Most startups are resource-poor. Founders realize as they eat into their savings that they must be resourceful to move their company forward. Ventures that are technology-driven and have the potential to grow quickly must in particular plan out how much resources they will need and the best way to source them.
Setting up an advisory board or joining an accelerator program are two ways entrepreneurs can expand their network to gain greater access to more resources for their startup. For an advisory board to be well-constructed, the founders need to make strategic decisions that are helpful in attracting the best member for the board.
The Benefits of an Advisory Board
Advisory boards enable entrepreneurs to gain insight from their members, both in terms of their expertise and entrepreneurial experience . In some instances, an advisor may fill a temporary skill or knowledge gap in the company, thus avoiding or delaying the hiring of high-salaried personnel.
But as important, advisory board members bring resources from their network of industry connections that contributed to their own success, particularly those who helped with the funding of their startup.
Taktile, a provider of decision management services, is an excellent example of creating an advisory board focused on the skill, talents and connections of the members. The startup’s powerful board was comprised of eight unicorn founder and executives.
Female led startups have been found to be more successful than those of their male counterparts. However, women still lag far behind men in gaining access to funding. Recognizing this disparity the state of Washington legislated a mandate that women be represented on company boards. This benefits both the companies and women seeking to achieve parity in compensation with men.
What to Look for in a Potential Advisor
Before approaching prospective members, founders need to know of any gaps they have in their business model or their own skills and experience. For example, a founder who is great at sales should pursue a member whose background is in operations.
Having industry knowledge is a great asset of an advisor.
Where to find a Startup Advisors
For the single founder starting a business can be very isolating which adds to the challenges of finding the right advisory board members. To battle this, they should focus on making new connections that may later lead to candidates for their board.
Their own industry is a good place to make connections and find resources since it is where they will find seasoned professionals who are industry experts with the talent necessary to grow. They should also seek out events and venues that expose them to service providers and investors. These are relationships that should be nurtured along the way.
Prospective member backgrounds may range from entrepreneurs who have a track record of successful exits, consultants with industry expertise, seasoned executives, retired executives and academics. This is a diverse pool to draw upon for assistance and advice. These early relationships may eventually be a referral source for a future and valuable board member.
Networking includes finding someone who knows someone who then takes on an advisory role, either in an informal capacity or paid.
Paid versus Non-Paid Advisors
Advisory members are not necessarily paid, particularly in very early startups. But that very much depends on a number of factors, since “startups” in the digital economy are becoming unicorns at a faster rate than ever before. These startups often form high-impact advisory boards requiring advisor compensation.
Those high-flying startups have a unique gravity that gains them ready access to connections other startups must work to have. Those high-quality advisors may receive stock options in place of cash and then receive substantial compensation as the startup accelerates hitting high revenue targets.
Five Reasons Why Individuals Join Advisory Boards
When the founders begin the process of setting up an advisory board, they will face a range of reasons why an individual seeks to join an advisory board and the various advisor roles that exist.
- Some may join a board with the hope that a permanent role in the business may emerge.
- Others may see it as possible future collaborations or contracting opportunities.
- Some are retired industry veterans seeking an opportunity to stay involved.
- Board membership also adds to an individual’s credentials, moving them into a networking circle with high caliber connections.
- Some are potential angel investors who work to find an entry point.
Timing of Finding Expert Advisors
Since startups cannot reliably predict the future, first time entrepreneurs may not know when it is a good time to consider an advisory board. Early-stage startups may need to first work through a long arc from idea to proof of concept to early adopters.
When a startup is reliably reaching their well-defined milestones, the founders will find it easier to approach outsiders to join its board who want to be associated with success.
Each candidate should be probed as to how they view the startup’s future milestones after they are onboard.
Advisory Board Agreements
An Advisory Board Agreement outlines the relationship between a company and its advisory board members. It is a legal document that includes key components of the member’s role. It includes compensation, duties and compensation, the term, termination, confidentiality and formalizes them as an independent contractor.
Members may be compensated in various ways, depending on the company’s stage, financial situation, and the advisor’s preferences. Common forms of compensation are:
Per-meeting compensation, annual retainer, equity that typically has a vesting schedule, cash payment and expense reimbursement.
Four Common Mistakes of Selecting Prospective Advisors
- Relying too much on personal relationships where the individual does not have necessary skills or background to be a board advisor.
- Have not vetted the prospective advisor to confirm they have the relevant subject matter expertise
- The advisor is duplicating the startup founders’ existing skills and expertise or someone on the leadership team, rather than filling a knowledge gap.
- The advisor’s role is poorly defined and is difficult to build a relationship of trust.
X-factor of People Skills
One X-factor to consider for filling board positions is to have someone who has great people and team-building skills. This is in addition to those members who are subject matter experts. They can contribute to a healthy dynamic in advisory board meetings.
Sam Walton, founder of Walmart, captures the importance of finding the right people to build a successful company that can be applied to an advisory board as well.
“If you want the people in the stores to take care of the customers, you have to make sure you’re taking care of the people in the stores.”
Walton is speaking about company culture and one that is people-focused. When an entrepreneur begins their startup, they are taking their very first steps to create that culture.
Having experienced advisors who understand the importance of culture brings an added dimension to their role. This may be even truer today as gender parity and diversity are popularly encouraged, but studies have shown diverse leadership teams are more successful than those that are not.
Conclusion
Members of a well-utilized advisory boardhave the potential to provide invaluable guidance in steering a startup forward. They bring a wealth of experience, business knowledge, and diverse perspectives that can help founders navigate challenges, make strategic decisions, and accelerate growth.
They can assist in setting business strategies, provide valuable insights necessary for overcoming challenges, lead to key customers, and attract potential investors.
However, it is crucial for founders to carefully select advisors who align with their vision, complement their skills, and fill knowledge gaps. Relying solely on personal relationships without vetting the prospective advisor’s skills and background can lead to ineffective guidance and distraction.
Read about: Gender Diversity Board of Directors’ Mandate by Washington that Follows California
