Why you don’t need a non executive director or NED

Often an ambitious business owner, often a technology business, asks me about getting a Non Executive Director or NED. Sometimes they ask me to be the non-executive director. I always say no to this.

Partly because I spent a lot of my life in Scotland where NED means “non-educated delinquent” so I don’t feel qualified for this role. And mostly because those ambitious businesses don’t need a NED of either variety.

What non-executive directors are good for

You might need a non-executive director if you’re going for a substantial angel or venture capital funding round, and your board is made up of young techies who haven’t run a company before.

The idea is that you bring in a “grey hair”, that is, someone a bit older who has been around the block a few times, probably built up and sold a few companies and is now working part-time, probably for the fun of it rather than for the money.  They’re supposed to impress potential investors and bring lots of business expertise to help you build your company.

A wise owl to help you bring in investment and build the company.

That’s the conventional wisdom anyway, but as with most “common sense” ideas about business, reality is a bit more complex.

I want to take you through some of the common myths about non-execs so you can make up your own mind if you need grey hair non-executive director or not.

 The myths of NEDs – and what happens in the real world

These are the common reasons why companies think they need a non-exec.

  • We won’t get funding without strengthening the board
  • I need someone with more experience who can help us out
  • We’ve started this thing, it’s growing and now we’re all a bit nervous about what we’re doing
  • We don’t have a clue and we’re all terrified
  • They’ll have a great address book and will introduce us to funders/clients/important people
  • They’ll be able to sell loads of stuff to big companies

Any of these sound familiar?

Here’s how it works in the real world.

Banks, angel investors and venture capitalists are all primarily interested in you, the business founders and your business plan. If you glue a non-executive person onto your board just to make the company look good, they’ll see through this instantly.

If you think you need someone with more experience, what should they have more experience of? Do you need someone who can negotiate or sell for you? Recruit a salesperson.

Do you need someone to help you with strategic planning or to support you as a board or founder as you grow? Get a business coach.

If you need help planning out complex financial planning (especially for a funding round or big step up) get a part-time or fractional financial director.

All of these will add value to the business and will be a lot cheaper than a non-executive director. Similarly, if you want to get introduced to people who can make a real difference to your business, use LinkedIn or google the right people and email them. A NED is unlikely to do as good a job of this as you, the managing director, will do. Or get along to some business networking events and meet some interesting people who have done it before and can help you to meet the right people. That’s how I add useful people to my address book.

If you’ve got a good proposition for investment or for a new piece of technology, you’ll get interest from the right people just by putting it in front of them. No one is going to fund you just because your non-executive director suggests it to them. They’re going to assess whether your company is a good opportunity.

NEDS are not a shortcut

Many of the myths around creating a successful business are based on a lazy approach. The idea of the non-executive director is that they could create shortcuts for you. Unfortunately, success in business is all about hard work.

It’s about researching and learning (that’s why you’re reading this article, isn’t it?) and finding out the right way to go about things.  Finding the recipe for how to create the business you want. You can find this stuff out for yourself, but you have to work at it.

Think about a business coach who has done it before instead of a NED

If you’re uncertain as to how to grow your business, confused by all the conflicting advice out there, or don’t know who to trust, think about getting a business coach or mentor who has been in business, grown companies and been around the block. In my opinion, this is a more honest relationship, where you pay for business consultancy and advice and get someone honest and on your side to help you with the business.

And you don’t have to be locked into a relationship where you’re paying someone a couple of grand a month just to look pretty on your board. Or worse, interfere in your business, tell you what to do when they don’t know about your sector and slow you down. I have definitely seen examples where someone has brought in a non-executive director who has some old fashioned ideas and is not able to add to the business.

Do not give away equity too early

A non-executive director will sometimes ask for an equity stake in the business at an early stage. You could well be tempted to give away a chunk of the company before you’re ready.  Be very cautious about this, and remember that any equity you give away now is equity that you don’t have to give to investors later on. When a potential NED asks for equity, that raises a red flag for me.

Here’s my article about how to give away equity in your business.

Getting some proper advice before appointing a non-executive director

If you’re tempted to bring in a non-executive director into your business, it would be a good idea to get some proper advice before taking this big step. Especially if that deal involves giving them equity.

Non executive director

If you’d like to talk this through, you can book a one-off session with me specifically to talk about whether to appoint a non-exec, and really think through the advantages and disadvantages.

Using a business mentor instead of a non-executive director

Sometimes, getting ongoing help from a business coach or advisor is a good alternative to a non-executive director.  If you’re thinking of someone in particular, maybe they could work for you as a coach, rather than coming on board as a NED.  Or you could find someone like me who specialises in helping companies to get on the right track and grow.

Here’s how my business coaching works, check it out and see if this is really what you need instead of a non-executive director.

Other articles for high-growth, ambitious directors

Giving shares and equity away

What happens to my limited company if I die?

My favourite growth strategies for small businesses

The ethics of the phoenix

Photo credit – Thanks to Hans Splinter for this lovely photo of a tawny owl who might be your NED