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In the Weeds with a board expert: How to build your board with intention
Baiyin Murphy, general partner at Indicator Ventures, offers up tactics and perspective to help you get the most out of your board of directors.
“Building a board isn’t the first thing most founders think of when they get excited about building a business,” Baiyin Murphy said at the outset of her interview with In the Works. “But the long-term impact of a board on various aspects of your company can be significant.”
In the midst of developing your product, identifying market fit, and securing financing, have you thought about how a board of directors might help guide your company as you scale? Or, if you’ve already formed a board, are you thinking intentionally about how your members can help propel your mission, values, and the return for investors at every stage?
For many founders, forming a board — and building relationships with your board over time — is uncharted (or at least unfamiliar) territory. So in this interview, we asked Baiyin for help navigating the process.
Baiyin supports an innovative, diverse set of founders as a general partner at Indicator Ventures, a pre-seed and seed-stage venture capital (VC) firm funding digital health, enterprise tech, and fintech companies. She has served on dozens of boards of high-growth companies, and she has offered founders valuable insight as a director, advisor, and observer.
Keep reading for her expert take on board formation and management strategies.
From the top: When should I start thinking about creating a board of directors?
All for-profit companies are required to have a board of directors, so while you’ll technically create the board when the company is formed, many founders check the box for the legal requirement by taking on the role of sole board member themselves. From there, the board formation and composition is often driven by taking on investment. A company’s first VC or institutional investor might require a seat as a board director.
It’s worth calling out here that founders may face challenges down the road if they don't think about forming the board until their first financing event and then have to put people in director seats without thinking through the impact that person might have on the direction of the company. Being intentional from the beginning about who sits on the board can be a positive step early on to shape your company’s growth.
There are also plenty of founders out there building very stable businesses that don’t change much over time and may not rely on raising much capital. In those situations, a company may not need to have a formal board but may still opt to have a board of advisors — folks who regularly offer support and advice but don’t have a voting role.
What should I keep in mind while deciding who serves on the board — and how might the board composition change as the company grows?
What your board looks like at any given time — in terms of the number of seats and who is filling those seats — will change as the business matures and your needs evolve.
At an early stage, for instance, if you’re a pre-revenue business but you've already built a solid product, you may want to bring on somebody who understands your industry really well or someone who has early go-to-market knowledge. This might be your investor or an independent board member. Then, as the business matures and grows, you’ll need to bring on other board members whose operational or investing experience can help you navigate new stages and challenges.
For example, maybe you initially brought on someone who really helped you grow from founder-led sales to go-to-market and product-market fit. In the next stage of your business, if you're thinking about something like international expansion, you might bring in someone who has had experience bringing a company global. At that point, if you’re also thinking about merger and acquisition (M&A) opportunities, you could focus on recruiting a board member who has a corporate development perspective.
At later stages of growth, bringing on more independent board members who don’t have an existing relationship with the company can be a great thing. As your shareholder base expands, these objective members can offer a fresh perspective that can be helpful. You might also consider creating a board of advisors made up of industry veterans or practitioners to offer broader market commentary, product feedback, customer introductions, and additional insights.
Ideally, the people you bring on to fill board seats at every stage will bring unique perspective and know-how and can help you seize opportunities and work through challenges, as well as introduce you to new networks.
How should I think about recruiting board members?
There are services that recruit professional board members, but I think the best board members come through personal networks and referrals. As a founder, keep this in mind as you meet people and build relationships with folks who are milestones ahead and may be able to offer a more mature perspective or have specific expertise that would benefit the company as you grow.
I have a good friend who's a founder and is constantly thinking this way. He has a wishlist of people he eventually either wants to hire or to serve on his board. It’s aspirational — these are really prominent people who he knows are miles ahead of where his business is — but he has that goal and works consistently to network toward those connections so that when he's ready, he can ask them.
Does every investor in my company need to be seated on the board?
Typically your lead investor will ask for a board seat when they invest. If it's an early round and multiple new investors are coming in, not every single new investor is going to get a seat. It's really up to the founder to negotiate with the firm about that involvement. If there's more than one lead investor, you may give one investor a board director seat and one investor a (non-voting) observer seat.
Then with subsequent funding rounds, there's usually one lead investor in each round, and those investors typically do take a board seat. Over time, depending on the size of the board that you're trying to keep, the earlier investors may come off of the board, and the founder will need to manage those transitions.
How do you think about your responsibility to the company and the founder when you take a seat on a board?
My primary responsibility when I serve on a board is to help maximize all shareholder value for the business. I do that by advising and voting on things like hiring and firing executive team members, approving CEO and executive compensation, and approving the budget, option grants, and other large transactions.
I also think that the most effective board dynamics often happen outside of the board room, so I aim to engage often outside of those meetings. If the only time you’re communicating is during quarterly board meetings, you’re not setting yourself up for success.
Beyond that, for me, it's really about providing my unique perspective and expertise to the founder and the executive team and sharing my network — all with the goal of helping the business grow and thrive. As an example, my firm, Indicator Ventures, invests exclusively in Pre-Series A companies. In my years investing in early stage businesses, I’ve been the most helpful in guiding companies while they shift from founder-led selling to building their first go-to-market teams, processes, and sales motions. With that in mind, CEOs will typically come to me for advice and introductions related to go-to-market.
Most importantly, I see myself as one member of a team of board members created to support the business. No one board member is going to have all the answers. The goal for any founder building a board should be to fill the seats with directors who all have unique experiences to offer — and then create effective communication from the start to be sure you’re making the most of all of that wisdom and perspective.
Can you share some key communication tips to bring out the best in a board?
Keeping a regular, consistent schedule of board meetings, setting a clear agenda for each meeting, and sending monthly email updates are all basic best practices and are definitely a great foundation for communication. But I find that a lot of the benefit founders will see from communicating with board members can actually come from the less formal communication that happens between meetings and standard news updates.
For instance, ahead of a board meeting, you might reach out and send specific slides to a director who can offer feedback on a specific agenda item you’re working through or answer questions to make sure you’re presenting the topic well. That kind of outreach both builds a connection with that member and makes for a more impactful discussion during the official meeting.
If you’re gathering for the board meeting in person, it’s great to plan to get together informally for dinner the night before or after. This has been tougher during the pandemic, but creating space for conversations that include more than board business is a great opportunity to build deeper relationships. Some founders will bring other employees to these dinners as well, which helps create connections between the board and the company more broadly. If you can’t meet in person, some of this can definitely be planned virtually, too.
After the meeting, you can catch up with board members individually again to dig into specific topics or to follow up on discussions. Of course this gets more time consuming and harder to manage as your board grows, but particularly at the early stages, the more you can communicate with your board members the better. That ongoing communication means the time dedicated to the board meeting can be spent discussing big, strategic opportunities.
Every single company will get to a point where there's a challenge in the business, and when that happens, you — and the company — will be better off if you’ve built the trust and support with your board members by intentionally connecting often. Don’t underestimate the amazing resource your board can be for the business and for you, as a founder.
What recommendations do you have for planning an effective board meeting?
I always like to tell founders that when you’re thinking about an agenda, the most important thing is to avoid any surprises. In my view, the following flow, which divides meeting time into two parts — works well for most boards:
Introductions and housekeeping
I would start off by introducing any newcomers onto the board — anyone beyond the existing roster of directors who might be joining. If you're bringing in management team members, introduce them upfront. This is also the time to get housekeeping items out of the way, like approving minutes from a previous meeting or voting on option grants.
This is the time for key items like highlights, lowlights, and any major company needs or asks from the board. Anything out of the ordinary, including bad news, should be stated upfront.
This section should include any key metrics that you are tracking internally, as well as financial statements, including your cash position, which gives everybody a foundational, quantitative view of where the business is. As a company matures, the metrics are probably going to change or there will be more of them, but the format of this section should remain static so it’s familiar from meeting to meeting and it’s simple for your team to update.
Each of the different business units should offer an update at this point. In later stage companies, the founder often brings in the heads of those business units to present their own updates.
Key strategies and brainstorming
I like to spend the second half of the board meeting on one or two key strategy sessions or deep dives, which will change at every meeting. For instance, maybe you want to focus on the competitive landscape, so we’ll spend part of this session on that topic. Or maybe you want to open up a new product line, so we’ll dig into that as a group.
I've seen boards get really energized in these sessions, and they offer you, as a founder, a lot of different perspectives from the different board members as you brainstorm together.
A closed session, in which the board members meet alone, without the CEO, generally closes out a meeting. This provides the board the chance to discuss any feedback they can offer the founder/CEO. At the end of the session, the CEO returns and the board will give their feedback.
What should I know about my role as a founder/CEO in navigating board dynamics?
How your board interacts and collaborates (or doesn’t) can have an impact on how decisions are made and how the board functions. This dynamic can be affected by board members’ financial motivations, their positions within their firms, and their relationships with their investment partners. As a founder, you need to be aware of these factors and help ensure each board member understands other board members’ motivations and perspectives as well.
In terms of your role navigating these dynamics, I think the CEOs who do this best are like great point guards — they understand how each person can best contribute and they bring out the best in each board member. They proactively take the time to know how each member's strengths and motivations can serve the board and the business, and they are prepared for any potential conflicts.
The bottom line: What is the biggest benefit of building a well-functioning board?
The biggest benefit of building a well-functioning board is pretty straightforward and powerful: You’ve created a group of dedicated partners and supporters who can use their past experiences or experience across other companies to help bring perspective, networks, or advice to take your business to the next level.
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