An advisory board is a group of talented people who provide your company with professional help and guidance to help you grow. Advisors use their expertise and network to help you make the right decisions and solve issues that arise. Think of it as a formal collection of mentors that unlike the board of directors don’t have official authority. Any company can have an advisory board, and its meetings are ad-hoc compared to the meeting of the board of directors that should happen on schedule.
Why should you build an advisory board?
The answer is quite simple — advisory boards increase your chances of success. According to the Startup Genome report companies that learn from mentors raise 7x more money and have 3.5x better user growth. Family, friends or even employees are not going to tell you what you need to hear at the most critical moments. While they may encourage you and support emotionally, advisors will give you straight and painful comments and answer to your questions. If you have the right board of advisors, they will care about the future of your company as much as you do.
Advisors provide credibility and skills that first-time entrepreneurs need. Imagine that you are a marketing professional who wants to build a marketing automation tool for the e-commerce industry. While you are good at marketing, you might need help with b2b sales in the e-commerce industry and a tech advisor. You might also need help raising money for your venture, so maybe a fundraising advisor will be beneficial for the business too.
Limited resources of a startup make its goals clear — it must grow and scale, or the company will die. Rapid growth is rarely achieved by spending a lot of money on advertising and other means of traditional marketing. Partnering with bigger companies is a much quicker way to grow, and advisors can help you seal the deal by providing insight, contacts and general advice on how to do that.
The difference between mentors and advisors
In short, advisors focus on business, while mentors focus on you and your personal growth. Advisors are legally associated with the company as part of an advisory board and are financially compensated for their help. It’s not uncommon to publicly demonstrate that a well-known advisor joined the company to boost business credibility. Because advisors work is compensated they have a responsibility to maximize their value for the company. They usually provide advice you should follow, a know-how that you can use right away to gain a competitive advantage.
On the other hand, mentors are more academic and focus on helping you grow as an individual. The guidance you will typically seek from a mentor will be both professional and personal. They are close friends and relationship with them grows over time and evolves organically. Mentors don’t have any financial compensation and usually help you just because they want you to succeed. A mentor is often much older than you and has usually been in your position before so that he can offer advice to lead you in the right direction.
The first step in finding advisors is deciding what kind of skills your company is missing. Once you identify the need, it will be much easier to find the right people. Advisors are typically people with the skills that you need that you’d love to join your company, but who already have demanding jobs and whose salaries are beyond your current abilities. They are more expensive to hire than you could afford and their names might sound too big for a company of your size. Imagine Mark Zuckerberg joining as an advisor.
After you identified the leaders that you want to join your startup, it’s time to reach out to them. We often underestimate our reach and what people we can talk to. Start with your immediate network, see if you have mutual connections. If you don’t have someone to make a warm introduction, then do a little research to find out things like where your dream advisor spends his or her time, what events they are speaking at, what companies they are engaged with. You can make the connection happen even without being referred by someone if you do this right.
Advisors compensation is usually not something that motivates someone who is a leader in their field. The amounts you can give away are generally too little, and risks of your company failing are too high. You need to make them believe in your cause and your vision and inspire advisors to give you their time.
Nonetheless, equity compensation is still not negligible. Depending on the stage of your startup and their role you might have to give up to one percent of the company. This equity is usually vested over two years with a six-month cliff. It will allow you to keep equity if they decide to stop advising you on month four.
If someone starts to negotiate aggressively asking more than you can give, then maybe they’re not the right person. After all, advisors are optional compared to hiring talented employees that will be crucial to your company’s success. Also, there are other ways to compensate than equity. VCs often provide free advice to build a long-term relationship. You can also use the product you are developing as a way of compensation, but that, of course, depends on your business.
Things to Consider
Before recruiting an advisor to make sure that you both have the same management styles and you share same values. If they have an entirely different viewpoint, then their advice might not be the best for you. Finding someone who things alike, another version of yourself, will be hard. Just like in a regular relationship, you need someone who is compatible enough so that you don’t have to argue all the time defending your point of view. It will make your meetings productive and will ensure your business is moving in the right direction. Another big question you need to ask yourself and your advisor is will they will be available what you’ll need them. Business has a very unpredictable nature, and things can change in an instant. Will your advisor be there when you need her most?