It's lonely at the top. Anyone who has started a company can tell you that. All the decisions rest in your hands, and if you don't have a board of directors behind you, then the buck stops with you and you alone.
However, business owners often find that having a voting board of directors or a nonvoting board that acts as an advisory board can be a huge help in starting a company or growing an existing one.
Betsy Ludlow started Slim and Tone, a circuit-based club for women, 14 months ago. Instead of installing a voting board of directors, Ludlow has been putting together an informal advisory board to guide her.
“Bringing on a board brings insight and direction to manage your growth,” says Ludlow. Having a council with different backgrounds assists in growing a company from a strategic standpoint to a management issue standpoint, Ludlow says.
Club owners can put together one of two types of boards — a voting board with fiduciary responsibilities or a nonvoting (or advisory) board. Advisory boards may be easier to recruit because members can't be sued, says David R. Carpe, principal at Clew LLC in Boston, a company that helps companies with board recruiting. Voting boards are given more responsibility generally and often are given compensation.
Whichever board you choose, having one isn't without downsides. At her previous company, Ludlow spent about 20 percent of her time managing the board, including putting together updates and presentations for them. In addition, she felt obligated to follow up on suggestions offered by the board.
“The upside is that there may be a seed of an idea there that you followed up on that has merit,” Ludlow says. “On the other side, it takes time to do data collection, assemble the materials and do a presentation to the board. Every day you do that is a day you are not spending with a customer.”
Ludlow advises startups or smaller companies to wait to put together a voting board and instead put together an advisory board that eventually could become your board of directors.
Carpe agrees. If a club owner is not raising money through outside investors, there is no need for a voting board, he says. If you are extending your own credit to start a small club or expand it, then why give up voting rights?
Still, some type of board can be invaluable.
“You get so immersed day to day that you might miss the big picture,” says Ludlow. “The board can help prevent that a little. It forces the issue in terms of keeping your eye on the big picture.”
The two offer the following advice for setting up a board of directors:
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Know where to look for board members. “Really good founders, regardless of education background, are deeply dedicated,” says Carpe. “When they truly believe in what they are doing, the ability to attract people is easier.”
A lot of recruitment has to do with your network, which includes involvement in the right trade and business associations, says Ludlow. Headhunters also can help.
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Know whom to recruit. If you don't have the cash to hire a headhunter, then start by recruiting the owner or founder of an area business that sells to consumers, such as a restaurant or clothing chain. Pick one that has expanded operations so they understand how to grow. Since they are not your direct competitors, they can offer insight and expertise on how they expanded, which banks to deal with, which custodial services companies to work with, etc.
You can also turn to local people, particularly a professor at a local business school. “These are people who teach for a living,” says Carpe. “Giving wisdom and advice is their life.”
The added benefit to finding local members is that expenses are cheaper since they will be limited to lunch during the meetings rather than flight and hotel expenses for out-of-town members.
Ludlow suggests a board with two to three traditional business people and two to three health club specialists. The traditional board members should have a strong track record or experience in business, perhaps even experience as a CFO or in law. The specialists should have experience in fitness, nutrition or health, such as a former gym owner, a nutritionist or a doctor. A club might also want someone with expertise in education and training. To pull as much expertise from outside the club as possible, the board shouldn't include more than two operational members from the club, says Carpe.
Sometimes, owners put together boards in their own image, which creates group think, says Carpe. Instead, look for the most uniquely qualified person — someone who can challenge every assumption and who can offer insight into how to rethink everything you do.
In addition, find board members with market knowledge specific to current/future goals, specialized marketing expertise, finance and legal issues. With small to medium-sized clubs, these areas of expertise are even more critical. Owners should think of board members as vital and active resources, not poster children for “proof that an organization exists,” Carpe says.
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Share your vision with the board before you recruit them. Let potential board members know how you want to grow your business — with an eye toward expanding and selling or with an eye toward maintaing one club. They must be on board with that vision.
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Recruit an uneven number of members. Boards need a swing vote for critical ties. The owner wants to be in control of that swing vote, which often means the owner is the swing vote.
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Set terms for the board. Often, board terms can be for three years, but you must decide how you want to set up your board.
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Find board members who are not overcommitted. Active board members tend to agree that no board member can effectively serve on more than seven boards due to time commitments.
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Define the meeting frequency and communication. When developing a board, define the frequency of meetings. In a startup phase the board will want to offer input often. However, later, quarterly meetings are manageable and allow more input than twice a year or annual meetings, Ludlow says. Let board members know how you will communicate with them between meetings — through e-mails, newsletters, conference calls or in-person. Make sure those communication methods are acceptable to the board.
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When you can, offer compensation. Once your business is financially able, you can change your advisory board to a voting board — if you wish — and offer the board compensation. This can help you retain valuable board members, says Carpe.