Startup entrepreneurs spend a lot of their time banging around in the business planning world, and for good reason. Without a solid business plan, raising capital and running a business are very difficult things to do. One area that is often treated tokenly, however, is the selection of a solid advisory board. Going it alone will rarely carry you very far in today’s business environment. Putting together a valued advisory board will pay dividends in almost every area of your business.
Even though corporations are a relatively new human innovation (since roughly the 1300s), the concept of “advisory boards” or “advisory councils” goes back even further. Native tribes would often employ a “council of elders” to help provide guidance to the chief in tribal matters. They didn’t necessarily have a “vote” in what was going on, but they influenced decision-making profoundly.
Inspired by my discussions this past week with another Atlanta-area entrepreneur, I decided to put down my thoughts on advisory boards and how to get the most out of them. Hopefully, it will be of some benefit to those out there who are contemplating building an advisory board, or are currently in the process, but could use some guidance.
The purpose of an advisory board:
In a startup company, advisory boards serve a variety of purposes:
1) To advise you – the obvious answer. Example: If you are struggling with a financial issue involving your venture, you have the option of turning to a member on your advisory board who has knowledge in the finance arena. Hopefully, this person will be able to steer you in the right direction.
2) To serve as a signal to potential investors (and even customers) that you are serious about your venture, and have surrounded yourself with really bright people who can advise you as needed. This concept extends to your management team as well.
3) To some investors, the status of the members of your advisory board can serve as a bit of a credibility yardstick. You want them to be as credentialed as possible. Credentials come in a variety of forms (graduate of a prestigious school, a published author, or someone who held a senior post at a well-known company.) Which Microsoft employee would look better on your advisory board: Bill Gates or Jim Smith?
Makeup of an advisory board:
Ideally, you want advisors that cover a variety of functional areas. Some representative areas include information technology, finance, marketing, sales, business development, human resources, and legal. Advisors who can bring vertical industry expertise to the table is also a huge plus.
Be careful when considering strategic partners or customers for your advisory board, however. Remember, you are in the business of making money, and these types of people will have a hand in things at some point. It may be more advantageous to not have these types of folks any closer to your business than they already are.
To illustrate this point, consider this quote from Frank W. Tracy, a state congressman from Illinois, back in 1898:
Some twenty years ago, as I was sitting in the House of Representatives of the Illinois legislature, watching its closing hours, a member who had never spoken during the entire session arose to address the House. . . . He said: “. . . I have come to the conclusion that the making of laws is like the making of sausages–the less you know about the process the more you respect the result.”
At some point in your company’s evolution, it may make sense to have an “advisory board” of industry luminaries, authors, and other dignitaries. Those kinds of things look great on your web site. However, they often do very little to help you build a business. Keep this in mind.
Another type of person that I recommend is not “functional”, per se, but still very valuable. If you can find a successful entrepreneur to agree to serve, that is a huge addition to your board. Investors love to see entrepreneurs on advisory boards, especially if they’ve had a successful liquidity event in the past. And quite frankly, you should be so lucky as to have such a person on your advisory board. There is a lot to be learned from those who have tread before you.
One person may cover more than one functional area, but ideally you want to have a “go to” person on your advisory board for each of the areas in which you may need to seek guidance down the road.
As a real-world example, consider this advisory board (names removed), which we assembled for MetalMaker, a B2B supply chain startup within the steel industry:
In looking back at this advisory board, I have the benefit of hindsight. We certainly had the “vertical industry” representation; lots of really smart people who knew an awful lot more than we did about the metals industry and supply chain management. However, we clearly lacked representation from other functional areas. We certainly could have done a better job in that department.
As a comparison, the current board of advisors for our new startup venture comprises the following types of people:
We are hoping to round it out with representation from a few other areas, but the diversity we are aiming for should be apparent. We like the successful entrepreneurs at the core, surrounded by a variety of other key advisors. Your mileage (and needs) will vary.
It may be helpful to think of your advisory board as your “lifelines”, if I may make a reference to the old “Who Wants to be a Millionaire?” gameshow. When the going gets tough, and you have real problems to face, who do you want on the other end of the red phone when you pick it up and dial?
Additionally, you want advisors who take their role seriously. If they aren’t serious about helping you be successful, then you’ve chosen poorly. If they aren’t adding value, get rid of them.
As far as the size goes, there is no preordained number of advisors that a new company should use. The right answer is that you use as many as you need.
Building your advisory board:
Put together a list of all of the functional areas that you’d like to see represented. Put at least one name in each category, preferrably 2 or 3 names if you can think of that many. These should be people that you know (or want to know), and whose opinions you trust. Rank the names in each category, putting your first choice above the others. If that person doesn’t accept, or declines the invitation, move on to the next name in the category and keep going. When you complete the exercise, ideally, you’ll have a complete advisory board. If you still have gaps, and have no more names to tap on, ask the advisors who did accept for their suggestions.
When you approach each contact, tell them exactly what you are building. Give them your executive summary, or even your business plan. Show them that you are serious. Explain to them what you view the commitment level to be – how often will you plan on tapping their time? And when you do contact them, you should do so by email, as well as a phone call if possible. Courtesy matters!
Speaking of rejection … expect to receive a polite decline from someone. At least one person will likely say “sorry, I’d love to help you, but I just don’t have the bandwidth.” Take this for face value and move on. Don’t wallow in the “whys” too much (unless this person is Michael Dell telling you why your new build-to-order computer manufacturing business plan stinks.) People can refuse genuinely on a variety of levels – perhaps they lack the extra time they perceive as required to fulfill the obligation; perhaps they already serve on several advisory boards and don’t wish to overextend themselves. It is entirely possible that they may think your idea stinks, and has no merit. My advice: toughen up and move on. There are plenty of naysayers out there, and you likely have bigger problems to solve.
Now, putting together an advisory board is an easy thing to do if you are desperately well networked. You simply call your associates, explain what you are doing, take them to lunch, and shake hands. However, if you aren’t overly “plugged in”, there are several strategies that you can employ to help build your advisory board.
First, dig deep into your network, however small it may be. Seek out professors, former bosses, co-workers, and in some rare cases, credentialed family members.
Next, you need to network, network, network! Start spreading the news about what you’re building. Spend a few months networking in the evenings and on weekends. Attend as many trade shows, organizational meetings, and other gatherings. You’ll be surprised at how many potential advisors may surface.
Don’t be afraid to ask. Ask people you meet. Tell them you are seeking some advisors. Let them refer you. If you aren’t willing to ask, you can’t complain.
You can also search online, at places like boardseat.com, which is an online directory of people seeking to serve on boards of directors and advisory boards.
Some founders like to compensate advisors (generally with a nominal number of shares of stock (or even options.) Still others like to simply offer the ocassional free lunch. I fall into the latter category – but season to taste, as it were. I will offer one piece of advice, though – if at all possible, treat all of your advisory board members the same, or at least similarly. FWIW, here is a great article on the subject of compensating advisory board members.
One final note, and that has to do with “terms” for your advisory board. There is really no standard protocol around the length of service for advisory board members. Generally speaking, advisors serve until they either step down, the company has a liquidity event, ceases operation, or is asked to step down by the board of Directors, CEO, etc. There are some companies that practice “term limits” for advisors (e.g. 1 or 2 years), but I recommend you not do this.
You want consistency from your advisors. They can only give you this if they know your backstory. Continuing to pump in a fresh set of advisors is counter to their very purpose.
I will say, however, that as a company evolves, so should the advisory board. The advisors you had when you were a fledgling startup trying to raise your first round of capital may or may not be the best source of counsel for a later-stage company. Shifts in products, services, or strategies could also signal a need to make advisory board changes.
Types of people to avoid:
Relatives, if at all possible. Unless your last name is Gates, and your uncle the computer nerd’s first name is William, try to avoid using relatives. If your relative’s name would be quickly recognized by your potential investors, or is heavily credentialed in a related field, then perhaps you might make an exception.
Board whores. A distant cousin of the “media whore.” These are people who just “want to be on another advisory board.” These people won’t add value for you in the long run, so you may as well steer clear of them now. This is more common with boards of directors, but it does happen from time to time with advisory boards. If you get the feeling that your company name will just be another bullet point on this person’s resume, flee.
Polarizing figures. This is a dice roll. The reason that this is a dice roll, is that by nature, a “polarizing” person is someone that people either “love” or “hate”, either personally, or by association. Do you want to roll the dice to see which bucket your potential investors fall into? Of course, this refers mainly to people that your investors would recognize by name. An example might be a former Enron executive. If you had a former VP of Enron on your advisory board, how will this be perceived? Yes, the person probably knows a heck of a lot about business – some would say Enron was an empire at one point. But then there’s the issue of that pesky flameout and court battle.
Nonsensical appointments. If you are starting up a new venture in the $500B global Llama ranching industry, having a VP at Toys ‘R Us on your advisory board may not make sense. This is a judgment call that you’ll need to make with each candidate.
Leveraging your advisory board:
Once you’ve gone through the requisite hurdles to put together a solid advisory board, how do you make the most of them?
You don’t need to meet with them collectively, in a regular manner, as with your board of directors. In fact, it is unlikely that you will be able to pull all of your advisors together for a session, especially as they may not be compensated for their time (as is the case with most boards of Directors).
The trick to working with your advisory board is to select the most appropriate communication venue and frequency for each member. For example, send out regular emails to them, either monthly or quarterly – keep them posted on big decisions that may fall into their respective areas of expertise. When an issue arises, or you are about to make an important decision, contact the appropriate advisor(s) and set up a lunch, or stop by their office for a chat. The telephone is a good tool as well. As with all professional networking, you need care and feeding – you get out of your advisory board what you put into it.
If you aren’t nurturing your advisory board, and leveraging their collective wisdom when needed, then you have succeeded in only wasting their time, your own time, and the time/money of your investors.
Don’t worry about formalities, just treat your advisors with the same professional courtesies that you would extend to anyone, and help them help you.
Hopefully, my ramblings here have been of value to you. If you have any questions, comments, or other strategies/tips, feel free to post them as a comment below. Good luck!