As extensively discussed during the ScaleUpBoard program of ScaleUpNation, there is a clear distinction between start-ups and scale-ups, and their respective challenges. Start-ups have to prove their concept and find customer validation. Scale-ups face customer creation and company building challenges, as also shown in figure 1 below.
According to the Mondriaan model 1, there are 9 key elements start-ups should have mastered before scaling:
- Having a great vision
- Maximizing scale-up potential
- Delighting customers
- Scaling strategically by making big bets
- Building an ambidextrous leadership team
- Developing a dynamic structure
- Focusing sales on the beachhead
- Lean operations
- Learning loop
As a board member of such a start-up/scale-up, you have a duty of care and you are an employer. But more importantly, you are a sparring partner, advisor and coach. 2
Given the important role non-executive boards play in the development of start-ups and scale-ups and this advisor/coach role that board members take on, the board composition should be optimized for the stage of a venture to help overcome the challenges that are characteristic for the phase of the company’s development.
Role of investors
Different types of investors focus on different stages of ventures, as shown in the figure below (figure 2). Up to Series B, the investors and start-ups focus on finding and proving the value proposition. Typically, scaling the value proposition is done with help of funding in a Series B round or beyond. Different investors have different ‘sweet spots’ in terms of the phase or series they invest in.
Investors typically ask for a seat at the non-executive board of the venture they invest in. This therefore automatically gives the needed experience regarding the challenges of the phase of the company in the board.
Other board characteristics play an important role in the success of the company, for example industry knowledge or sector experience 3. A non-executive board full of investors is therefore not always the best composition, certainly given the risk that investors might not always act in the best interest of the company, but in the best interest of shareholders. Moreover, diversity is an important factor in the effectiveness of a board 4.
Recommendations for start-ups and scale-ups
Based on the analysis above, the following recommendations can be made to founders and management teams of both scale-ups and start-ups:
- Choose the composition of your board wisely (when possible), and make sure the right knowledge regarding the phase of your organization is present to assist you in the main challenges you will face on your path to growth;
- Make sure the right balance between investors and independent board members with sector and market knowledge is present in the board composition. Consider only allowing investors to be board observers;
- Make up-front arrangements about how long a non-executive board member can stay involved, to make sure investors of different investment rounds follow each other up (securing knowledge about the phase of your start-up/scale-up in your board), instead of adding investors to the board every new investment round, with possibly diminishing added value of earlier-stage investors.
The above recommendation also leaves room for further research/thinking:
- How can a board be optimized for the stage of a start-up or scale-up while at the same time maintain a certain stability and board consistency?
- Should a board not rather be optimized for the mission of the company versus this focus on growth?
In conclusion: the composition of a venture’s non-executive board should be optimized for the stage of the company in order to maximize its added value, while at the same time consist of a diverse group of professionals and backgrounds for maximal effectiveness.
- The Art of Scaling, ScaleUpNation (2018)
- “It’s not about you”, Dorine Wekking, Module 1 ScaleUpBoard program
- ‘Are you up to it’, Anne Mieke Eggenkamp, Module 5 ScaleUpBoard program
Beau-Anne is an impact investment manager at DOEN Participaties, the investment arm of a foundation that promotes pioneers that take the lead in the field of sustainable, cultural and/or social innovation. Within the DOEN team she focuses on early-stage deals in renewable energy and sustainable food system Innovations. Beau also serves on the board of Milieu Central, a knowledge centre for a sustainable livelihood in the Netherlands, and Nuventura, a tech company that develops clean power solutions as independent board member.
Get the latest scoop on scaling, updates from the scale-ups in our community, and first access to our events.