Strategic Advice for Entrepreneurs: Establish an Outside Board of Advisors
Entrepreneurs are typically experts when it comes to their particular product or service, but sooner or later they realize there’s a great deal more to know about running a successful business. That’s when outside advice can be of real value. Entrepreneurs who are wise enough to recognize that they don’t know everything are turning to experienced, well-connected advisors who can help their businesses grow and prosper in ways they’ve never imagined. They look at their business and ask, “What’s missing? Would it help to have more input on marketing or finance? Would I benefit from getting advice from someone who has “been there done that?”
Studies have shown that most of those who do have an outside board would recommend it to others.
Unfortunately, the majority of small businesses are not taking advantage of this easy-to-implement, low-cost strategy. Small business incubators and women’s business centers around the country get it---establishing boards of advisors is one of the services that most of them provide. In fact, I have spent the last eight years witnessing firsthand the countless benefits that outside advisors can bring to the table. The benefits are so clear to me that I see little reason NOT to have one.
So why don’t more entrepreneurs have a Board of Advisors? For one reason, they may think advisory boards are just for banks or public companies. For another, they may not know how to establish a board or even why they should. In this column, we’ll look at the definition of an advisory board, address the benefits, and identify some common pitfalls.
What is a Board of Advisors?
An advisory board is a group of outsiders selected by the entrepreneur to provide guidance and support on issues critical to the organization. It is informally organized to provide support, advice and assistance. Advisors are typically industry leaders, proven business leaders, customers, and respected subject matter experts who are carefully selected based on the entrepreneur’s needs.
Advisors provide guidance versus governance. While formal boards of directors have legally defined responsibilities and fiduciary duties, advisory boards have no formal power or binding legal authority. They serve at the pleasure of the entrepreneur .
What are the benefits of an Advisory Board?
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Advisors help entrepreneurs think through their most important decisions and issues most crucial to the company long-term success. ’s
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Advisory boards are an effective way to bring in expertise and advice in a focused, unbiased, low-risk, and cost-effective manner.
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A board of advisors can round out skills lacking in the current management team.
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Advisors deliver objective feedback, perspective, insight, and straightforward advice.
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Advisors can provide the entrepreneur with a sense of comfort and security knowing that they have investigated options outside their own minds, even if simply to ensure they aren’t missing an incredible opportunity or an issue that will impact negatively upon their business.
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Advisors can provide greater credibility with investors, vendors and customers.
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Advisors can help the entrepreneur avoid making costly mistakes.
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Advisors can provide crisis and transition leadership in the event of the death or resignation of one of the principals.
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Advisors can help anticipate market changes and trends.
What are some potential problem areas? • Because board members are usually running successful businesses of their own, they may not always be available for every meeting. However, board members should be made aware that attendance is important and expected. If a member is chronically absent, their value should be reviewed.
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Most advisors will be strong-willed achiever types, who have gotten where they are by taking charge. Many will have strong opinions and may find it hard to defer the leadership of the meetings to the entrepreneur .
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Because of their strong personalities, if there are too many advisors, the more assertive advisors often dominate the debates The right number of advisors depends on the company’s . size, complexity, stage of development, and individual skills needed. For small and start-up companies, a board is usually 2-5 members.
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Regular communication between meetings is essential to maintaining an effective board. Withholding company information or not regularly communicating with advisors destroys trust and effectiveness.
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Advisors are attracted to Advisory Boards because they are looking for reciprocal intellectual value, career development, and pr ofessional networking opportunities in return for their investment of time and expertise. Compensation should not be a determining factor in a candidates’ selection to an advisory board; however, successful individuals may expect to be fairly compensated for their time and knowledge. There are a number of ways to compensate
advisors --- annual flat fee, per meeting, or stock options. Compensation can range from $200 per meeting to thousands per year, depending on the size of the company and the individual advisor. The good news is that there are many advisors who will serve at no cost to the organization. Some serve simply because they believe in “giving back.” There is tremendous value in receiving objective, knowledgeable advice from a board of advisors. And with the fallout of Enron, Worldcom, HeathSouth, and others, the pool of talent that was once attracted to Board of Director positions are now looking for other less-liable positions to lend their skills and expertise. Advisory boards are a natural outlet to fill this void, as they are prestigious positions without the legal exposure. One final thought: A lot of entrepreneurs are reluctant to ask for advice because they perceive doing so as a weakness. However, it is actually a strength for entrepreneurs to recognize that they can’t know everything about everything and asking for outside advice will only help them grow personally and professionally.
Many successful entrepreneurs have been known to say, “I didn’t know what I didn’t know.”