The Art of Directing Unicorns

What you need to know to give good governance to a rocket-paced startup.

The epitome of a unicorn founder, Elon Musk has been known to buck his board.

A unicorn company has much in common with the legendary creature it’s named for—both are exceedingly rare, highly sought after and potentially difficult to handle. Directors coming into a unicorn scenario would do well to understand the unique challenges they are likely to face serving on the board of a $1 billion company growing at light speed.

Founders of these scarce and special companies typically demonstrate a unique set of characteristics and abilities that include perseverance, courage, intellect, insight, wisdom and the drive to imagine a game-changing new vision that has never before been implemented at scale. Those key traits, coupled with an intense nature, often translate to an iconic founder (think Steve Jobs, Elon Musk, Travis Kalanick and Steve Wynn) whose temperament doesn’t always fit neatly with the governance framework required of their companies once they’ve gone public.

Contrary to popular belief, most founders don’t have direct work experience in the industry they’re disrupting, according to research from Ali Tamaseb, a venture capitalist at Data Collective, who recently spent 300 hours gathering data on startups that achieved $1 billion-plus status. Other surprising stats revealed by his findings include:

• Only 30 percent of companies in the study were first to market. Instead, the best markets for startups is one where players have gone stale and the startup seizes the opportunity to disrupt the industry by building a better product.

• Although most companies competed with existing incumbents, their products had very high levels of differentiation.

• Over 90 percent are VC-funded.

As these ethereal entities make the leap from being privately owned to being publicly traded, their boardroom needs also differ from those of more conventional companies. They require directors capable of acting as positive catalysts and sounding boards for the executive leadership team. Directors must be prepared to manage the tricky feat of supporting and amplifying the unicorn founder’s vision while also nurturing and instilling positive cultural attributes and operating principles and procedures during the scaling up process.

During the ramp up to going public, the focus and goal should be to take every possible point of friction out of the initial offering, as well as all new products and services. Having a strong board can help companies ensure that everyone is aligned around the goal of creating an impassible competitive moat.

Talent management is also critical, as unicorn companies typically outgrow their executive leadership teams every 18 months during that reinvention process, often experiencing turnover at the top of 50 percent. Forward-hiring a leadership team that can carry the company through the next three to five years is ideal.

The unicorn board, as well, may need to be refreshed as the company hits certain growth milestones. The ideal unicorn director will have experienced hypergrowth, having scaled and operationalized an entity from a revenue runway of $100 million to many billions. Directors with this track record understand the dynamic and volatile environment they will be working in, as well as the challenges of building the structure and processes that a larger scale entity demands without stifling the energy, intense drive and focus of the company.

In a unicorn boardroom, your personal decision cycle will need to keep pace with that of a hypergrowth timeline. You may also experience more direct and open conversations than you’re accustomed to and observe a distaste for bureaucracy. If this will make you uncomfortable, you may not be a good fit.

A future-oriented perspective, an entrepreneurial mindset and deep, industry-specific knowledge will enable a director to be a true thought partner for the executive leadership team, able to help identify priorities and provide guidance on how best to achieve goals and milestones.

Another important attribute is a willingness to go above and beyond a traditional director role. In addition to the table stakes of committee contributions and corporate oversight, unicorn directors need to roll up their sleeves and serve as true accelerators for the business.