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Advisory Board Advice

Posted by Seth Elliott On September - 23 - 2010

When sitting through entrepreneurs’ presentations, I often find myself cringing when the “Advisory Board” slide makes its appearance.

Advisory Boards have been in vogue for some time. In the “go-go” years of the first internet bubble, every company had such a group filled with household names. Even today, I find many startups use advisory boards in an effort to bulwark legitimacy.

Used properly, an advisory board of 2-3 individuals can prove valuable for a young firm. Unfortunately, selecting the wrong individuals or using them poorly can actual be damaging to your efforts.

First, be sure you fully understand the difference between an advisory board and a Board of Directors. Members of an advisory board have no formalized powers – and likewise have no fiduciary responsibilities or accompanying liability. Advisory board members serve at the pleasure of the management team.

Of course, this means their impact is highly dependent on how you manage the process. If you’re looking to use them as ego boosters, cheerleaders or figure heads forget it. There is no real value to you or your business from such a group. You should be looking for individuals with relevant experience that will be frank and helpful in providing advice to you – and are uninterested in lending their name simply to portray your company in a more positive light.

If you give no incentive or direction, you’re likely to receive no value. However, used effectively, your advisory board can serve as a “kitchen cabinet” that can save you from making major blunders and provide guidance when evaluating key decisions.

Here are some tips on choosing and using your advisory board to achieve maximum results:

Identify Your Needs. Before you put together an advisory board, spend some time determining why you want one. Are you looking for specific skill sets? Advice on particular markets or distribution strategies? Someone with a rolodex of particular contacts? A background in sales? Expertise in growing a startup? The list goes on and on. Identify what you are looking for in your advisors and articulate how you intend to use your advisory board before seeking candidates. One caveat – don’t use an advisory board to fill an operational gap, design a product, head direct sales, etc. At a certain point, it’s more productive to bring on a partner or staff member. Advisory board members are useful in helping you identify and strategize, they aren’t there to run daily operations.

Consider Backgrounds. When building an advisory board, successful execution is critical. After all, you are looking to tap into a base of experience and expertise that are not available to you. As such, you want individuals with clear domain expertise and a history of success. In general, you also want people that have lived through the process of growing an early stage business into a successful organization.

Seek Complements. Generally, you want your advisory board to offer you perspectives and experiences that are different from your core management team. If you are primarily technologists, find a successful business builder. If you have little financial expertise, find someone with CFO experience. If you have no sales experience, find somebody that has successfully built and grown sales organizations. What you’re looking for is to plug high-level holes with advice from high-powered individuals with complementary backgrounds.

Formalize. Of course, most advisory board members agree to work with you because they want to help out. Nonetheless, you should offer some form of compensation for their participation. This can be a small monthly fee or some form of equity options (or both). Naturally, you should cover any direct out-of-pocket expenses incurred on your behalf. Also, appoint your advisory board members for a set term (6 months, 1 year, etc.) – you can always mutually renew.

Be Specific. By following the course of action thus far, you’ve carefully chosen your advisory board and created a formal structure. This creates a foundation for you to be very clear on the help that you are seeking. In addition to regular meetings (see below), you should identify in writing the types of assistance and advice that you are expecting from each of your advisory board members. This will allow you to ask for the kind of help you need and help to set proper expectations, leading to more effective use of your advisory board.

Manage the Process. In addition to formalizing compensation and advice, you should actively manage your advisory board. Schedule regular meetings (monthly, quarterly, whatever frequency works for you). In addition to individual advice, be sure to create written agendas and minutes of meetings – and keep all of your advisory board members informed. The idea is to access a pool of knowledge and experience so that the sum is greater than the parts. Regular meetings go a long way to helping achieve that goal.

Try-Outs. One other thought to consider – use the advisory board as a testing ground. If you find that commitment and contribution (plus personal chemistry) works well, you may consider asking an advisory board member to “upgrade” to your actual Board of Directors. Some will decline (primarily due to liability concerns), but many will be delighted to serve – particularly after you’ve worked together for a period of time. Of course, before making any such offer identify prospective advisory board replacements.

Advisory boards can provide real value to early stage businesses. Accessing complementary expertise and a broader array of contacts may prove to be invaluable. However, if you find yourself hiding information from your advisory board, rescheduling meetings or generally ignoring advice, you’ve chosen the wrong members (or you’re unable to get out of the way of your own ego). Try following these steps to get the most out of an advisory board and accelerate your company’s success.

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About the Author

I have spent the last 15 years advising entrepreneurs on starting and growing their businesses, as well as assisting in financing those growth efforts. I have also been an entrepreneur on several occasions myself. By writing this blog, I hope to provide actionable advice on how to achieve your goals and become more successful.