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Tips for entrepreneurs on running an effective board Add to ...

In many ways, Tenth Power Technologies Corp. is a typical technology start-up. The company develops and markets software that enables organizations to better manage identity verification, communications and workflow issues.

The problem is that business is changing so fast that Tenth Power needs a good way to make sure its new products are targeting viable market niches, says Guy Burry, a key investor in the company.

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Part of the answer is a new advisory board.

"As a newer player, we are naturally heavily focused on sales," says Mr. Burry, who has served on dozens of boards. "So to help, we set up an advisory board made up of key industry professionals, to provide feedback regarding how our development efforts are going."

The advisory board will act separately from Tenth Power's formal statutory board. Initially, advisory board members will advise management informally through ad hoc individual contacts. As the company grows from its current 20 employees and the advisory board's role becomes established, the board will likely hold more formal quarterly meetings.

Boards are different, so strategies differ

According to Donald Riendeau, a management consultant who specializes in governance issues, the challenges facing Tenth Power are similar to those of many small businesses.

That's why growing numbers of entrepreneurs are embracing advisory boards as an affordable source of guidance. But there's no one-size-fits-all formula for establishing and operating a board.

"Smaller businesses tend to implement governance structures gradually, on an as-needed basis," Mr. Riendeau says. "For example, an entrepreneur may initially simply consult family, friends and business contacts for advice."

"Later, as the business grows, he may add an informal advisory board, whose role becomes more formal as the business grows. As new investors are brought on, a final step may be the creation of a formal statutory board of directors."

Brian LaBerge is an entrepreneur whose several years of experience in money management have provided him with broad insight into how boards function. He says effectiveness is what's important.

"The key is ensuring that the board is fulfilling the company's needs on an ongoing basis and not slipping into a cosy club structure," Mr. LaBerge says.

He also advises entrepreneurs to seek out directors with a range of experience and expertise. "If everyone on the board is a financial expert or a lawyer, the group may not add as much value as if it were more broadly diversified."

Watch out for pitfalls

Mr. LaBerge also counsels entrepreneurs to carefully manage group cohesion on the board. "Unless an attitude of trust and openness prevails, management could start holding back information or deliver it at the last minute. This could result in rubber-stamp decision-making."

Another pitfall to watch out for, Mr. LaBerge says, is directors who are looking out for their own interests first.

"When board members are selected primarily because of their personal holdings, the distinction between what is good for them and what is good for the organization can become blurred," he warns.

Mr. LaBerge also counsels entrepreneurs to keep boards small. "If there are too many people, not everyone gets a chance to speak. As a result, members may begin to feel less involved or the meetings could drag on."

Six tips on the nuts and bolts of running a board

According to Donald Riendeau, because advisory and statutory boards at smaller companies can vary so much in size and scope, few lists of best practices apply in all circumstances. However, Riendeau provides some insights into how entrepreneurs can run effective boards.

  1. Inform board members they need to step back and look at the business as a whole, and not just at isolated issues
  2. Set up a formal agenda and voting procedures
  3. For advisory boards, Riendeau recommends four to six meetings a year of no more than two to four hours per session
  4. Keep minutes and follow up on unresolved items
  5. Be honest and open. Provide board members with as much information as possible
  6. Since most directors reach their full potential after three to five years with a business, it pays greatly to work at retaining qualified people

Content in this section is provided in partnership with the Business Development Bank of Canada. BDC provides entrepreneurs with financing, venture capital and consulting services. To find out more go to BDC.ca.

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