Have you ever seen a toddler running? They’re unsteady on their feet, looking like they might topple over any moment but they confidently race ahead nevertheless. And if they do trip, they usually have a parent at hand to gently help them up, comfort them, and then off they go, running again, fall forgotten.
It reminds very much of the early days of start-ups, driven by the enthusiasm and confidence of their founders, big on ideas but toddlers in the world of business. The energy around the new idea is palpable and so many people – investors, lenders, advisors – are keen to be part of the action; much like caring parents.
Its in these early stages that start-ups must make some long-term decisions; and that is where the concept of Governance comes into the picture. Sure, the founders have the vision and the gumption to take their idea to market. But the decisions that don’t seem to be relevant immediately –future funding, ESG commitment, new markets, talent pipeline, etc – is where an engaged set of people, who are a step away from the day to day operations must weigh in.
The past decade has put India on the start-up story map. From home-grown delivery services to health tech, and personal care to fintech, there seem to be start-ups vying for customers, investors and market share across categories.
And yet, for every successful start-up, there are scores that stumble and fall by the wayside. So what is it that separates the occasional sparks from the unicorns that will go on to grow and IPO? Ability and agility, of course. Funding and talent, no doubt. The tenacity and vision of the founders, most definitely. And holding all these together is a well thought out corporate governance framework designed for growth and innovation.
However, for early-stage companies, putting together a board seems like a painful ask. Managing it is time-consuming and every so often it gets in the way of the founder’s ambitions, tripping him (or her) up as he speeds towards the next goal. It begs the question – is it worth it?
The answer, if you ask most founders, investors and regulators, is a resounding YES. There are multiple reasons for this:
a) The breakneck speed at which young companies grow makes them more likely to stumble and fall. It’s important to put in place processes and controls, before it becomes too ungainly to do so.
b) Growth requires more funding and while most investors want to fund a great idea, they also look for transparency and governance, particularly for Series B&C.
c) Early-stage companies often pivot, changing direction, products and markets. While this takes imagination, innovation and market understanding, it also means that the leadership and board should be resilient, flexible and encouraging – only possible when the overall direction and desired outcome is clear.
d) Entrepreneurs are busy disrupting markets and making the most of emerging opportunities. A Corporate Governance framework will help them prioritise their limited time and resources to align with the overall purpose.
e) Startups often have many multiple investors. Corporate Governance framework helps align their sometimes diverse interests and timelines.
Very often, the start-up that is poised to succeed is the one that gracefully brings together the hunger and dynamism of the entrepreneur with the network of the investors and the market understanding of management. The very qualities that must be present in the board of a nascent company.
However, the board structure and Corporate Governance framework for start-ups will be quite unique from that of established companies, and in some ways be easier to adapt and scale-up. Boards at this stage serve more as mentors, challengers and guides rather than the oversight role that they tend to adopt for developed entities. So is there a secret formula that works for Boards of start-ups? Not really; after all each start-up is unique in idea, structure and desire. But there are a few principles that serve them well.
1. Buy into the Vision: Much like toddlers, start-ups need a board that will allow them their risks, within reason, and help them back up if they falter or fall. It takes resilience and a willingness to get into the thick of the business, if required, on the part of the board members – definitely not a job for the faint-hearted.
2. Be clear on roles: Entrepreneurs should have a clear idea on what their board members bring to the table – network, funding, market knowledge, etc – and be prepared to receive those inputs. Board members should also clearly know where their experience is being sought, but be undeterred in also lending perspectives on other areas.
3. Fill in the gaps: Founders should actively seek out board members who will bring different dimensions and perspectives from what they have themselves. Meetings should allow for constructive debate and discussion that will take the vision forward.
4. Be ready for pushback: Sometimes, early-stage companies are dominated by their founders, or by the first directors/advisors who have a passion for the vision. Its important for them to be open to the challenges that come from other, possibly newer board members who have greater distance and different perspectives. It’s not personal, just good bur business!
5. Governance isn’t only for grown-ups: While they may not have one at the outset, start-up Boards should consider implementing governance structures early on, preferably before Series B/C. This will help them align interests and adapt to the inevitable larger format that comes with success with greater clarity and decision making prowess.