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Build an Effective Advisory Board

Build an Effective Advisory Board

If you are an entrepreneur for the first time or entering a new business area, it’s usually worth your time to assemble an Advisory Board of two or three executives who have traveled that road before. But if you select the wrong people, or use them incorrectly, the impact will not be positive for your company or your image.

For perspective, you need to remember that boards of advisors, unlike directors, have no formal power or fiduciary duties, but rather serve at the pleasure of you the business owner. But they are not likely to stroke your ego or be cheerleaders. They need to tell you the truth about your business, good or bad.

Using them effectively requires real effort on your part. If you give and ask for nothing, you will get nothing. Used correctly, they will be your best advocates to investors and can save you from making major mistakes. Here are some tips on using your advisory board effectively:

  1. Select people who complement your experience. If your experience is primarily technical, get someone who has built a business. If your business is too small for a CFO, get an advisor with heavy financial experience. If the business area is new to you, find someone who has lived it. Balance is best.
  2. Be specific on help needed. If you’ve chosen your advisory board members carefully, you’re asking busy, successful people to carve even more time out of their schedule to help you. Let each one know how you see his/her expertise – it may be insight on trends, organizational advice, or funding connections. Set a fixed term, like one year.
  3. Formalize the compensation. Most advisory board members sign up because they want to help you, not because of the compensation. Yet you should offer a small monthly fee and/or some stock options to show you are serious about the position. If you want out-of-town members on your board, you foot the travel expenses.
  4. You need to drive to process. It’s smart to schedule a monthly Advisory Board meeting, with a formal agenda, as well as informal communication to keep everyone on the same page. Advisors can’t help you if they only hear from you once every six months. They expect you to initiate specific requests, rather than having to ask for updates.
  5. Respect their time commitment. For a business executive, nothing is more annoying than a poorly run meeting where the presenter is unprepared, rambles, and wastes time. Make sure every meeting is facilitated well so that concrete action steps, deadlines, and assignments result. Have someone take notes so that decisions are recorded.
  6. Recruit the best for your real Board. Your Advisory Board is a pre-cursor to your Board of Directors, a bit further down the line. This is your chance to test commitment, chemistry, and contribution for that more formal position. It’s a great networking opportunity to expand your connections to include all their connections as well.

On the other hand, if you find your Advisory Board is a burden on you, or you find yourself hiding things from them, then you have the wrong people, or you are letting your ego get in the way. Members can provide a mirror so that you can see your company as experts see it, as long as you look in that mirror with eyes wide open.

If you are looking for someone to fill an operational gap or to do product design, it’s usually more productive to look for a partner, employee, or consultant. These can help you when you don’t know what you don’t know, or to create what you don’t have.

If you use your advisory board to feed your ego or correct your mistakes, you will likely be disappointed. Worse yet, your image as an entrepreneur will be damaged. That will inevitably spread through networking across the business community. You don’t need that kind of help.

Avatar for Marty Zwilling

Marty Zwilling

Marty is Cayenne's Chief Knowledge Officer and the Founder & CEO of Startup Professionals. His passion is nurturing the development of entrepreneurs by providing first-hand mentoring, funding assistance, and business plan development. He has over 30 years of experience in big businesses, as well as startups. View details.

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  1. I completely agree with Akira. The best time to create an advisory board is when you need additional input and experience to help your business move forward, no matter the size of your company. Advisory Boards are best for companies looking to solve big issues like growth in revenues, market share, fund raising, acquisition strategies or transitioning.

    Your advisors should have specific knowledge and skill to solve the issues your want addressed. Look for people that can compliment, challenge and add layers of experience that are not available within your company or inner circle. The best advisors are those that are diverse in thought and experience. Look for individuals that are divergent thinkers.

    The time to put together a BoD is when you think you are going to go public and are required to have formal governance.

    Jamie Glass
    Advisory Board Architects

  2. “Your Advisory Board is a pre-cursor to your Board of Directors, a bit further down the line. This is your chance to test commitment, chemistry, and contribution for that more formal position.” – Any suggestions on when a business should start an advisory board and when this advisory board should convert (or add) to a board of directors? Are there certain time, funding, or milestones which drive the creation of such boards?

    1. I think the short answer is, you should start an advisory board whenever you think an external perspective would help you move forward. The most important thing, as Marty alludes to above, is to structure things so that you regularly receive and act on strategic and operating input from your advisors. A so-called advisory board doesn’t have to be a formal “board” – instead, most entrepreneurs have a loosely knit network of advisors they call upon as needed.

      As far as a Board of Directors goes, that’s a different matter. The ultimate purpose of a BoD is to represent the long-term interests of the company’s owners. So, whenever you outside owners (like investors) involved, you need a BoD. If all of the owners are insiders, then you’re in a gray area. If it’s an LLC that is managed by its members and that doesn’t have any outside investors, then the operating agreement should spell out the way in which decisions should be made to protect the interests of all owners and a formal BoD might not be necessary.

      By the way, you asked when an “advisory board should convert (or add) to a board of directors.” I think very often the skills you would look for in advisors might be very different from the skills you look for in BoD members. In many firms, you might find that the former focus on technical and tactical issues, while the latter focuses on fiduciary and strategic issues. There could be some overlap between the two groups, or they could be completely separate.

      One of my friends, Jamie Glass, runs a business that helps SMBs assemble advisory boards. Perhaps she will amplify these thoughts in the next couple of days.

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