Any successful, established business will have a thriving board at its heart, with independent directors there to provide an objective view and hold the board accountable.
Early-stage businesses (ESBs), more commonly known as start-ups, can be slower to recruit independent board members. Yet it’s during the early days that an objective outsider can be the most useful.
Start-ups undoubtedly require the input and experience that non-executive directors (NEDs) can offer, but the role and relationship can play out differently.
In our research into the role of the NED in start-ups, we found that these businesses require more flexibility and involvement from someone who shares their vision and comes with industry experience and vital connections.
How does the role of an NED differ in a startup?
Our research showed how the role of an NED in a startup can be more hands-on than in a more developed business.
“As a NED, holding the Exec to account is your reason for being on any Board. In an early-stage company, this sits alongside taking a coaching approach to your role to help accelerate success,” said Rebecca Ganz, Chair of Blueskeye AI and co-lead of Transpire’s Leadership Mentoring & Coaching Faculty.
The board members need to be able to adapt and grow with the company, ensuring their governance matches the needs of the business to support growth in a risk-managed way.
This is especially important in start-ups that are growing and adapting at a fast speed.
For a young and growing startup, the process can come later.Michel Valstar, founder of Blueskeye AI
During these early days, the board composition can change quickly, with a new chair or members being added. The board structure can also be fluid, with changes to how board meetings are run or the methods of communication evolving with the needs of the business.
This agile approach to governance is one that’s worked for Michel Valstar, founder of Blueskeye AI. “It’s very important as a first-time entrepreneur that an NED is aware that you’re on a learning trajectory and they’re there to help and support you through that,” he said.
Michel explains that his 11-strong startup uses a “just in time, just about enough” process for everything, rather than having all the formal processes in place in advance.
“For a young and growing startup, the process can come later. We regularly review how things are going and we only put processes in place when necessary,” he said.
“That requires some flexibility from an experienced NED because they might not be able to introduce what’s useful from an industry standard to a new team straight away.”
What qualities do start-ups require from NEDs?
The role of an NED in a startup requires many of the same qualities as you’d need in a long-running business. However, being adaptable about how they’re put to use is vital.
Be willing to be hands-on
You’ll need to be more involved than you would be in a more established business and the startup will look to lean on your experience more regularly – much like being a coach.
“Something we really look for in NEDs is that they’re active advisers and not just there to read and advise on board reports – they need to work with us on a regular basis,” said Michel.
Come with specific experiences or expertise
Do you have the strategic skills to grow and scale the business? Think about what you can contribute to the business by leveraging your past experience in the sector.
You will need to help the business achieve short-term and long-term aims, and offer guidance on the strategy to get there. This will differ according to the business, with some requiring more strategic guidance and others needing more help around governance.
Hold the executive team to account
Are you comfortable monitoring the executive directors and challenging their decisions? They need someone who can see flaws in their approach and isn’t afraid to point them out.
“There’s relentless questioning of our strategy and high-level execution on plan. It’s good to get that outside view from our NEDs,” Michel explained.
“They will question if something is just a hobby horse or if we’re going in a certain direction just because that’s what we’ve been doing since the beginning.”
Be interested and inspired by the business
The majority of the start-ups interviewed for our research emphasised the importance of having a genuine interest in the business you are working for.
NED roles in small businesses can be high risk and require a large commitment, so a passion for the company makes tackling the challenge much easier.
Without a genuine interest in the business and what it wants to achieve, you’re unlikely to have the motivation to drive it forward. Ask yourself what you have in common with the business and only enter the partnership if it’s consistent with your own personal interests and aims.
Have a network of useful contacts
You should have a strong network that you’ve built up over many years in your profession – for start-ups, this is one of the main advantages of having an NED.
These contacts are especially important than in the early days of business, so be ready to make introductions and help maximise potential opportunities. Think about your network and how you might be able to add value to the business, whether it’s through introducing investors or bringing in industry experts.
Additionally, many recruitment processes start with informal introductions, so look for wider opportunities to make connections like this too.
You may have more experience racked up in years than the entire team put together, but there is no room for egos in a new business. Developing an open, honest relationship is key.
“The thing to avoid is where an executive becomes worried about talking to their NEDs because they’re concerned about power plays or they’re unsure if they can discuss elements of their strategy that aren’t completely crystallised yet,” said Michel.
Bring a range of experience
Ideally, you’ll have a diverse professional portfolio, which includes working with various organisations in advisory and voluntary positions.
What are the benefits of taking on an NED role within a startup?
A suitable NED undoubtedly brings many benefits to growing start-ups, but what’s on offer in return? For the relationship to be truly successful, it must be mutually beneficial.
When it comes to pay, keep an open mind about what’s on offer as startup budgets can vary wildly.
“We were lucky that we had some cash and revenue to begin with, so we could perhaps offer more cash than other start-ups,” Michel said.
He recommends having a conversation about money early on and being upfront about what you expect. If they can’t match your expectations, find out if there are other benefits on offer, like share options.
Bear in mind that the rewards of serving on the board of a startup may be much greater than just financial benefits. While the interviewees in our research didn’t deny the importance of the financial benefits of being an NED, they also spoke passionately about the non-financial rewards.
Overall, the NEDs we spoke to talked about two main positives:
- Helping to build a startup from the beginning and having an invested role in the growth of a new business is an extremely rewarding process.
- The ongoing opportunities for professional development. NEDs need to develop their skills and expertise in order to open doors to future opportunities. The needs of a startup change over time so the NED needs to be able to grow alongside the business.
Preparing to join a startup as an NED
Being an NED for a startup can be a high-pressure role that comes with some risks. However, if you’re aware of the challenges involved and prepared to help the business navigate potentially difficult situations, it can also be a rewarding experience with plenty of room for professional growth.
Want to find out more about becoming an NED or join a community that can support your professional development? Find out more about how Transpire Global’s community can benefit you here.