Does your startup board have what it takes to scale?

A board is like a sports coach, that is a trusted coach of the team, with deep insights in how to win, encouraging vision, ambition, risk taking, performance and speed.

Most scale-ups have a board 

About 50% of ventures in the scale-up phase have a supervisory board of directors, i.e., a committee that supervises and supports their activities such as their strategy, fund raising, MT (management team) composition and operational performance. A supervisory board is usually installed after receiving a sizeable series A round, as a requirement by the investors.  

Supervisory boards typically consist of a combination of Executive Directors, Investment Directors and Non-Executive Directors (NEDs). The Executive Directors are commonly the founders/CEO, and have the power to influence the strategy and decision-making of the business. Investor Directors are added as board members as part of their agreeing to invest in the company – i.e., they request a board seat as a condition to invest in order to protect their investment. The NEDs are independent, experienced professionals, with useful contacts and connections, who bring credibility to the company and reassurance to investors and customers. They can also help with keeping the Investor Directors in check.

In principle, scale-up boards have real potential to contribute to the company’s success.  Having a board increases the company’s credibility in the market as it signals commitment to good governance. Moreover, boards can stimulate the company’s growth by providing strategic input, leadership support and access to networks. 

An effective board opens the doors to places, people and money the company could not otherwise easily reach, ensures the development and implementation of strategic plans, encourages risk identification and mitigation, helps with setting and monitoring performance goals, and ensures sustainable and good governance processes and structure.  

Many scale-up boards don’t work

Unfortunately, many scale-up boards are not very effective, namely they are not very good at helping ventures in the scale-up phase actually scale. Many MTs view the board as being just one more stakeholder to manage. They experience board meetings mostly as a “waste of time”, when the largest part of the meeting is dedicated to updates and reports, and sometimes as “high risk”, when board members draw hasty or ill-informed conclusions. 

The most common reasons scale-up boards come short boil down to three things: (1) the board is misaligned on the purpose, strategy, and growth drivers of the scale-up, (2) board members are mismatched to the task at hand (their skills, experiences and personal traits are unsuited for the scale-up phase), and (3) the board processes are not fit for a scale-up.

Three important characteristics of effective scale-up boards

Over the past 5 years ScaleUpNation has worked with close to 400 scale-ups. Through the ScaleUpScan diagnostics and dedicated, hands-on work with the scale-up teams, ScaleUpNation has amassed deep insights about scale-up boards and their operation. This is now forming part of the ScaleUpBoard program. Partnering our practical insights with research insights from Dr. Natalia Blagburn, an award-winning Governance Champion, who has recently completed a doctorate in venture boards effectiveness, we found that effective scale-up boards are aligned on purpose, staffed for the task, and structurally enabled.

Scale-up X’s output on board effectiveness assessment (company name removed for data privacy reasons). Retrieved from ScaleUpScan, 2022.

1. Board alignment on purpose

The purpose of an effective scale-up board is to help the MT achieve growth, whether growth is measured as a higher rate of year-on-year revenue growth or a higher valuation in the next round. Scale-up board members must be aligned on their views on three very important things: the growth objectives (the ‘what’); the growth strategy (‘how’ to achieve those goals); and the time horizon (the ‘when’).

Misalignment on purpose occurs when individual board members have divergent views among themselves or versus the founders team on any of these elements and the role of the board on bringing it all together. For example, industry veterans in the board might be much more conservative than the founders team on growth targets. The growth strategy might include some “big bets” and “market disruptions” that the board fears they create exposure. A fund representative, whose fund has a short exit horizon, and is therefore motivated to exit as soon as possible, is very likely to be misaligned with the rest of the board members on the time horizon for exit. 

Furthermore, the board members might have completely different understanding of the key drivers to achieve the required growth. Some might think it is important to first create sales, others to keep innovating. Some might think it is crucial to go international quickly, others to first dominate the home market. Some would propose to focus on one customer segment, others to explore several in parallel.  

Another misalignment relates to the board’s role in the personal and professional transformation that the CEO and the MT are going through in the scale-up phase. A board that is blind to this transition and insists on being directional and provide control will only frustrate and alienate the team. Instead, the board is expected to coach the MT on how to develop the new skills required in the scale-up phase. We found that the vast majority (80%) of scale-up boards, versus 54% of stall-up boards, use coaching as a method of support instead of advising or intervening. 

2. Staffed for the task 

Boards are typically comprised of individuals with unique value, such as industry experience, functional expertise on specific challenges (e.g., B2B sales), or deep technology understanding. However, effective boards of scale-ups have people with skills and experiences that are relevant to the immediate task at hand; i.e., the next 12-18 months of the scale-up development. If board members cannot help with what is immediately in front of them, regardless of whether they can help with something that comes later, they should not be on the board. 

Even more specifically, board members need to be familiar with the context of the roller coaster scale-up phase. So, their skills and experience should match the realities of the highly unstable, volatile, and uncertain environment that scaleups operate in. Therefore, individuals with strong sector background and deep knowledge of how their industry works might be a completely wrong fit for a scale-up with a disruptive business model in that sector. Similarly, individuals with experience only in corporates or companies that have not been through a rapid growth phase, would also be most likely unsuitable for the boards of companies in the scale-up stage.

Finally, board members need to have the personal attributes that make them trustworthy contributors to the common goal to help the company scale up. These personal attributes include asking powerful questions that help the CEO/MT, being reflective instead of voicing premature conclusions, creating a safe environment where emotions and fears can be shared and maintaining a focus on the venture’s growth instead of their own objectives. 

3. Structurally enabled 

Effective boards of scale-ups are professionalized early on by making sure the board meetings are well prepared, of the highest quality and crucial relevance to the scale-up growth objectives and immediate challenges. This includes information sharing prior to meetings that is well synthesized and centers on the key value drivers. Restricting the number of discussion topics per meeting and having the CEO select which ones to put on the agenda. Effective boards also have effective communication channels beyond formal meetups, making time and effort for quality strategic conversations and deep-dive discussions.  

Although ‘board processes’ issues are the easiest to correct, they often create path dependency if they are allowed to linger. Thus, if board agendas start as packed, they may give the impression that board meetings are effective when, in fact, they are reporting and transactional, lacking space for a strategic conversation and a discussion that could reveal unexpected insights.

So, does your board have what it takes? 

Take this moment to reflect on your board: Are we truly aligned on vision, objectives, strategy and execution plan? Is the board staffed for the task in terms of expertise, experience and personal traits? Are our board meetings touching upon strategic issues, is the input valuable, does the CEO/MT leave the meeting feeling energized and inspired?

If not, take action! Conduct an objective assessment on your board to define clearly what needs to change. Show the MT that you can take action as quickly as they can.   Start with board composition, do not hang on to your seats but get the right people on the bus. With this new fit-for-purpose crew, work hard to ensure 100% alignment on vision, strategy and plan. And finally professionalize the board processes to enable you to put your full force behind making these objectives a reality.  

Get started by making “board effectiveness” the number one topic on the agenda for your next board meeting. 

Do you want to assess your board, need new board members or want help to increase your board’s effectiveness? Contact Jolanda@scaleupnation.com or Jacqueline@scaleupnation.com.

Research by ScaleUpNation and Dr. Natalia Blagburn.