Governance in healthcare series Part III - Startup Boards
Written by Tom Varghese
Bad boards destroy more companies than bad management or bad tech. The business environment has changed enormously over the past decade. However, our level of business model innovation has not been matched in the way we operate our boards. There has been little innovation in board practice and it is demonstrably falling short of being fit-for-purpose.
The role of the board evolves through a firm’s lifecycle. In early-stage firms, board members will be more hands on, working alongside management and providing practical advice. In mature firms, the board’s role is more about providing constructive challenge to management. Board members have a duty of loyalty and care that supersedes their own self-interest. Their duty of loyalty is first to the company and its shareholders.
At every stage, it is important that the board and management share the same aspirations for the company. Boards need to embrace risk-taking innovation in the board process accepting that some ideas will fail. Innovation includes adjusting the levers of process to make the best use of time and resources.
The digital health startup scene has grown up a lot over these past years. As entrepreneurs are increasingly tackling the more significant and complicated healthcare problems, demands on their talent base have increased significantly. It is becoming the norm for healthcare startups to add medical and regulatory professionals to their core team of business people and techies. When entering the industry as a new startup, an advisory board is a useful foundational step. An advisory board can help navigate through industry specific nuances, and add legitimacy to investors looking for a strong industry background. Instead of being encumbered with the formality and documentation requirements of a formal board, startups may be better served by creating an informal advisory board.
As the company evolves and has a line of sight to commercialisation and institutional funding, a board of directors can add immeasurable value; there are numerous tangible and intangible benefits.
To the uninitiated, board creation before it is required may seem like a major time investment, but it is worthwhile keeping in mind that ‘resurrection is harder than birth’. Creating a great board via a controlled, thoughtful process is far easier than fixing a broken one that was imposed upon you. Like any major investment, the cost-benefit should be well understood. There are many factors to consider. A board member who does not appreciate the complexity of healthcare for example, and the glacial enterprise sales cycle may require a lot of education. Starting by filling gaps in the management team is useful. Beyond the ‘needed’ core operational and domain expertise, board members can be expected to provide tangible contributions in the other areas including capital raising, wide network, etc.
