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Governance and the need for startups to think like publicly traded companies
Avoiding or postponing “hard” decisions such as layoffs or cutting off non-performing aspects of the business can drag losses on longer than needed.
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Trading hub: A woman walks past a large screen displaying Indonesia Stock Exchange (IDX) data in Jakarta on March 9, 2020. (AFP/Adek Berry)
I
f you’re reading this, welcome to the unpredictable world of startups. Whether you’re just getting started in the garage or riding high on a well-funded “soonicorn,” navigating this world can be tricky with a 90 percent failure rate, especially for the underprepared.
There are myriad reasons why startups fail. Some include cash flow problems, a lack of working capital, failure to achieve product-market, poor planning and ineffective marketing, just to name a few.
While we often discuss the pros of a startup structure (smaller teams, faster decisions, flexible operations, etc.), I think there are some essential lessons that startups can learn from their larger, publicly-traded counterparts, namely in the context of corporate governance.
In the wake of the recent FTX collapse and with Elizabeth Holmes now sentenced to more than 11 years in prison, this is a timely topic.
Formally, corporate governance is a set of rules, practices and processes within companies that serve to direct and manage it.
A board of directors is one of the key mechanisms that influence a startup’s corporate governance. The board (most often comprising a startup’s early shareholders) ensures that founders and company managers adhere to basic principles.
These principles are tied to financial accountability, operational transparency, fairness, social responsibility, risk management and more. The very existence of a board in the early days of a tech startup’s life is a positive sign, though not always a guarantee of good behavior.
