For startups, what is the purpose of board members?

has an interesting viewpoint. And he has some good points, but in my mind the question is "For startups, what is the purpose of board members?" -- not "Why would a Founder need or want Board members?" So, here are some more reasons (or variations on the reasons) both a founder and a start-up need (or might want) Board members: A.  Affiliate Transactions:  Who will approve your salary and employment agreement and have it be solidly set and not subject to second guessing or even a lawsuit for self-dealing? You need someone other than you (the founder) to vote for your compensation to pass muster without leaving these decisions open to attack. Same with stock options. Same with the rent you pay to yourself or your family for your start-up office space or for your car if it is not company property. B.  You Need a Bad Cop. Founders often have "friends" as their number 2. Guess what? You/the company may need to fire your friend, or cut his/her salary or change his/her title. C.  Statutory Requirement. In Delaware you need only 1 Director, but in California (for example) you need at least 3 directors if you have 3 shareholders, and at least 2 directors if you have 2 shareholders. The founder can appoint all 3 and that can work, but those other 2 Board members have fiduciary duties and are likely to take them seriously once on board (no pun intended). D.  Smart Business. Sure, you could hire advisors, but you are unlikely to get them all in the same place at once to consider and share ideas and solutions. Board meetings, and the preparation for those meetings (your Board members should insist on a real Board package, up to date information, etc.), are a way to force you to stop and sharpen your saw, and measure what you have done.  E. Investors. Your investors and potential investors will want you to have a Board, even if they are not on the Board or appointing a Board member. You are likely to have 2 classes of securities if you have investors, and those investors need someone on the Board to watch over their interests, even if it is via a fiduciary responsibility to the whole company.I am not your attorney, and this answer is not a substitute fo...

In a simple structural sense, having a Board to seve as intermediary streamlines the approval process for all but the most significant decisions. It's slow and unnecessary to give  every single shareholder a right to vote on every company decision, and a  (legal) cause for complaint if they were ever left out. A Board, by contrast, is a manageable number of people. Further, whereas formalizing longer-term management promises and agreements would require complex proxying and voting arrangements among stockholders, it is much easier to handle at the Board level. If you've ever gone through a company decision where you have to conduct  a shareholder vote, it's a lot of work. Expensive too, unless  everybody's agreed to electronic notification (certified mail and FedEx  add up when there are more than a few stockholders). The structure of stockholders electing a Board, and the Board delegating their power to officers is comparable to a parliamentary system in politics gwhere the electorate chooses a legislature, and the legislature makes the rules and appoints ministers. When there are as few or fewer stockholders as Board members, going through the formality of having a Board can seem silly, and indeed, it is often ignored or at a best perfunctory. A three founder / three-person Board is basically a null solution to a problem that will be growing. A four founder / three person Board is not a trivial solution. It also seems silly to have an accounting system for your first ten payments, that is until the problem gets out of hand and you have to clean up a mess from not having one. You'll need it later on, the discipline starts from day one. In the early stages, nearly every decision is a forgone conclusion, and the process of building consensus if any happens well before any meeting or vote. But it is a deliberative process, the CEO or their lawyer explains the action to the board members and why it's being taken. That's a better way of doing things than sending out a bunch of formal paperwork to take a poll and waiting for the vote. As the company grows to have outside investors, more minority stockholders, and so on, that deliberative and consensus-building process will become increasingly important.

Aside from the structural items that points outs in this thread, I would say quite simply that board members should think of their work with start-ups like this: - 90% stay out of the way - 9% listen, empathize, encourage, support - 1% challenge, debate, recruit, promote, raise, sell, pitch, work

Like everything else in life, I think the answer here is "it depends," and in my experience depends on where in the lifecycle the startup is. At the *very* beginning, no product, no customers, no compensation to worry about, and generally a lo0se sense of what your annual and quarterly budgets and revenues are; a Board of Directors is really a formality that helps maintain the corporate veil and the shield the officers and directors from personal liability. As your company progresses though, adding even ONE outside director can be a tremendous asset, particularly during tough times.  Having someone who is NOT on "your" team, AND not on the "investors" team BUT has a defined duty to the Company as a whole brings a heightened level of responsibility and accountability that can be really useful.  It also helps provide an avenue for resolving potential inter-founding-team conflicts.  I highly recommend Brad Feld's book - "Startup Boards" (http://www.amazon.com/Startup-Boards-Getting-Board-Directors/dp/1118443667) to help guide your thinking around what a Board of Directors does, and how it can help you build a great company (or be a massive, dysfunctional impediment).

Boards are, in my opinion, a critical counterbalance to the optimism of founder-entrepreneurs. Being an optimist is a great asset to entrepreneurs, because we probably wouldn't start businesses if we weren't optimists, but it is definitely a blind spot in running a company.  What a good board does is provide a rhythm or cadence to the company where every six weeks or so, you are forced to take stock of everything, top to bottom, that is happening in the company. The board's job is to ask you questions about anything you don't tell them about, and so you try to anticipate their questions and make sure everything is buttoned up, and lo and behold: stuff is going wrong! You never would have noticed (being an optimist) if you didn't have to look.  I love the discipline that comes from answering to a board, and I can't imagine it works as well with a mentor or advisor.

As everyone knows, only a tiny percent of startups survive, and an even smaller subset makes money. Reams of research indcicates that success often is a result of serendipity, chance and luck. For that small subset that effectively takes advantage of its good luck it helps to have a solid decision making process. One way of assuring this is a strong board. Many young entrepreneurs don;t want a board at all, ever. Its too much like having a mother and father surveiling their behavior. At some point, however, voluntarily or not, the need for professional oversight becomes desirable for assuring that invested capital is being used wisely. Then the value of a board becomes clear. The founder may want to exercise complete control by 'hiring' advisors and limiting their role. The  odds are against that approach working well for long.