just tend to perform better.

 

 

Source: https://medium.com/@fdestin/tiny-startups-...