One of the secrets I learned early in my startup career was the value of having a strong set of advisers. This article will give you some insight on how to create an effective and impactful advisory board.
There are many reasons to add Advisors to your startup:
- They bring needed expertise in your given industry
- Sometimes their name will carry credibility for your company
- Advisors can make meaningful contacts and introductions for the company
- You need extra help with a certain aspect of the business such as operations, finance, sales and marketing or technology.
- Advisors should be compensated via equity thereby preserving cash
- They can help raise capital
I would suggest creating a number of advisory boards based on the needs of your company. For instance, you can have a technology advisory Board, a financial advisory Board, an industry advisory Board, and other advisory boards. By bringing on a variety of advisory board members, it enhances your viability since anyone who looks at your company will be intrigued by the fact that you attracted so many interesting and talented people.
Advisory Board compensation
People always ask me “how do I compensate my advisory Board members?” Usually advisory Board members are compensated in equity. On very rare occasions, where an advisory board member is able to add significant value, you might consider a small cash stipend. But generally advisory board members should provide anywhere from a few hours up to 10 hours per month to help your company.
How should I use advisory Board members?
First, you will need to have advisory board agreements that outline the relationship with your company, and what is expected of the advisory board member. Be sure to set up your advisory board agreements with expectations that are reasonable. You’ll want to use your advisers sparingly, unless they have more time available to help. The key is to make sure that if you engage in adviser, your requests of them are meaningful and impactful. Most advisers will be happy to help since they want to be part of a winning company. You can make a big mistake here by bringing on a great advisory team, but not utilizing them to the fullest extent. So be sure to understand each advisers’ value, and have a plan to help them move your company forward. I have found that if advisers are not asked for help, they probably won’t speak up, and you will miss opportunities to utilize their skills, contacts and advice.
Are advisory board members liable for any issues that arise for your company?
Unless there is a specific incident where a advisory board member causes material damage to your company, generally Advisory Board members aren’t liable. They do not hold the same role as a board member. Board members have fiduciary responsibility for your company, and advisory board members usually don’t. This is also one of the main reasons why they are easier to recruit. Board members are getting harder to recruit because many of them don’t want to take on liability for the company, even with directors and officers (D&O) insurance. Remember when one of the board members of Hewlett-Packard was accused of using underhanded tactics to spy on the board? Advisory board members usually are not implicated in these situations unless there is proof that they have actively participated.
How many advisory boards should I have?
Always start with a single advisory Board. While advisers can be important to your company, it still takes time to recruit them and bring them into the fold. So start with one advisory Board, and then as you grow you might add more advisory boards for specific areas of the company. Also, as mentioned above, you’ll only want to take on as many advisers as you can manage. It doesn’t do any good to have advisers whose skills go underutilized.
How many members should be on an advisory board?
Generally, a minimum of three and a maximum of seven. With less than three advisory board members, it’s not really a board. At the same time you really don’t want more than 7 advisory board members on any given board, as it will become too complex to handle all of the maintenance that goes in to having advisory board members. Remember that you can have as many advisory boards as you would like, and can utilize effectively.
How often should advisory boards meet?
It all depends. If an advisory board is extremely active and necessary, you might consider meeting once per month. If the advisory board is more for brochureware, meaning that you are listing names to establish credibility in your company, you might meet once per quarter or once a year. However, you should feel free to call on your advisory board members often to help your company.