Four Steps to Building a Better Board at Lower Middle-Market Companies
September 22, 2022
This article originally ran in Middle Market Growth on March 29, 2022.
The board of directors at lower middle-market businesses has the power to play a crucial role in driving a company’s growth.
Forming a board of directors can serve as a key differentiator that complements and elevates the leadership team’s ability to operate and grow the business with a variety of perspectives that can include emerging market trends and customer insights. Board members are best leveraged for their market insights, vision, advice, leadership perspectives and industry connections.
The right individuals can open doors, provide guidance based on their own business experience, offer a unique view on the competitive landscape and provide a diverse perspective on growth opportunities.
To unlock this potential value, CEOs and founders of middle-market businesses should think about key personnel and business gaps, and fill their boards with individuals who can enhance those specific areas. Instead of emulating boards at Fortune 500 companies, CEOs are better served putting in the time and effort required to identify key characteristics and match those to individuals to meet the unique needs of their business. At NewSpring, we serve on countless boards at growing middle-market companies. We’ve spent the last 20 years helping to build boards that leverage the eminence of our board members and differentiate each of our businesses to fuel growth. CEOs seeking to create boards that will move the needle for their business should consider the following four steps when making selections:
1. Define what expertise you need on your board of directors
The first step in successfully building a board of directors is to analyze the strengths and weaknesses of the company. This introspective look should be designed to identify gaps in resources, connections, expertise and perspectives. Some companies may have deep domain product expertise but lack marketing and sales prowess. Others may have a terrific product or service but face blind spots in terms of what direction to take the business next. Use this information to define the role of your ideal board member. Setting a loose description of the individual you’re after can help narrow down your search and lead to a more efficient recruitment and selection process.
2. Seek diversity and experience beyond the domain of your business
Identifying board members with deep domain experience is a great place to start, but CEOs should strive to have a well-rounded, diverse group with varying perspectives. This includes individuals with excellent leadership experience and the ability to speak freely in ways that push the CEO to grow and consider new ideas. Supplementing a team of subject matter experts with individuals who have extensive entrepreneurial experience can also serve as a winning formula for growing middle-market businesses. Lastly, not only should diversity of skillset and background be considered; it’s important for CEOs to be deliberate about gender, racial and cultural representation to create a more balanced board. The national public exchanges are all adopting diversity standards to improve the variety of perspectives and enrich conversations, leading to better decision making.
3. Find individuals willing to be visibly present and engaged
Beyond domain expertise, entrepreneurial experience and leadership ability, CEOs and founders of middle-market companies should seek board members with a desire to serve as a visible, enthusiastic and hands-on member of the team. CEOs and founders must look for individuals with a willingness to attend company events, mingle with employees and immerse themselves in the company’s culture. Doing so will help these board members truly understand the company’s values and vision in ways that will allow them to serve as the best strategic advisor possible. Their presence at company events will invigorate employees and demonstrate their commitment to the company. Finding board members who are eager to speak up at meetings and engage with other company leaders is also critical, as these group discussions lead to greater creativity, collaboration and innovation than one-on-one conversations.
4. Reposition the board to help the company succeed through each stage of growth
Successful middle-market companies are constantly growing and evolving. As the company progresses, its needs also change and the board must be updated to reflect that. CEOs and business owners must position their board to grow with the company. A board member that helped the company reach its first 1,000 customers may not be the right individual to help scale the business to reach millions. Each growth phase requires a different set of skills and expertise. Optimizing the board with individuals best suited to meet the company’s current growth stage will help the company reach its full potential.