To run a successful company, it is essential to have a group of committed individuals that can answer important questions about what you are doing, where you are going, how you plan on getting there, and provide quality advice. These groups of individuals are referred to as the Board of Advisors or Advisory Board, and this short article delves into why you need them and how you can constitute one.
Who is the Board of Advisors?
A board of advisors is a team of industry experts offering suggestions and advice on how a founder might better run his enterprise. It is important to note that a Board of Advisors is informal and can be set up however the owner sees fit to serve his company best. Generally, a Board of Advisors is often made up of a legal expert, a human resource manager, a financial expert, a marketing advisor, and an accountant to assist with the direct management of the firm and provide insights on various business trends. Unlike the Board of Directors, a Board of Advisors are not fiduciaries.
Why do you need a Board of Advisors?
The more a company grows, the more attention it requires to precisely and effectively solve its problems and ensure continuous growth. Consequently, the need for a Board of Advisors becomes more vital for this and other reasons.
- For Guidance: Every entrepreneur needs an advisor, as no one knows everything. This is why you need a group of experienced individuals dedicated to steering you and your business in the right direction when you feel lost as a founder. There are several categories of assistance that you might need, e.g., specialized knowledge, industry knowledge, fundraising, and technical aspects. For instance, you might need advice from people familiar with the regulatory environment you might have to deal with and even fundraising. An advisory board can also serve as a sounding board when you need an outside perspective on issues for introductions to investors, service providers, and potential employees.
- For Mentorship and Coaching: Being a CEO can be challenging, especially if you haven’t done it before. Advisors who have been startup CEOs can provide advice on people issues, internal perspectives, and strategy issues. CEO coaching is a great value add that the right advisor can provide.
- For Credibility: Another advantage of constituting a board of Advisors is that it increases your company’s credibility. If you have some credible people lined up, it shows that you have convinced some reasonable people that there is a real opportunity here and that they believe in the company enough that they are willing to provide their time. They can help you build credibility with partners, potential customers, and investors.
- Good practice: It is suitable for the future, mainly when you eventually constitute a board of directors. By dealing with a panel of advisors at the early stage of your company, it would help when you finally set up a Board of Directors. You would be familiar with how to stay accountable and project your plans for your business to a group of people.
Whom should you invite to be on your Board of Advisors?
It comes down to the question of identifying what you need. Is it specialized knowledge? Introductions and influence? CEO coaching? Mentorship? Credibility? Accountability? That would guide to helping you to decide on the kind of people you need to invite to the Board. It will also help if you look for people who believe in your dream and challenge you to be better, not people who will agree with everything you do with no contributions.
Constituting the Board of Advisors
Constituting the Board of Advisors is relatively easy. All you have to do is reach out to a few people, usually 3-5, to be on your Board. The ideal number should be between three and five because more than five people can make simple brainstorming sessions difficult, which lowers the Board’s total efficiency. As mentioned earlier, your Board of Directors are people who have a lot of experience. Thus, adopting the following tips in constituting your Board of Advisors is best.
- Establish specific objectives and goals for the Board before creating your Board of advisors.
- Avoid inviting someone to the advisory Board simply because they asked. You don’t have to accept someone merely because they requested to be on your Board. The question is, ‘do they have to be there?’. Ensure anyone you bring on Board is a value add for the specific things you need.
- Avoid selecting someone simply because they have a high profile. While having someone with a high profile can help build credibility, it is more critical that an Advisor has the time to develop your business, ideas, and plans. The commitment is necessary.
- The Board of Advisors shouldn’t only consist of people the owners know well. They must be evaluated based on criteria, such as whether they have relevant experience in the organization’s sector.
- Formalize your agreement with advisors with a written contract that sets the expectations, length of commitment, how often you have board meetings, how many hours to dedicate, what level of participation you expect, and what kind of compensation you might be providing. Typically, advisors are compensated with stock, such as through options, and gain from the company’s rising value. The stock options should be relatively small because it is more like a “Thank you.” After all, the Board of Advisors could speak into your business and help it grow.
Conclusion
In conclusion, a Board of Advisors is an informal and inexpensive way to have a group that offers guidance. Their role is not to make decisions but to boost the trust of the decision-makers who speak for the organization by providing the company with up-to-date information, critical analysis, and critical thinking. Thus, all businesses can benefit from a Board of Advisors. However, they are accommodating to startups and companies that are growing.