Experienced board members boost startup growth significantly

Startups looking to grow should be careful about who they invite into the boardroom. This is the conclusion of a new study from Aarhus BSS at Aarhus University and NHH Norwegian School of Economics, which documents a clear link between board composition and company performance.

“Some startups bring in a board of directors as soon as they launch, while others do it after some time, and many of them bring in outside directors perhaps to bring in fresh eyes to look at the business. But our research shows that it’s not the fact that they come from outside that creates growth. It’s primarily industry and board experience. But in different ways and at different times,” says Professor Lars Frederiksen, Department of Management at Aarhus BSS, on the university’s website.

The researchers analyzed register data from 15,594 private companies in Norway that were founded between 2005 and 2012. The focus was on how changes in the board of directors affect the company’s sales and labor costs.

Experience is important in tech

The results show that startups that bring in external board members with industry experience increase their sales by around NOK 1 million on average. Similarly, board members with previous board experience also increase sales, but to a lesser extent. The greatest effect is seen in companies that combine both types of experience on the board, where sales increase by NOK 1.1 million on average.

“Our analysis suggests that the service industry benefits most from board experience, while industry experience matters most for more tech-focused startups. And in some industries, both types of experience will be important for board work, but they have different time horizons for impact, as industry experience contributes an immediate effect, while the effect of board experience typically materializes over time,” says Lars Frederiksen.

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At the same time, the study does not show a similar effect on labor costs, suggesting that growth is happening without a significant increase in personnel costs.

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