October 10, 2022 - Entry 1004: Building an Advisory Board

Introduction

When you’re first starting a business, it’s very common to feel alone, like it’s just you against the world. Even if you’re working with a business partner, or partners, there’s often not enough time in the day to do that needs to be done. The simple fact of the matter is that a start up or small business with limited resources is going to come up against bottlenecks imposed by the limited amount of resources available.

There comes a point in every start up where the founder, or founders, reaches the limits of what they can do with the business. There are only so many hours in a day, so many credit cards you can max out, and so many friends and acquaintances you can reach out to for help. Eventually the founder(s) must accept these limitations and figure out a way to do more with less to continue growing the business.

One way to achieve more with less is to build an advisory board of individuals who can help build your business. An advisory board brings new people to the table, injects new ideas into the mix, and expands the network of people that you can reach out to for assistance. A well-built advisory board can help launch your business to the next level.

What is an Advisory Board?

An Advisory Board is a group of people who work with a founder and/or management of a company to help the company develop, grow, and mature. Unlike members of a company’s Board of Directors, the Advisory Board members don’t usually have a direct role in managing the company and serve in a strictly advisory capacity. These Advisory Board members may not have a specific role or responsibility within the company but are available to assist and give advice as needed.

One of the most important features of an Advisory Board position is that they’re often unpaid or compensated with equity in the company rather than paid a salary. This helps to align the company’s interests with the advisors and allows the company to spend its cash on other critical expenses. However, because it is generally an unpaid position, advisors should be utilized strategically with a goal of making sure the advisor doesn’t feel their contributions are unappreciated or greater than initially anticipated.

Why is An Advisory Board Important?

An Advisory Board is important for several reasons. The first, and maybe most important, is the perception it creates for outsiders. If people other than the founders are interested in the company and are serving in an advisory position, outside investors, vendors, and customers will assume that the company has potential, momentum, or both and be more willing to work with you. If you are lucky enough to snag someone with a famous name or impressive background, people will be more willing to impute their knowledge and experience to your fledgling startup.

Second, is the additional perspective that your Advisory Board members can provide. If you’re an insurance salesman hanging your own shingle after years of working for a larger company, having somebody who knows about small business accounting in your corner is an enormous asset. When you encounter something new and unexpected, having people from varying backgrounds and industries to advise you will help build a more complete understanding of any situation you’re facing.

Third, is the exponential effect adding an Advisory Board member can have on your business network. If an advisor believes in you and your company enough to join the Advisory Board, they will be more than happy to open doors and make introductions to other people that can help your business grow. These connections can be the difference between stalling out and taking a rocket ship to the moon, and having someone to make an introduction and vouch for you is often key to reaching the next level.

Who to Include in Your Advisory Board

There’s no one size fits all solution for building an Advisory Board, but there are some general guidelines and rules of thumb that will help you through the process.

Advisors should fill gaps in your own skills and experience.

If you are an insurance salesman starting your own insurance sales business and want to build an Advisory Board to support your growth, you probably don’t need additional insurance salespeople filling up your Advisory Board. Presumably you already know how to sell insurance, and so additional insurance salespeople would be duplicative of the skills you already have in place. Remember, you’re likely going to compensate your Advisory Board members with equity in your company, so make sure you’re spending your equity acquiring something you don’t already have.

Instead of building an advisory board of insurance salespeople, our founder should instead find people with skill sets and experience that they don’t have but will need in order to build a successful business. Marketing is a critical component of any startup or small business and having the owner of a local marketing company as an advisor adds these critical skills without any additional cost to the company. Having other professionals, like lawyers, accountants, and bankers as members of the Advisory Board will add even more key skills and open up additional networks of vendors, investors, and potential customers.

One caveat or seemingly contradictory piece of advice is that an Advisory Board should always include someone who has built a successful company before, ideally in the same industry. This may seem like it would be duplicative of the founder’s role/skill set but having someone who has successfully gone through the startup process in your industry is simply invaluable. Unless you’re a serial entrepreneur with at least one successful exit under your belt, having that experience on your Advisory Board will be additive to your skills and experience, not duplicative.

Advisors should increase the credibility of your company.

Adding people to your Advisory Board is a choice that should not be made lightly, and every individual selected should increase the credibility of the company. This doesn’t mean that you need to get Henry Kissinger, James Mattis, and George Shultz to join your board, like at Theranos. It simply means that the people added to your Advisory Board need to add skills, experience, perspective, or renown that makes your company better because they’re involved.

The flip side of this coin is founders need to be careful about vetting the potential members of the Advisory Board. I’m always amazed how many businesses will engage someone without even googling their name. Everyone has a past, and for better or worse everyone’s past is available on the internet. Conducting a little bit of due diligence on potential Advisory Board members before engaging them can save you a lot of trouble down the road.

Advisors should provide a different perspective.

For decades business decisions in companies across the country were driven by middle aged white men with degrees from the right universities, who lived in the right neighborhoods, joined the right clubs, and sent their kids to the right schools. This led to a lack of different perspectives in the board rooms of America that we are still contending with. Only recently have scholars, journalists, and the people who think about these things brought the potential benefits of a multitude of opinions and perspectives in reaching the best solution to light.

Having people with varying perspectives and different experiences collaborating on a problem generally makes for a better solution than the alternative. An Advisory Board should incorporate a wide range of individuals with diverse perspectives to ensure that the company is receiving the most useful advise available. In addition to including minorities and other underrepresented groups, having individuals looking at a problem from labor’s point of view, or from the customer’s perspective

will help expose the best solution for the company.

Conclusion

An Advisory Board isn’t a magic bullet for startup success. Even after you’ve assembled your board members, they still need to be managed in order to generate value. That being said, an Advisory Board is a great way to help your startup grow and the benefits generated can take your business to the next level with a little luck and a lot of hard work. If nothing else, attempting to build an Advisory Board will help you hone your pitch and perfect the way you describe your company to outsiders.

When done right, creating an Advisory Board increases the credibility and resources of the company and helps to convince others that you’re serious about what you’re doing. An Advisory Board with extensive, complementary skills and experience can help bring in new customers, vendors, and investors that will help you grow the business without having to reinvent the wheel. A strong Advisory Board can help tip the balance and set your business on the path towards continued success.