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FAQs | Management

Forming Advisory Boards

Q1: What should you keep in mind when forming an Advisory Board?

    The following thoughts are from Mario Morino's speech at the April Coffee & DoughNets on Recruiting.

  • Dealing with boards is one of the most important things you do. Putting a corporate board together is often very difficult for a young company. If you can do it, do it. If you can't do a corporate board, put together an advisory board.

    An advisory board has no liability involved, which can be a very big issue for corporate board members today. Advisory boards can still give you good advice, and, if you pick the right people and the right skill sets, they can give you greater credibility.

    One difference between an advisory board and a corporate board is that the advisory board cannot hold you accountable. That's a big, brave thing to do, by the way, to actually take your own company and make yourself accountable to a board of directors, even if it's just two or three members. At the end of the day, you've got to be held accountable to somebody as a CEO. It's going to change how you do things. It's an essential check and balance system for your own growth and success.

    You want to make sure that the people on your board will help your business grow and help you grow as an individual. Make sure there are at least one or two people on the Board to whom you can turn regarding your own development. They can advise you on how are you going to continue to learn as an executive.

    When you're looking at the board recruitment process, we tend, at times, to recruit personalities. Don't do that. Recruit for the need. What does your business need at that point in time in terms of market penetrations, market linkages and skill sets?

    As in any kind of recruiting, know your needs first, then find the individual who fits the need. Don't jimmy in a personality who might be a great individual, but whose skills aren't really needed. Look at market penetration, executive skills, technology and distribution, then recruit the board to that level.

    Recruiting a corporate board can be expensive. It's not unusual, for example, that a director will expect to make at least $500,000 in a three to five-year period. That means you are going to give them a decent option program and, at some point, you are probably going to give them meeting fees. [Mario Morino, mmorino@morino.org]

  • An advisory board gives you a chance to plug in the expertise you could never get any other way --so get people who will complement the strengths and weaknesses of the CEO. Ties to the financial community and to your target market industry are key. If you get significant angel or venture financing, the sources thereof would expect to be included.

    To ask them to join them Board, you should meet with the person. No compensation is expected in the early stages. However, at some point you need to offer something, and options are ideal. However, equity is precious and you don't want to give it away cheaply. So if you form an advisory board --which is a good idea, especially if you can't afford Directors and Officers insurance-- you should do it in preparation that it may become a Board of Directors, where equity would be essential compensation. That being said, 5-7 members is ideal. [Esther Smith, esmith@morino.org]

  • The following thoughts are from John Casey of Sushi Software:

    1) Invest an appropriate amount of time and effort: creating an advisory board from scratch can take a signicant amount of time (depending on how good your rolodex is); preparing materials etc. for outside consumption can take a lot of time (depending on how rough your business plan and financials are).

    2) Make sure you have realistic expectations about the advice you may receive: One industry friend created a stellar advisory board with a dozen good people in various specialties, had one meeting, got some good (but unwelcome) advice, and never had another meeting. All the prep work was wasted effort; all the gung ho advisors left with a bad vibe about the company.

    3) Recruit advisors the way you recruit people: Past performance is the best predictor of future performance. You don't have time to teach someone how to be an effective startup advisor, no matter how impressive their resume. Even if you get top notch advisors, beware that managing advisors isn’t easy.

    4) Start with informal advisors: before launching a big project entitled "establish an advisory board," start small and go to lunch with as many helpful people as you can. I often invite my informal advisors to come to Netpreneur Program events with me. Or take them to a meal. Since bandwidth is precious and you have to eat, get advice over lunch. [John Casey, Sushi Software]

  • For many of the early stage companies we work with, we try to match companies up with advisors that "round out" the team. It's important that there is some chemistry - but don't stack the deck so much so that everyone is always in agreement. The best way to use your Board is to make sure that they are willing to ask tough questions and that you are ready to listen and think about what they say. The final decisions are still the CEO's, but some of the people on your advisory board should have the "been there done that" wisdom that may help you avoid some mistakes. Start the whole thing informally - you may already have people that are used as advisors. Give them a piece of the pie when the time is right. [Kyp Sirinakis, www.techalliance.org]
  • Putting in some quality time up-front to plan the why, how, when, who of an advisory board is very important. Otherwise you will wind up with a group of successful executive advisors who don't really understand what you want to accomplish and how they will participate. Above all, don't focus on the people until you develop your advisory board plan.

    In our experience, advisory boards are not appropriate for most start-ups. An advisory board requires more structure and discipline than most start-ups can muster. These young companies should acquire 1 or 2 advisors or mentors who can work with them more frequently and more tactically. Boards tend to be more strategic, less operational, and meet less frequently. You can always grow into an advisory board and, if you are successful, into a regular board of directors. [Jeff Bergman, interboard@aol.com]

Q2: Should we contact prospective board members directly, even if we don't know them? Or should we work through our network, find someone who knows the target person and ask them to make the introduction?

  • In general, it is best to establish a connection to a person and create some sort of affinity before issuing the invitation. Boldness never hurts, but people are even more impressed when someone has figured out a credible way to get to them. [Esther Smith, Advisor to the Netpreneur Program, Esther@PORETZ.com]

Q3: Are there any services that provide help with advisory boards?

  • Technology Resource Alliance (GMU) http://www.techalliance.org/texx/adv.html -- "provides its client companies with "know how" through a strong network of private sector volunteers."
  • InterBoard, interboard@aol.com -- "Helps entrepreneurial CEOs create and implement custom Executive Advisory Teams so they can safely make extraordinary business improvements." Contact Jeff Bergman, (202) 342-7202.

 

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