Techpreneurship: Burden of the Board

Jeff Amerine

Techpreneurship, with Jeff Amerine

Techpreneurs can live by the Board, and unfortunately they can die by the Board. Forming a Board of Directors (BoD), like so many other aspects of early-stage corporate strategy, can serve as a force multiplier for the techpreneur, can be neutral (equals no value), or can be a tremendous liability.

So take the time and effort to do it right.

Small Business Notes has some great guidelines and suggestions for how to form a board, and what to look for in prospective  board members.

Here’s my view.

The Board should be comprised of individuals with broad and deep experience across the spectrum of business functions.  For some Board seats, the techpreneur may not have much discretion. Lead investors will likely require a seat or two depending on their equity position.  If possible, work with the investor prior to closing the deal to ensure their representative will add value.  As hard as it may be, don’t go forward if that little voice in your head rings the jerk alarm.

For other available Board positions, look for seasoned leaders who have skills that fill in for weaknesses in the management team.  The management team doesn’t have to be represented on the Board, but in the early stages founder management should be on the Board. After all, founder techpreneurs didn’t sprint their way out of the big corporate world to follow their dreams just to be wage-slaves for a new set of masters.

Do seek Board members who will challenge the management team. Candor and integrity in making tough calls shouldn’t set off the jerk alarm.  You want that. You need that. The Board delivers no value in acting as a rubber stamp for even the most gifted CEO.  Nobody else in the building may have the guts to challenge your BS as the all powerful, visionary, charismatic founder. Good Board members will and must.  Sometimes good Board members need to hold the mirror in front of the founder or CEO to point out the lack of a giant “S” on their chest and the absence of a cape…

The Board’s role must always be to act in the best interest of the shareholders, the customers and the employees. This fiduciary responsibility serves as a real burden for the Board.  By the same token, a Board member’s agenda has to be aligned with the company strategy and not in conflict due to other business commitments or relationships.

Back to the composition of the Board. Generally, the techpreneur needs rainmakers on the Board along with pragmatic realists. Rainmakers will open doors through their networks techpreneurs can seldom reach.  They have brand equity. Customer decision-makers and potential investors will take their calls. Realists will help make sure the company delivers on the commitments rainmakers identify. Both functions are useful on the Board.

So what’s the right number of directors? It depends. Depending on the stage, three to nine can be a good range. Very early stage companies don’t need more than five in my view. Growth companies may want a few more.  Notice the odd numbers?  Never have a Board with an even number of directors. The bylaws generally dictate how Board decisions get made, but needing more than a simple majority vote can really bog things down or can make the Board non-functioning.

How often should the Board meet? Again, it depends. I like monthly meetings especially in the early, risky stages of venture development.  As the business grows, quarterly meetings may be better.  Also, techpreneurs want Board members that will take a call to discuss a critical issue just about any time.  The more the techpreneur keeps the Board up to speed and engaged, the less painful the Board meetings will likely be.

What about BoD compensation? Well, free is always the right price, but there are only a few souls running around that will go for that deal. If possible,  avoid monetary compensation. Get BoD members to go for stock options that vest over time.  That way if the company performs, they win.  If the company doesn’t perform, well they get what they deserve, and at least the techpreneur didn’t have to bleed to company dry to pay for them.

Here’s a final  BoD note. The foundation for a good Board begins in the corporate bylaws and operating agreements. Don’t short change this important step. Yes, you can go to LegalZoom.com and arm-chair lawyer it on the cheap, but don’t be surprised if a big ol’ piece of your backside gets exposed at some future date as a result. Instead, go to  quality corporate attorneys like Kutak Rock, Friday Eldredge, or the Rose Law Firm, and get the professionals to help you set a solid foundation.

By now you may be bored with the Board talk. Don’t be. Figure out how to make the BoD an asset. Also, do some thinking about how to create a Board of Advisors (BoA) that can also provide great insight and wisdom.  For very, very early stage startups, a BoA can be really helpful, and it carries less formality than the BoD.  Entrepreneur.com has a great piece on BoAs — check it out.

So I’m using a new picture this week.  I decided the two-year-old picture was clearly false advertising…  Shoot me your thoughts about Boards if, of course, you’re not already too bored by now…

(Jeff Amerine is an IA advisor, entrepreneurship educator, and officer with the University of Arkansas Technology Licensing Office. Each Thursday, his Techpreneurship blog will appear in INOV8. Drop him a line in comments.)

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