Who is the right person to be a start-up non-executive director?

Who is the right person to be a start-up non-executive director?

By Jordan Green

Founders and investors in early-stage start-ups often ask me how to ensure that the right person takes the non-executive Board seat and then delivers the desired value/benefit. The simple, honest answer is you can’t – unless the founder and the nominating shareholders have first set a relevant and shared set of expectations for that role, that value, those benefits.

It is all too common that founders expect to appoint a director with particular expertise and that, in doing so, expect that director will always have all the answers in that expertise domain.

Appoint a director who has been an executive in a large SaaS company and your SaaS startup will always know everything it needs to navigate the path to SaaS success – nope!

Appoint a skilled lawyer and the company will always have the very best legal advice – nope!

Appoint a director who was/is CEO/senior executive of a large corporation and the company will have the best management/processes – nope!

Appoint a retired politician who has navigated national initiatives and the venture will enjoy the smartest strategies – nope!

Narrow expertise is useful at certain times and for certain durations in the life of the venture and is best sourced from advisors. Advisors are resources the company can draw upon as required, remunerate as necessary and dispose of when no longer useful.

Directors need to bring a broader and more nuanced range of expertise and skills. The director is not there to provide a narrow range of domain specific advice for a short time. Rather, the director is there to help build a decision-making framework for the company based on trust, insight and collaboration. A framework that will endure, evolve and improve over the long-term tenure of the director.

Put another way, it is not unreasonable to expect an advisor to have ‘the answer’, although it will still take some shared effort to get there. It is unreasonable to assume the director will always have the answer. The director is expected to be an effective collaborator with the experience, skills and alignment of interests to help the founder find a viable path forward, make timely and well-considered decisions and, in so doing, develop both the founder’s skills and the company’s capabilities to keep improving.

Confident, effective decision making requires that founders consider three elements: the information they have (and don’t have), the guidance of their trusted colleagues, and a realistic awareness of their own capability and capacity to execute. The Board room needs to be a safe and effective environment within which to actively explore each of these elements. No-one sits idly on the bench. In the Board room every director, executive and non-executive, is accountable and responsible for the decisions that are made. Every director is required to help the company continue to create and grow value.

Th partnership between a non-executive director and a founder/CEO should be an exchange of knowledge, ideas and experience to create new, relevant and valuable insights. Each party must value that exchange. Trust and honesty are fundamental to an effective exchange which, in turn, promotes growing confidence in the decisions made.

At the same time, the Board must be vigilant that this small community doesn’t end up with group think and happily reinforcing its own poor decisions, or blind spots. That’s where the expert input of advisors can be useful and effective reality checks and learning experiences. Remember, the advisor isn’t ‘right’ and isn’t accountable for the decisions the Board makes.

Seeking ‘on-demand answers’, whether from an advisor, or from a director, is fraught with danger. If the answer has not properly contemplated the relevant context, information and capabilities it is most unlikely to lead to success. That is why a core talent of good directors is to use their own experience and expertise to ask questions, to help the founder to fully explore the context, the options and the consequences before arriving at a decision.

Right now, I can hear the founder hordes (and quite a few investors too) clamouring that “Start-ups don’t have time for all that navel gazing and deliberation!” That is certainly true if you allow the process to take undue time. However, we can’t ignore the consequence, the cost, of the wrong decision, especially for an early-stage venture with limited capacity to recover.

That is why the Board room dynamic of inquiry, exchange and collaboration needs to be developed and in place as soon as possible. It is why discussions with directors should not be limited to formal meetings held at arbitrarily convenient intervals. If you want to have optimal, constructive impact as a non-executive director. If you want to continue to evolve and make the best decisions you can as a founder. If you want the venture to grow and flourish as fast and as big as possible. To do all these things requires trust, honesty, openness and a high frequency of information flow and informal collaboration. In that way, when decisions are needed, they are not being made in isolation, not being made as short-term reactions but, rather, are being made in a strategic context of shared understanding with a pragmatic awareness of what is possible. All oriented towards reaching the common goal of company success.

So, when I am asked about who will be the best person for the non-executive director role, I don’t answer. I start asking questions. It doesn’t have to take long, especially if the founder or investor asking is smart, inquisitive and genuinely aware that learning is the only real super power. The journey of inquiry and exploration to uncover the needs of the venture, of the founder, of the role just adds value and certainty to the conclusion.

Relationships take time and clearly the Board room works best when there are productive, positive relationships based on trust and a degree of mutual understanding and respect. A founder needs to know that a director has not been foisted upon the company to ‘watch the money’ of the investors. In an early-stage start-up there is too little time and too little money for that way of thinking. The director needs to know that the founder will actually listen and hear what is being said with the intent of incorporating the new knowledge and advice into making better decisions. Experienced, capable business people don’t have the time to waste speaking to deaf ears.

The early discussions about the requirements and expectations of the role of the non-executive director are an excellent path to developing an effective and harmonious relationship. Whether that relationship develops into an advisor role, a non-executive director role, a shareholder, or perhaps even a mentor, it is time well-spent. Especially so if it helps avoid any future role at all due to a mismatch of culture and expectations.

©2023 Jordan Green