Setting up an advisory board for a scalable new venture is an opportunity to help grow your startup fast.
We’ve heard lots of stories from our peers, which range from the good, the bad to the downright ugly.
The experience doesn’t have to be painful. Think of it as finding a major early hire or the right co-founder.
Remember the different types of investors founders seek to join team to help them grow through each stage of their business?
Here’s what that team might look like:
- Advisory board.
- Private angels and seed investors.
- Angel groups.
- Early, mid and late-stage venture capital (VC).
We’ve setup an advisor board ourselves at StartUp Foundation – and have found it a positive, focusing process.
The role of an advisory board
An advisory board can be a great way to:
- Fill gaps in your team – such as industry or domain expertise.
- Tap into future core business opportunities.
- Leverage investor and past entrepreneurial success.
- Access networks above or beyond your reach.
- Gain critical perspectives outside your own.
- Reach new markets.
- Assist in setting the culture of the organisation – by re-enforcing what the business stands for.
- Focusing you as the founder – on defining your core audience, offering and mission.
The advisors can also be a great way for founders with no formal prior board experience to ease into the structure required if you intend to raise capital.
Benefits for AB member
For cash-strapped startups, paying for formal advisory board members may be beyond reach initially.
However, many experienced candidates for this role find other benefits beyond being paid for this role. They include being able to:
- Leverage their networks, experience and skill into an upside position.
- Engage with and support a trusted aspiring entrepreneur to help them build a successful enterprise.
- Get exposure to new methods, industries and markets.
- Enhance their credibility, skill set and resume, as well as opening up new business opportunities.
- Expand their networks through collaboration with other AB members and venture partnerships.
- Maintain active business activity beyond their current career.
- Stay active in an exciting and interesting space, with engaged and passionate entrepreneurs who are following a dream.
- Position the advisor with detailed inside knowledge of a growing organisation that they might want to make further investments in.
- Leverage their time and talent into an upside cash outcome.
- Potentially make a direct investment in the startup.
- Demonstrate by example, a model of paying it forward.
If a candidate requires a cash payment for their services, that person could be considered for a different role in your firm.
What should an advisor get?
Without knowing the “who, how or what” of your venture, we wouldn’t dare make a suggestion.
Some people do it for the love, others for the verbal promise of a possible future windfall.
Others might seek a formal equity clip. We have opted for the latter because we wanted to be upfront, open and transparent about the opportunity.
Ultimately, it’s up to you. Talk to your candidates and see how they feel.
One of the most powerful questions you can ask is: “What else would you want to know from me in order to proceed?”
Always be prepared to give it to them.
This was taught to me by a veteran of 44 successful personal ventures in the first 5 minutes of our initial conversation.
What are the risks?
If the venture fails, both the AB member and the founder lose their investment of time and expertise in that venture.
Typically, that’s it.
But the investment by an AB member in the founder is not lost. Ideally, they will both leverage their learning into the success of their next venture, or the one after.
Remember, an Advisory Board is not:
- A formal decision making body.
- A highly structured governance board.
- A place where the board carries or inherits the risks for the outcomes of formal board decisions.
Is an AB right for my organisation?
The answer is not always.
An AB may not be right for lifestyle businesses. Instead, you may need a mentor or a professional relationship with a business, life or skills coach.
If your startup is likely to be venture funded – or is a high growth opportunity – the answer is definitley yes.
Mistakes in these ventures could cost thousands or millions of dollars. No amount of the right type of guidance from committed, engaged professionals can ever be enough.
In most cases, they’ve walked the path before you and their experience is priceless.
Still not convinced?
Former Product VP at Twitter, Satya Patel. This is a snippet from his very good article on this topic in The Wall Stree Journal.
“Board meetings should be valuable to the company, so the agenda should be set by the founders. The founders should lead a discussion about the three or four most important operational or strategic issues facing the company and seek advice and feedback, but not decisions.
In addition, each board member should leave the meeting with two or three pieces of homework, follow-up items for which he or she is responsible within an agreed-upon timeframe.”T
For an insightful comparison of formal versus advisory boards, read Brad Feld’s book (with Mahendra Ramsinghani):
If you’ve got an advisory board question or experience, join our Facebook Group.