Entrepreneurs learn quickly how lonely it is at the top. In many cases, the business owner is the sole employee when the venture is created. Then as the business grows, the entrepreneur hires staff. But even as the company grows and becomes more complex, accountability rests mainly on the shoulders of the entrepreneur.
The problem is that over the long run, determining all the right moves is extremely difficult, if not impossible. Entrepreneurs are often placed in a position of having to “figure it out.” Being is this position is stressful and depending on the issue, can make or break the company.
The most successful entrepreneurs know their limitations. They know when it is okay to brute force a challenge and when it is time to ask for help. These entrepreneurs often make use of advisory boards comprised of subject matter experts brought in to fill their knowledge gaps and to help the entrepreneur make informed decisions.
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 entrepreneur about achieving current business goals.
At its most basic level, the advisory board is a sounding board for an entrepreneur. At its best, the board can provide expertise, guidance and business-development insight. In all cases, the advisory board furnishes the entrepreneur with a group of experts who can discuss opportunities, challenges and next steps.
The following are eight tips for creating an effective advisory board:
1. Have a purpose
An entrepreneur can use an advisory board to weather current challenges and exploit 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.
2. Recruit doubters
No entrepreneur needs 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 feedback must be honest, entrepreneurs should avoid picking advisors who are close friends or family members that may feel uncomfortable giving an honest assessment.
Yet a business owner possessing strong, honest relationships with friends and family members may find such individuals can be valued advisors since they already have his or her best interest at heart and desire nothing but the venture’s success — even if this means having a disagreement.
3. Leverage the network
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.
4. Write it down
The entrepreneur should protect the business through the use of a confidentiality agreement. Advisors will be privy to highly confidential information about business plans, intellectual property and trade secrets. Each advisor should be required to complete a nondisclosure and conflict of interest agreement. Also, the entrepreneur would be wise to spell out in writing the advisor’s role, responsibilities and other expectations.
5. 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 the venture’s financial ability, compensation could include meals, travel expenses or a small stipend. Advisors who feel appreciated will put forth their best effort.
6. 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. 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.
7. 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 advisors well in advance of board meetings. All details should be planned out ahead of time, including the agenda, meeting location and time, the meal and any audiovisual needs.
8. 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, board members can remain informed.