Start-Up Dilemma 9: Board of Directors/ Advisors

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A problem I have been seeing very often of late (more now when I meet many start-ups as mentor/ advisor, than when I ran my own) is – when should I appoint a Board? How many people? What should I offer them? Will they be interested? I thought time (after a big gap) to write another “start-up” series post, which answers the following questions:

a) What is the difference between Board of Governors/ Directors and Advisory Board; more importantly – when do I apooint one vs. the other
b) In general, at what stage of my start-up do I appoint one
c) Why/ what are the benefits of appointing one
d) What is a good number of people to have in the board
e) What do I have to offer them as compensation.
f) In return, what do I expect from them? How often do I contact them? Can I formalise this receivable?
g) How do the answers for the above change if my start-up is product vs. services vs. Non profit? Or if it is Indian vs. not? or if it is a Lifestyle business that I want to build to scale, vs. one I want to get valuation for, and exit sooner rather than later.

I have to confess, since I am by no means an expert, I ran a small survey amongst current and past entrepreneurs who have run various start-up organisations all over the world. It was a diverse group, though not necessarily statistically significant. I will include findings from that survey as we go along – disclaimer – use those findings as anecdotal only 🙂

Board of Directors vs. Advisors:

This is a great article defining the different types of boards and their roles. And this is another good read on the difference between Advisory board and Board of Directors, and how to utilize them!

Basically, when you start out, an advisory board makes more sense – and obviously, you could run your org for-ever without needing a formal Board of Directors/ Governors, until you seek and get investment.

Even with the advisory board, I see start-ups in the western world, who have now seen the whole culture closely, feel the need to acquire, and actually leverage advisory boards much sooner than those in India (where it’s typically a bunch of smart techies, who have a super idea, (or sometimes just think they have), and want to create the next google). Also, as a corollary, or atleast a parallel, start ups who have been conceived to make lots of money very fast, go “by the book” more often than those that are being set up as lifestyle businesses.

Right Reason

As my own little survey showed, in the beginning, many start-ups, specially if they are either small, or the Non profit type, choose friends and family in the Board of Directors – generally just to suit legalities in certain countries e.g., in India, a Pvt. Ltd. company needs 2 Directors.

But, ideally, Board members need to be recruited for more than just statutory requirements. As this article talking about the mistakes that companies make when recruiting BOD says, Board members can be great resources who provide support, knowledge, and access to unique professional networks.

And indeed, as my little survey showed, the right competence or skills, and the ability to get contacts – either to potential clients, or to potential recruits, is the other big reason for Boards of Directors to be appointed. The next reason is obviously just the name-value, or reputation of the person (My husband recently got offered a seat in a Board of Directors, where one of the other guys was Vijay Amritraj (and ofcourse, I told him – “say yes, say yes” so I can maybe hob nob with him at some dinner stuff 🙂 ))

Not surprisingly then, when one looked at the average and top-2-box analyses for reasons, the ability to get contacts, and give advice, top the charts.

No. of Members

My survey respondents seem to like the number 3, maybe because most of them are really small and new set ups. Per the article above, Fred Wilson from Union Square Ventures thinks a board of five members is ideal. He recommends no more than 7 board members (two founders, one to three VCs, and one to two other industry professionals).

I would agree that get the founders (no more than 3 – 3 being the magic number as per my earlier post on optimal no. of co-founders), get one or two “real” advisors with complementary skills that you REALLY need, and get one well connected industry person/ celebrity – who should be your business development/ recruitment channel person. The rest is superfluous — which, effectively means, that your choice of VC/ investor should also depend on then who will they put on your board, and which of the above roles can you get the investor appointed Board member to play.

Compensation for Board of Directors

Obviously if friends and family, one wouldn’t offer anything to the board. But, the commonest remuneration seems to be Equity – I have heard amounts ranging from a low of 0.25% to an average of 2% and a high of 5% to be parted with for Boards. This good common sense article talks about the difference between an advisory board and the board of directors, and also has some good sound advice on compensation.

My survey showed that just the position was what most start-ups offered their advisors/ Board members. This is probably also because at the stage they are in, in most cases their BOD members are friends and family.

Issues with Board of Directors

While, my survey seemed to indicate that the founders weren’t really facing any problems with their BOD members, I assume that’s because they weren’t being utilized effectively! In most cases, the problems arise due to not being able to get time and attention from your directors/ advisors. You may expect to be put in touch with channel partners, or a new recruit, and the Director doesn’t, or is unable to do so!

In my experience, the best way of making sure you do get the value you expect out of the Directors is to use them as individual people, rather than a full fledged board – i.e., seek a fixed slot one on one meeting with the folks (say half an hour every two months)- set that expectation upfront, send agenda in advance, and just be focussed on getting your questions answered!

This old article provides some good advice on care and feeding of Advisors.

Just for disclosure, the profile of my survey respondents is as below:

Incidentally, for my friends running Non profits, the answers to the same questions are not substantially different – as a look at this article shows

I think I should end with providing a link to an old but fantastic article – which will put a lot of answers in perspective, and contains a lot of wisdom, including in the comments after!

Hope this was useful. Right in tell me your experiences!

Bravo McKinsey, Et-tu Marissa? (Woman Power – Ninja Power!)

For anyone in the consulting field, McK is obviously Ivy League. For me, the one thing that I always admired them for is the fact that apparently they were the alma mater for ALL consulting professionals! So, most consultants cut their eyeteeth at McK, and then went on to other/ bigger/ better firms (The reason why this was very top of mind to me was – that I think EmPower Research was almost a pioneer in the outsourced media research, monitoring and analytics space – and hence all our talent was home grown. We hired most of our folks straight from colleges, put them through a fairly rigorous – mostly on the job – training program (which in itself was home grown and kept evolving); made them learn processes that were home grown – and put them through HR steps that were also home grown. Then ofcourse, older – wiser – maybe better, they would seek greener pastures. Not able/ even willing to stem this attrition, I would console myself by saying – atleast we are like McK – most folks in the media research field in any big company – IBM/ HP/ Nielsen/ Aon/ PA – were all from EmPower Research.

Well, another day – and McK grabs my eyeballs again – this time for something that’s really close to heart. It is putting a program (being referred to as laptops and lullabies) in place to woo back its women employees who had quit (see link). It realised that with gender diversity important – for more reasons than statistics, and the leakage that invariably happens when women have babies – it should get active on the “returnship” front. Apparently Bain, BCG and Goldman Sachs have active programs towards this too. They certainly need to – look at the stats:

Studies, conducted by McKinsey, show that about 76% of all American women aged 25-54 are in the workforce compared to 87% in Sweden. According to this study, if each state contributed 84% of women to its workforce, the U.S. economy would grow by 3%. Most notably, women are seriously underrepresented in senior positions.

Reminded me of a panel discussion I had spoken on – it was for an initiative called “Segue” by an organization called Avtar. This was aimed at returning women. On the panel with me, I had senior HR folks from Accenture, Grindlays, Mphasis. What struck me most about the post panel session was the need/ the sheer desperation these “returning women” showed – the common complaint was that it was alright for all of you to tell us statistics within your company on women who have had babies, but for all of us, the barriers are just too high. One very evocative/ symbolic question was – when the recruitment form says – last job and duration, there isn’t even a checkbox meant for people like us – this means that we get evicted by the computers – and don’t even make it to the actual human rounds of short listing!

Again reminded of a NASSCOM meeting I had attended a few years ago – where activist and classical dancer Mallika Sarabhai had said – I do NOT want to be in a situation of choosing – “EITHER work, OR family” – why should I have to face an “either-or” – I want an AND and another AND and another AND! Remember the widely controversial article written by Anne-Marie Slaughter in the Atlantic on “Why women still can’t have it all” (worth a read by the way)

Looks like the top women leaders are all espousing this cause- I will take another excerpt from my favorite Sheryl Sandberg’s TED talk – when she said “why do women leave before they leave”? Happened to me – as I was doing one on ones before finally quitting EmPower, a young analyst told me – see, I was quite cheesed off at the last promotion round when I didn’t make it – but then I figured, its OK; anyway, I have to take off to have a baby now – so I didn’t talk about it to anybody! You know what, as the exact opposite – my friend Deepika, who now heads marketing at a large MNC foods company, got promoted WHILE she was on maternity leave – causing severe angst in her colleague who was the other brand manager – his contention was – she hasn’t even been at the job for the past 2 months; how is her contribution more than mine???

I have to say, Gillette/ P&G have always been front runners at the returning women empowerment thing – P&G apparently managed ZERO attrition of returning mothers – amazing stat! – via a program called Equinox (whats the rationale I wonder – maybe balancing of work-life just as equally as the day and night on the equinox?).

Flip side of coin – and BIG disappointment/ betrayal! – I just read about Marissa Mayer, who, of all people, SHOULD be behaving differently (atleast if she fulfills many peoples’ expectation of the youngest woman CEO in a F500 company!) – and how she issued the Work From Office, or Quit dictat! Now, it may be directed at cutting flab from an admittedly obese Yahoo, but the message is a bit wonky. (See article I wrote a long time ago on Flexi Time work options for women)

We in EmPower built a finally-400-people company through extensive use of flexi-time, work from home, use of “returning mothers” plan. As a garage based/ bootstrapped enterprise, there was no way we could hire people in the early days. However, we were getting projects of all kinds from our clients – after all, if we were “makers of sense” of existing (first filter – maybe value proposition!) data – we couldn’t also put another filter and say – we would make sense only in this/ this/ this field. Ergo, we hit upon the idea of using friends and family to work with us on a flex time basis. So, we put the word out in our networks – and got lots of really well qualified people – primarily siting-at-home-because-of-kids moms – who grabbed this opportunity to do some “meaningful” work that made use of their skills. We hence had a fairly well established/ extensive network of HR specialists/ finance specialists/ marketing ones/ pharma domainers – you name it, we had it! Depending on the project we got, we would rope in the specialist, estimate hours to be spent/ compensation – and then project manage (it wasn’t easy btw, and took considerable working at!)! The ladies just LOVED it, and we were able to scale with a variable cost model! Win – win all around!

This worked so well for us btw, that our gender stats were always heavily skewed in favor of ladies – so much so, that once my partner Shoma had written the following on the HR manager’s whiteboard!!

What did NOT happen – just so you know, was what the author Leslie Kwoh in the WSJ article I referred to earlier – is saying/ expecting. “Work and family experts often tout moms as “great managers” but skills developed while managing a household don’t necessarily translate to the office, Harvard Business School professor Rosabeth Moss Kanter said in a recent essay. “Family managers are accustomed to being surrounded mostly by people who are…clearly dependent, unable to function fully on their own” Ms. Kanter wrote. “Spending quality time with people with limited vocabularies doesn’t hone complex strategic thinking”.

Well, excuse me! Our women were very able to manage complex/ strategic thinking – and balance expectations, deadlines and more. This by the way, is something I had written about – when I was takinga break from work and managing my child (It was called – “what they don’t teach you at business school” – as relevant today as it was 11 years ago! Read here) It is my FIRM belief that motherhood involves far more planning and execution/ leadership finesse than a normal workday situation would ever do!

Remember what Mallika Sarabhai said – “I want AND” – women CAN be breadwinners just as they can be caregivers! They multitask better, they have a higher developed sense of responsibility and the need to make their mark, they are more ready to make sacrifices – it would be foolish companies who would put barriers in the way of enabling this workforce (yahoo?), and smart ones who would enable them (mckinsey?).

This is the basics of management as taught to us by Tom Sawyer – remember when he “traded” painting the fence with many small bribes/ gifts? Incentivize people to “want” something they can give their best to!