Hugh Shields, a principal at Shields Meneley Partners, explains that going it alone as an entrepreneur may be tempting to slow a company’s cash burn rate, which is mission critical. But, he says, flying solo also can be isolating, leave a startup vulnerable to founders’ blind spots and turn off potential investors who may perceive it as an inability to generate buy-in or delegate – both of which are essential to long-term success.
In this episode of FoodNavigator-USA’s Investing in the Future of Food, Shields explains the benefits boards offer, shares advice on how to recruit effective advisors, including red flags to avoid, and lays out strategies for financing a board.
Why boards should be a priority
“I’m a very strong believer in advisory boards,” said Shields, who after 22 years in the corporate world launched his own company and realized the entrepreneurial world “can be very isolating.”
He explained that creating a board of “smart people” can help entrepreneurs feel less lonely and more efficiently scale their business by tapping into a larger “creativity and thought pool.”
For example, experienced board members can help companies anticipate and avoid potential minefields, spread the word about the company among influencers and investors, meet potential partners and craft business plans that avoid common pitfalls.
In addition, boards hold operating teams accountable – something that not only will help a business grow, but could also help attract the attention of potential investors, Shields said.
He explained that a primary function of boards is to mitigate risks, and deconstruct missed milestones to avoid a repeat in the future. This in turn can provide much-needed validation for potential investors or other strategic partners, including retailers.
“Most buyers are very skeptical of a company that’s just totally dependent on the founders involved, and it is a red flag to a buyer. So, you want to try and scale the company as quickly as possible and get more people in,” including board members and advisors, he said.
Build an efficient board
When it comes to boards, bigger isn’t necessarily better. Shields recommends that most small and mid-sized companies cap their boards to five to seven members that offer a diverse set of experience, connections and skills that complement the operating team.
Shields recommends creating a board skills matrix that outlines the company’s needs, what existing teammates bring to the table and where there are gaps that a carefully selected board member could fill.
The first board member a company selects will set the tone for who else joins, which is why Shields says it is important to “aim high” to attract additional high-caliber participants.
As companies add board members they should ensure that the participants can work together and have “good chemistry,” just as they would for any new hire. This will help mitigate in-fighting and streamline brainstorming to identify solutions, Shields said.
While having board members with experience and connection in the company’s segment is essential, so too is having industry outsiders who can add to the breadth of ideas and analyze situations from a different perspective, Shields said.
Shields also warns of several red flags to avoid when building a board, including onboarding people who are too similar to founders, those with large egos who can sideline discussions and people who are just in it for the board fees.
Financing a board
While the best board members share a passion with the founders and want to see them succeed, most people will not offer long-term support and guidance for free, which is why Shields says founders need to set a realistic budget.
Startups should plan on paying board members a cash fee of $500-$1,000 per meeting, but as the company grows they should set aside an annual fee of $20,000 to $50,000.
If that kind of cash liquidity isn’t available, Shields recommends offering equity, which he says should appeal to board members who believe in the business model and purpose.