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Timing Is Everything: When to Assemble a Board of Directors for Your Business

By: Rustin Banks

 

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For a new business, forming a board of directors may seem like an unnecessary complication—one that’s better suited to Fortune 500 companies than those with only a handful of employees. However, a board can be an invaluable source of guidance and perspective, regardless of a company’s size, and the time to form one may be sooner than you think.

 
Why You Need Another Level of Guidance
 
You may not think your company needs extra oversight, but even a small business can benefit from the guidance and structure a board can provide. Creating a board of directors provides you with:
 
  • Different perspectives. Because board members see your company at its highest level, they view things differently than someone entrenched in the day-to-day of a company. You might think you can get this from informal mentors, but having a formal board is different. When someone joins your board, he is legally invested in the outcome of your business.
  • A strong reason to “step back.” As an entrepreneur, you’re consistently producing—stepping back to plan and report can seem like a waste of time. Having a board means having board meetings, and board meetings mean taking the time to reflect and learn from the past and plan for the future. This deep reflection and planning will save you lots of time and money in the future versus simply plowing ahead. Many management gurus call this “sharpening the saw” to cut down more trees.
  • Accountability partners. Having a board of directors brings an added level of accountability to your job. While this may sound intimidating, the social pressure of accountability is actually a great incentive to keep working at your best level.
 
Timing Is Essential
 
Once you’ve decided a board of directors is right for you, the next step is figuring out the best time to start the process. There are a number of triggers to watch out for:
 
  • Substantial revenue: When your business begins generating major revenue—in excess of $500,000 a year—a board can help you assess and determine where to make smart investments that will further grow your revenue.
  • Third-party investors: If any of your money comes from a third-party investor, the formation of a board shows transparency and accountability.

  • More than 10 employees: Your employees are investing in you as much as you’re investing in them. It’s important to have proper oversight to ensure the business is working in the best interests of its employees.
 
Choose Your Board—Wisely
 
A board should be the smallest size possible to get the job done. Single-founder companies only need three people to start with, and the maximum any private company should need is seven members. Keeping an odd number means avoiding possible future stalemates when making decisions.
 
What’s more important than size, however, is the type of people who are appointed. A board is only as good as those who are on it, so ensuring you have the right people for the job is critical.
 
  • The founder needs to hold a seat since she typically represents the majority of common shareholders. She needs to be the voice of the company in meetings and will communicate any decisions to the rest of the team.
  • A super mentor is someone about five or 10 years ahead of you professionally. This person has firsthand experience in growing a successful business, and that expertise will come in handy when making big decisions.
  • An industry guru is a well-known expert in your industry. She should lend credibility to the board, provide advice, and act as a neutral party. 
 
When TapInfluence first formed a board, it consisted of only three people. As we grew, it grew with us. It has proven to be an invaluable asset in the continuing success of our company. As long as your board is made up of the right people, the same will hold true for you.
 
What value have you found in forming a board?
 
Published: January 28, 2014
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