At first, every start-up is exciting. You’re doing your own thing, you’re building from nothing, you might have a little backing or none at all. But soon things change. It’s not that the novelty wears off, but the original skillset that helped launch and cultivate the business may need adding to, particularly if the company is ready to move to the next stage.
Recruiting external skills can be a business essential, and sometimes those skills need to be deployed at a very senior level. It can be time to look at the non-executive director as an option. Essentially the role of non-exec involves sitting on the board and being responsible for and advising on a number of specialist areas. Crucially non-execs provide an objective view of your business.
Rod Taylor is founder and MD of Seaward Group, an electronics company in the North East. He started as a one-man band, relocated to the North East and enjoyed rapid growth. Soon enough it became evident that he didn’t have all of the skills necessary to make the business fly. “It’s very easy to take a dictatorial approach as the owner of a small business, and I was becoming aware of increasing pressure – I needed some sort of mentoring and guidance.”
Learning when to hire a non-executive
The crunch came when early contracts with BT and subsequent negotiations made it clear that the business needed to project a professional image. Taylor wanted more than just consultants - who he felt would come in and offer some advice before moving on - he wanted continued help and guidance. “I don’t think consultants can do that, you need to develop a relationship with someone in whom you have confidence.”
He was determined that appointing non-execs was the way to go. “I recognised that non-executive directors had been good for much larger businesses. I’d started getting involved in lots of business networks, and had input and support. From this, I identified a couple of people I could get on with – it was a need to get that support that pushed me down the path.” Connections with local universities helped as well, and recruitment actually happened through word of mouth.
The question of pay
His first non-exec was the retired managing director of Ever Ready Batteries, who had played a part in local support agencies. The next question was how the non-exec would be rewarded and what they’d offer in return. Taylor was very much against handing out equity in the business because of the complications it might involve such as how to dispose of them should the non-exec leave the company. In this instance the director knew exactly what he wanted. “I was a bit shocked about how much he was looking for,” says Taylor. “On the other hand if you’re going into these things you have to pay the going rate.” The director had a fee and attended board meetings, forcing a discipline on the company immediately. “Non-execs need to be independent,” he says. “I prefer to keep them at arm’s length and give them a fee.”
When John Tate, a consultant and serial business founder, took on six non-exec roles in the IT industry after selling his accounting systems consultancy Tate Bramald, he opted to be paid in share options for some of the time. He acknowledges that this can go against the general ethos of a non-exec, who will typically be on the board on behalf of the shareholders and be able to walk away if something is not right. In the cases of smaller businesses though, there are fewer governance issues than in their larger counterparts. “For me personally I’m a lot more interested in supporting a business through its growth and sharing in that growth than in a daily fee,” he says.
So, what exactly should a small business expect from a non-exec? “It depends on the people running it and what their aspirations are,” says Tate. He says that non-execs help steady the ship, make sure that the right boxes are being ticked and crossed at the appropriate time, and look at and address the rewards for the senior team.
A good non-exec will also spot further gaps in the structure of the business. At the last company Tate ran as a CEO, he requested and hired a chairman as a non-exec. “There were three shareholders including me and we had equal shares, so I thought it would be useful to have a chairman to support us as and when needed.”
A non-executive director can bring skills, experience, contacts and guidance to a small business. Like Taylor, with an end goal in mind together with plenty of research, you should be able to cherry pick the best person who can help propel your business to the next level of growth.
Read more stories like this:
Growing your small business with non-executive directors
Why the right team can make or break a business
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