Fire Your Board: Why Traditional Board Structures Kill SaaS Companies

The traditional and the new oftentimes clash, the old world fighting an uphill battle to remain relevant and useful in the new. Oftentimes, this traditional side will merge with the modern and form unique and productive things such as e-commerce merging with brick and mortar stores or legacy automakers incorporating EV technology into their cars. However, sometimes the old must be done away with completely and this is what needs to happen in the SaaS space. Traditional board structures no longer work, in fact, a late 2023 survey by McKinsey found that over 1,200 business leaders believed that inefficient decision-making processes, the boards central duty, cost Fortune 500 companies around ￡250M a year. On top of this, RevPartners, a firm specialized in optimizing business growth, discusses how traditional hierarchical structures can seriously hinder a SaaS business since it’s top down approach often suppresses creativity and the slow moving nature of these structures mean the market moves faster than it can act. It’s clear to see that even big businesses are beginning to struggle with this emergence of the new and that firms at the frontline of the technological revolution must adapt and find new ways to govern their enterprises.

These traditional board costs are threefold. Firstly, they usher in the presence of a decision paralysis. The inherent delays that the board approval structure entails means that the most vital element of SaaS is not being used to its full potential, agility. In this fast paced world, delays in decisions permit competitors to get ahead and technology to evolve past firm capabilities.

Secondly, the misaligned incentives introduced by many VC boards, which ultimately are the life source of many SaaS startups, serve to introduce an unnecessary pressure in the evolution of a firm. Often on tight investment horizons, VC’s will pressure firms to hit short-term KPI’s over long-term growth so as to reap quick returns. This misalignment of interest which plagues the industry hinders a company to invest in its long-term strategy.

Finally, these structures also induce innovation bottlenecks. As most boards tend to be risk averse and cautious. SaaS companies often fail to capitalize on transformative opportunities that could drive substantial growth. This conservative mindset, combined with committee-based decision making, tends to favor incremental improvements over breakthrough innovations. The result is a gradual erosion of the entrepreneurial spirit that initially drove the company's success, leaving promising initiatives unexplored and potential market advantages unrealized.

Modern alternatives SaaS firms can turn to exist, and they are being used to great effect. The first is the advisory board model which represents a significant step away from traditional governance structures. This model enables regular rotation of advisors, bringing fresh perspectives and contemporary knowledge to address evolving market challenges. This allows firms to tap into specialized expertise without the rigid constraints of a conventional board.

Secondly, rolling membership structures are also becoming increasingly prominent because it addresses the issue of board stagnation and complacency by imposing strategic term limits and expertise matching. By systematically changing board composition firms can maintain relevant guidance and fresh perspectives to match current company and market needs.

Finally, perhaps the most dynamic solution of all, the network-based governance structure. This structure leverages distributed on demand expertise, completely eliminating traditional decision making bottlenecks while maintaining access to knowledge. This also helps reduce costs as experts are engaged only when the need arises.

While traditional boards serve a purpose and still have a relevant role to play, it is clear to see that they must begin to evolve with the times and adapt to the increasingly fast paced markets that exist in the SaaS space. By exploring innovative governance models like advisory boards, rolling membership and network-based governance, businesses can position themselves to succeed in this ever-evolving landscape. It is clear to see that the question is no longer if these changes are necessary, but how soon can they be implemented.