How does the board of directors get formed with an early startup?

startup

Startup Board of Directors

Question: How does the board of directors get formed with an early startup?

Jim: Alright, I’ll take this one, since I’ve been in a couple of early startup situations. Obviously, the first members of the board are the co-founders of the company. Whether you’re the technical co-founder or the not technical co-founder or some other combination of the two but when you’re looking outside of that scope because if there’s only two of you then you can have ties and you want someone to break that tie you want someone to complement the skill set that you have. You need to think of it a lot like you would think of hiring an employee who has capabilities that you and your co-founder are missing so if this is your first startup you’re probably looking for someone who is experienced in business and can kind of teach you almost can be hands on with you and your co-founder and guide the two you through the process navigating the waters of forming a small business into a less small business. If you have a couple of startups under your belt then maybe you’re not even watching this video you already know how to pick a board member. So board members obviously are normally tied to investment. Larger investors are definitely going to want a seat on the board so that they can steer the company not necessarily to their benefit but just to the benefit of everyone and you want that. You want someone who both believes in your idea enough to give you money and believes in you enough to want to actually impart to you some of their knowledge so you want someone who has that knowledge.

John Max: So finding board members or I guess kind of vetting board members is always an interesting question. When you and John are you know with previous companies when you had someone come in you’re not just taking their money and putting them on the board. What kind of things do you talk about internally as a part of that founding team? What do you talk about when you’re thinking about bringing someone on to the board? Are you trying to plan for five years down the road of how they’re going to make decisions or what do you look at?

Jim: Some of that yes. Yes, we do look at for perspective board member slash investor; we look at what is this person bringing to the table right now and what benefits will their presence provide. Like you said, five years down the road, are they someone who’s going to be able to help us lead another round of investment or are they someone who has experience and expertise in the company at the size we expect to be in five years? That is absolutely critical because the company that you build from the start of say five, ten employees is a completely different animal from the company you get even in fifty employees to say nothing of like two hundred employees. When it’s two hundred employees it’s totally unrecognizable from what it was before and so. As [inaudible] you can read a hundred articles that tell you what you need different employees at those different stages of the company different kinds of people with different skills it’s the same for your board members. Your board members can bring different skills to the table you may think of them as that person has run a huge company what can they tell me about two people. Well, if in five years or two hundred people which can happen then that person is going to have a lot more to say and you’re going to want to listen to them.

John Max: Two hundred people in two years, two hundred people in five months of [inaudible]

Jim: Yes, yes, yes that’s … it can happen you got to be careful.

Written by
John James, M.D. is the CEO of Engine, a modern cloud-hosted ecommerce platform. I paid for medical school with an ecommerce business I founded in my dorm room over twenty years ago, and eventually raised over $100 million in venture capital running Acumen Brands. Email me -- john at enginecommerce dot com.