Using Design Thinking Governance in the boardroom
Third article in a series looking at the role of design thinking in a governance setting. Design thinking or user-centric design is a lens…
OPINION: Our world is changing, and fast. With the pandemic, climate crisis, global economic shifts and rapidly changing consumer markets, it is clear that many businesses of today will no longer be relevant tomorrow. If we want to maintain and support sustainable economic growth while meeting the broader needs of society, we will need an economy underpinned by innovation and new technologies.
It is our startup sector which will drive this innovative progress. Startup founders are our ambitious problem solvers. Addressing real world problems, they thrive in uncertainty, generating new jobs and new revenue streams in new markets.
To generate growth in a startup, it is almost always necessary to raise external capital to run the necessary experiments to build a product, find customers, test business models and hire amazing people.
Underpinning this growth is good governance.
In order to understand startup governance, you need to understand risk and reward. Startup founders are driven to solve problems and make a difference – many want to literally change the world. And they need to do this at pace.
So managing risk in a startup is less about compliance, it’s more about being as brave and ambitious as you can without breaking things. These things being people, the law and the company itself.
The Four Pillars of Governance Best Practice (strategy, culture, accountability and compliance) still underpin governance in a startup context but they are applied differently than on an established corporate board.
Strategy is everything for a startup company board. Setting, revising and delivering on the strategy - how the business will use its limited resources, including its capital - is the board's key task and where the vast majority of its time should be spent. Typically, this involves determining how to create value as fast as possible, by being laser focused on who and where your markets are, and how you're going to reach them.
Creating this value is anchored in finding a repeatable, scalable business model. Knowing precisely who you are creating value for and how you are creating it is critical in determining the resources the company needs to scale rapidly to create that value, and how much risk to take along the way. A key element is having a capital strategy that maps out the capital that will be needed, and how it's likely to be deployed to get the business to 'escape velocity', the point at which it graduates from being a start-up or scale up business.
A startup board is brave and supportive. In setting the culture in a startup, you’ll need to get used to your executive telling you “done is better than perfect” and “what would we do if we weren’t afraid?”
The culture in a startup is also about moving fast, making informed guesses, learning when things go wrong (which they often will), and iterating and reiterating the design of the product or service until you get it right. And this needs to be done without blowing the team's lights out by generating too much stress, anxiety and over work.
The board needs to know when to push the team and when to pull them back and regroup. Sometimes that will include pivoting the company, sometimes that will see the chair step in to act as CEO so the founder can fully recharge.
As with all boards, directors need to hold the founder/CEO and executive to account, but they also tend to be working far more closely with them than in the context of a traditional board.
This may mean straddling the line between governance and management when necessary. It is not uncommon for startup directors to be more deeply involved in the operations of the business when the company is entering a new market, hiring critical team members or raising capital. Accountability is all about making sure everyone does what they say they will do - including the directors.
As with all boards, compliance is about building a business that meets its legal obligations. Startups must be obsessive on solvency, ensuring that at no point the business strays into reckless trading territory.
Startup boards will also be very familiar with employment law because ensuring you have the right people is critical. When an employee is not the right fit that person needs to be moved on quickly (kindly and legally) for everyone’s sake, but most acutely because there is very little latitude in a startup for anything slowing progress.
As a startup board member your duties are:
Your big decisions will be when and how to:
Generating liquidity usually entails either selling the venture or an IPO. Both of these liquidity options are about seeing the venture on to its next stage of value creation, while enabling those very early stage investors to recover their capital to deploy in the next generation of startup companies.
As a startup director it may become necessary to shut the company down because you’ve run out of money, haven’t found product-to-market fit or the team has disintegrated – or all of the above!
Startup boards tend to be smaller than those of established businesses. In the initial phases of a startup, a board may comprise 3-5 directors.
It’s not uncommon for the early directors to be relatively new to the governance or not quite right for formal governance. The goal is to gather a skill set around that table that reflects the next level of maturity of the business, and to regularly refresh it as the business scales up and needs a different skill set for each stage of its development.
Startup directors' value should be recognised. Remuneration will reflect the stage of the startup but it’s generally at a rate of about $500-1000 a meeting or directors might be paid in equity at about 0.5-0.75% for directors and 1-2% for the chair. This equity will vest over 2-3 years.
Agenda items will focus on key metrics illustrating value creation, particularly in software as a service companies. In deep tech companies value creation milestones are more likely to be tagged to validating the technology and IP creation. Another standard agenda item will be implementing the capital strategy and traction towards the liquidity milestone. This milestone should align with the value inflection point to take the venture to its next level of global impact or growth.
Startup directors should be courageous and willing and open to learning. They need to be optimistic realists, lateral creative thinkers, with high IQ and EQ, and they need to be self-aware. Self-awareness is especially important as tenure on startup boards tends to be short as the skill sets the venture requires often evolve quickly.
Often startup directors bring strong skills in financial management in high growth contexts, marketing and sales expertise, mergers and acquisitions, technical knowledge of the product, their networks, CEO experience and team management expertise.
The startup CEO will have a particularly close relationship with the board chair, and they will likely meet very regularly outside board of meetings. This is due to the intensity of the growth and value creation expected of a startup, and the fact that any external capital raised will bring a unique set of pressures and expectations.
Being a startup director is not for the faint hearted but it can be hugely rewarding. If you are interested in pursuing a board position on a startup I recommend:
Some of the startups of today will be our next big-name businesses tomorrow, so even if startup governance isn’t for you, every New Zealander owes it to our future to “back or build a startup” by buying or trying their products, investing in a venture fund or encouraging and supporting startup founders you meet along the way.
Suse Reynolds is the Executive Chair Angel Association NZ. AANZ is the industry representative body for early stage investment and has 12 angel networks spanning the country, venture funds, equity crowd-funding platforms and investor-led tech incubators.
Suse founded and is on the board of AngelHQ, Wellington region’s angel network. She is also on the board of CreativeHQ, VicLink’s Momentum Investment Committee and is a committee member of the Wellington branch of the IoD.
She is an active angel investor with about 20 ventures in her portfolio.
Suse would like to acknowledge Arch Angel recipient Debra Hall who has led the AANZ's work to raise startup governance capability, including presenting all the AANZ's startup governance courses. Suse has drawn heavily on Deb’s work to write this article.
The views expressed in this article do not reflect the position of the IoD unless explicitly stated.