If you are a startup that failed to secure investors or simply have chosen to retain 100% of your equity, as a startup, you don’t benefit from the guidance and mentoring that investors provide (yes, qualified investors don’t just write a check!).
If you are an established company that has not yet retained a board of directors or are prone to the inherent entrepreneurial obstinacy, you don’t benefit from regular peer reviews from people outside of your company.
Every business needs experts in their corner to thrive! There are several factors to consider but an advisory board might be right for you. After all, it does take a village to raise an entrepreneur!
Here are 3 things that an Advisory Board isn’t:
A List of Names to Drop:
An advisory board is not a list of names to collect to look good like extra-curriculum activities on a college application. Welcome to entrepreneurship!
Having conversations with so many startups, invariably they present me with long collections of names and titles that would have Slack or 21 blush! Yet their value proposition has not been thoroughly validated, their execution plan, if any, is full of gaps and their financial projections are, at best, unrealistic.
You are by definition looking for Advisory Board Members who will help you grow your company. In some way, shape or form they will augment your management team skills. Some will possess experience and expertise in the areas of business that your team lacks. Some will have a valuable Rolodex that will be helpful to your operation, strategy or marketing efforts. Others will challenge your approach to the market or business model. You seek qualified individuals who will participate consistently and actively by bridging the gaps within your management team and covering the areas of business where you have the most needs.
A Board of Directors:
Many people confuse an Advisory Board with a Board of Directors. The latter consist of people who act as shareholder representatives and have certain legal and business powers. Advisory Board Members do not have any official authority.
Nonetheless, you’ll want to set the expectations of what you need from your Advisors prior to recruiting them. Now that you have outlined the areas of business where you need the most help and the gaps in your management team, devote some time to frame what your Advisors will be responsible for and the powers they will have.
Do they have a say in the financial decisions?
Do they participate in the recruitment of executives?
You may ask current Advisors or companies that have an Advisory Board what has worked well for them in the past. Whatever you decide, like any other new professional arrangement, clearly frame the expectations and powers of the Advisory Board Members beforehand.
A great advisory board will make a huge and lasting positive impact on your business. They are vested professionals with terrific experience and insights to help your company grow and the worst pitfalls. They are in high-demand with plenty on their plate already. Why should they give their time and energy to your cause for free?
Advisory Board compensation is an important consideration. Contemplate the three dimensions of their participation:
- Their quality, which includes their experience, network, enthusiasm, etc.
- Their level of engagement i.e. the time and efforts they are asked to produce
- Your stage of development and the risk associated with it. Early stage startup generally carries the most risk as there is a lower chance that time and effort spent by Advisors will result in a payout.
What are you ready to do for them? Compensation can range from stock options to a cash award or any combination thereof. Depending on your stage, company equity can range from 0.1% to 1% and cash payment anywhere from $500 to $5,000 per Advisor per meeting. Again, have an open and honest conversation with current Advisors or another company that has successfully grown with an Advisory Board to come up with a win-win situation.
Establishing an Advisory Board is the first move in the right direction. It is the self-realization that you can’t excel at every single thing, which can be a difficult notion for many entrepreneurs to come to grips with.
Author: Carine Dieudé, Partner, Director of Strategy, specializes in growth and exit strategies, systems and operations, for small and medium size businesses.
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