The best startups use advisory boards with subject matter experts to fill the inevitable gaps of knowledge. Advisory board members are not directors in the traditional sense: They do not serve a governance function or represent shareholders or other stakeholders. They simply provide advice to the startup leadership about achieving current business goals. Here are some guidelines to consider when setting up an advisory board:
- Have a purpose. An entrepreneur can use an advisory board to weather current challenges and opportunities. For example, a chef entrepreneur about to open a new restaurant may decide to form an advisory board to gain expertise in marketing, human resources and construction and design — skills that a culinary type would not necessarily possess. In forming the advisory board, the entrepreneur should carefully consider his or her critical knowledge gaps so as to identify appropriate advisors.
- Recruit doubters. Nostartupneeds “yes” men disguised as advisory board members. The most ideal advisors have the entrepreneur’s best interests at heart. And so they are not afraid to give advice — even if it contradicts the thinking of the entrepreneur. Because the feedback can be brutally honest, entrepreneurs may wish to avoid picking advisors who are close friends or family members.
- Leverageournetwork. Initially, identifying potential advisors can seem like a daunting task. The entrepreneur’s best approach is to identify people within his (or her) personal or professional network with the requisite skills and experience. These individuals are familiar with the owner and likely would be willing to serve as advisors. To the extent a particular need cannot be met by someone in the entrepreneur’s network, referrals can sought. The final option is making old-fashioned cold calls.
After identifying potential advisory board candidates, the entrepreneur should carefully vet them to ensure that they would be a good fit. Advisors should not only have the technical knowledge but also a desire to help the entrepreneur. Plus there should be good chemistry between a potential advisor and the entrepreneur.
- Use a contract (here’s ours). While advisory boards are generally less formal than governing boards, the entrepreneur should protectthe startup. Advisors will be privy to highly confidential information about business plans, intellectual property and trade secrets. Each advisor should initially complete nondisclosure agreements (here’s ours). Also the entrepreneur would be wise to spell out in writing the advisor’s role, responsibilities and other expectations.
- Time is money. Advisory board members are not contributing their valuable time for money. They become involved as a result of their desire to help the entrepreneur — and perhaps feel good about mentoring someone in need of their expertise. It is good form to provide some form of compensation. Depending on thestartup‘s financial ability, compensation could include meals, travel expenses or asmall stipend. At the least, be sure to thank your advisors for their help. Advisors who feel appreciated will put forth their best effort.
- Keep it intimate. The value of an advisory board is determined by its members — not its size. Entrepreneurs should seek out three to five advisors with the necessary skills to meet the current challenges. Over time the venture’s critical business issues may change, and then the entrepreneur can seek new advisors with the needed skills.
Advisors who are no longer relevant or contributing as needed should be retired. Asking advisors to step down is not easy. So setting term limits for advisors is a good approach. This will result in less drama and stress and allow the entrepreneur to easily rotate advisors as needs change.
- Maximize value. Entrepreneurs should treat advisory board meetings as a vital company asset. Advisors can provide valuable feedback and recommendations — if they are prepared before meetings. All relevant information such as business plans, financial statements and other reports should go to advisorswell in advanceof advisory meetings. All details should be planned out ahead of time, including the agenda, meeting location and time, the meal and any audiovisual needs.
- Maintain ongoing communication. Advisory boards tend to meet infrequently, perhaps once per quarter. Periodic or infrequent meetings can result in business matters slipping from top of mind. If the entrepreneur provides advisors interim information such as monthly financial and other reports, however,advisoryboard members can remain informed.