Startup founders and small business owners are often quite passionate about their businesses, and while passion is an important part of building a business, it can sometimes lead to lack of clarity and can impact effective decision making. That’s where advisory boards come in.
Setting up a killer advisory board in the formative stages of a business can really help put solid foundations in place. But it can also be a very difficult thing to get right – so it’s important to take the right steps to ensure that such a board is formed pragmatically.
Advisory boards are typically made up of a group of highly experienced individuals whose primary role is to provide guidance on the overall strategy of the business during the more formative and transitional stages of the business.
In order to compensate them for their time, many business owners put their advisory board members on a payment retainer. In the startup scene, it’s also quite common for founders to give away an equity stake in their business in exchange for the board members’ guidance and time.
In return, the business owner should be able to leverage off the extensive networks, strong influence, deep knowledge and industry experience of the advisory board members.
While a big part of putting together this board is about who you’re choosing to guide you along the journey, it’s also important to place a strong emphasis on how you set this ‘dream team’ of advisors up for success.
Here are a four ideas that should point you in the right direction.
Having clear definitions for all roles within a company is a very important part of team productivity – and the same applies for the roles of advisory board members.
In order to make the most of an advisory board, it is far more effective to steer them away from the operational and day-to-day parts of the business and allow them to advise on the more general parts of the business.
Roles that relate to the nitty-gritty parts of business operations should be left to the co-founders and/or other employees.
Blurring the lines between the roles of co-founders and advisory board members can lead to discomfort, friction and can cause tremendous set-backs to business growth and productivity.
According to Rohan Workman, CEO of Skalata Ventures, diversity plays a big part in the creation of an effective advisory board.
“The key thing I’d recommend is putting together a skills-based and characteristic-diverse board,” Workman told The Pulse.
“This means first identifying what skills you’d like and then determining what kind of characteristics (age, gender, background, and so on) you’d like to be represented.”
Workman believes that having “different perspectives” on an advisory board can be instrumental in “avoiding obstacles down the line”.
However, as the saying goes, too many cooks spoils the broth – so balancing diversity of perspective and keeping the board small and intimate is important as well.
One of the more significant challenges that Workman outlined in setting up an advisory board was around tackling remuneration.
Advisory board members, just like all other key personnel within a business, need to be paid appropriately – and often, when forming an advisory board at the early stages on a business, the price of accessing their expertise and networks is an equity stake in the business.
Now while giving away a slice of the cake in exchange for the value that such a person can give might seem necessary, saying ‘I do’ to such an agreement commits you to that advisor ‘for better or worse’.
This being the case, Workman encourages startup founders to run a trial period before giving away the equity stake.
“My advice is to agree on a set time frame where the advisor will get involved for free (or for cash) and set some objectives for that period of time. At the end of that period of time you can assess how you both went with achieving the objectives and whether that person is a good fit for the longer term.”
Good guidance and strategic partnerships are some of the core ingredients of a well-built early stage business. The question is, though: is there such a thing as putting together an advisory board too early?
When asked this question, Workman responded by saying that in most cases he didn’t believe it to be worthwhile to put an advisory board together “on Day One”. He then went on to explain that gaining “a little momentum” first helps businesses become clearer as to where they could use the support of an advisory board.
So If you can choose them wisely, pay them appropriately and time their involvement correctly, you’ll be well on the way to building effective relationships with your Advisory Board and in turn, watch your business reach unprecedented leaps and bounds.