What is an Advisory Board?
An Advisory Board is a group of trusted mentors and advisors who provide you with guidance and feedback, based on their skills and interests. An Advisory Board has no governance or fiduciary responsibility, although many Advisory Boards transition to Boards of Directors over time, as a company matures. Advisory Boards are in place simply to advise. Advisors add value by asking the tough questions at the right time, helping you to find the answers. In fact, their most valuable contribution may be to ask probing questions, rather than “provide advice”.
Why should my business have an Advisory Board?
An Advisory Board can bring broad skills, experiences, and credibility to a business and its owners, depending on the Board’s composition and mandate. If chosen carefully, an Advisory Board can provide access to specialist and generalist skills not held by the owners, decades of experience in the right industries, and a network of connections for building your business. Simply having an Advisory Board signals your willingness to seek outside counsel, an important attribute when looking for new investors and business relationships. An Advisory Board can help provide you with the discipline to periodically re-assess business strategy and success. Having to succinctly describe your business challenges to your Advisory Board will help you tackle them successfully.
When should I set up an Advisory Board?
An Advisory Board should be established at the earliest practical time. Although you may believe that you don’t have time to set up and maintain an Advisory Board, you should quickly see better decisions and accelerated success by bringing more brains to bear on your challenges. Expenses are generally limited to travel and meeting costs, because most Advisory Boards aren’t paid, at least not initially. Time and money should not be constraints.
Who should be part of my Advisory Board?
Advisory Board members should bring skills that complement your own, filling gaps in functional areas such as strategy, finance, marketing, and technology. At least one of your Advisors should have deep knowledge of and connections within your target markets. Look for a variety of skills and perspective among your Advisors. Try to explicitly define knowledge gaps and search for the right individuals. Keep the number of Advisors to a modest level (3-6). Having too many dilutes individual relevance and challenges quieter members to be heard. All your Advisors should be strong communicators, with great networking and listening skills. Avoid celebrities, unless you are confident these individuals will remain actively engaged. Remember that prospective investors often will want to speak to your advisors, so make sure yours are all active and up to date. Finally, make sure that your Advisors support your company values and remain excited about your company’s success.
How do I find and appoint Advisors?
Individual Advisors are typically recruited informally, often following a successful business relationship or through networking. This works fine until you decide to bring your Advisors together for a common purpose, such as reviewing a product launch strategy. At this point your advisory relationships need to become more formal, through a simple letter outlining elements such as time expectations, meeting frequency, expense reimbursement, deliverables, termination, and term expiry dates. Developing a consistent letter for all Advisors will help ensure unity and consistency in Advisory Board operations.
How do I compensate my Advisory Board Members?
Initially you need not expect to compensate your Advisors except for expenses and meeting costs. Be careful to not expect your Advisors to freely provide services (e.g., accounting) for which they normally charge other clients. When you reach the point of compensating your Advisors, more-formal contracts will be needed. Eventually you may wish to invite one or more of your Advisors to join your Board of Directors. This could happen when you secure significant outside investment or begin to hire middle managers. Compensation, when implemented, could involve retainers, meeting stipends, stock options, etc. Stock issues, if used for compensating Advisors, should be kept modest and symbolic (e.g., 0.1% per year served). Even though you will not be financially compensating your Advisors initially, look for ways to acknowledge their contributions, such as through client introductions and referrals, recommendations, and feedback on the effectiveness of their service.
How do I operate my Advisory Board?
At the outset, Advisors need to be provided with a good understanding of company vision, core values, and business strategy. This information should be provided in written form about a week in advance of the first meeting. Adequate lead time is needed for review, allowing the initial meeting to focus on discussion, rather than presentation. The initial meeting should be face-to-face and have a formal agenda, allowing each participant adequate time to interact with others and establish comfortable communication. Allow 2-4 hours for this meeting. Most subsequent meetings can be virtual, once this comfort has been established. Face-to-face meetings are not needed more than once or twice per year. Between meetings, Advisors can be kept abreast of company progress through periodic reports. Advisors should be contacted when and as needed, keeping communications responsive and relevant. Advisor engagement ought to be straight-forward and compelling.