There are probably quite a few divergent opinions on the value of advisory boards for start up companies. Some might feel that finding and ‘managing’ such people take away from the focus of just building a cool product and ‘getting it out there’. For others the value that experienced people with relevant networks in your industry can bring easily trumps the time that has to be invested.
The key thing is that if you do decide to go for it then it must be taken seriously.
To get a bit clearer let’s look at the two most likely reasons you would put someone on your advisory board (one or both of the following apply):
- They can provide great advice and have great network: This category of people you would add because you feel that they genuinely have insights and experiences that if they were willing to share with you on a regular basis would be helpful. They will typically also have a great network of relevant contacts in your chosen industry and can help open doors.
- They have a ‘high profile’ and will add to your brand: This person has a great “personal brand” and a lot of credibility. They might be perceived as the “rock stars” of your industry. They might not have a lot of time for real advisory assistance but you don’t care as just adding them to your board is an indirect endorsement that you feel will be helpful.
It’s obviously possible to find people who are both - however realistically if you were to add Mark Zuckerberg or Larry Page to your board I think you would find that their real involvement would be quite limited.
If at all possible I would advice going for no. 1. As an entrepreneur we are all pretty confident and sometimes have a hard time asking for advice. In my own first company we never got around to adding an advisory board. I think that was a real mistake. We were in a rather stable and ‘boring’ industry and were seen as cool, young and innovative. I think most of the people we could have (and should have) asked would have gladly helped out. Thinking back on it I can think of many situations where a capable board would have accelerated business deals and helped avoid costly mistakes.
Quite in contrast to this in one of our current Rainmaking companies called Latest in Beauty we have added a great board. The company is a new take on trying cosmetics products online and is growing rapidly. On our board we have for instance Jo Fairley. She sold her previous company (Green and Black’s) to Kraft. Jo built her company entirely on sampling so she is the best advocate of our approach. She is also the beauty editor of YOU magazine which is Britains most powerful beauty monthly. Not a week goes by where Jo does not open a door to a brand we could have otherwise not got into. We also added Nancy Cruickshank. Nancy built and sold Handbag.com a major website dedicated to fashion and beauty. Nancy has the most amazing intuitive sense of what works online and is probably one of the most creative people I ever met. In our most recent board meeting we presented an idea that would change our delivery mechanism (can’t tell you what is it’s still being implemented). It was a pretty major thing so we presented to the board.
The feedback that we got to improve the idea made it instantly 100 times better. It was amazing and without their help I think we would have been heading down the wrong road. So that’s a great example of when an advisory board adds true value.
Having said that, here are some thoughts about the ‘mechanics’ of advisory boards and some ‘do’s’ and ‘don’ts.
Don’t think it’s about the money: You would usually offer some equity to advisory board members. Paying cash is completely out of the question at the start up level (if someone ever asks then run away from them as fast as you can!) But, the level of equity given is usually so low that it is unlikely that advisory board members will agree to join your board simply for this.
A typical range of equity participation would be from 0.5-1.5% of the company vesting over a period of 1-3 years. If you consider the fact that you are likely to take in investment (perhaps several times) then the board members ownership share is likely to be quite diluted. Perhaps they will end up with 0.2% of the company at the end. Let’s imagine you actually create a billion pound company (and be honest - what’s the chances of that really??) In that case the board member would get £2M. A significant sum but not necessarily earth shattering for the type of people we are talking about. In a more realistic scenario where you might create a £50M company (and even then you have done well!) then the board member would get £200K. That’s after possibly years of advice and opening their network. So it’s not about the money.
Respect!: As you can see from above most board members will join because they find your project interesting, because they feel it would add to their own ‘brand’ to be associated with your company and because they genuinely want to help new start ups be successful. Unless you are going to be the next Facebook or Google then the ‘brand value’ they get from sitting on one more advisory board is much less than the value you get from having them on.
It is important to recognize this and be respectful of their time and situation. What that means is investing the time in proper pre-board business summaries. They are busy people and won’t have time for long meetings. If you spend the first hour updating on what happened since last then how will you get the time to get their advice and creative ideas. Send out full and complete business summaries at least 4 days in advance of the meeting. Also make sure that the board meetings are pencilled in for at least 6 months going forward. These are busy people and you will not get the meetings to happen if you schedule them from time to time. Work with their PA’s if they have them to get the time booked in firmly. Finally send out meeting summaries with clear action points no later than a day after the meeting and FOLLOW UP!
Don’t abuse: Strongly related to the above point is to make sure that you don’t try to abuse the privilege of your board members time. There can be a temptation to run to them every week, as they will have such strong connections in your industry. Again remember that they are busy and that they probably joined because they saw you as a “can do” type of person. If you come running with every small request for help that attitude could quickly change and they will soon tire of you. Save your requests for the really major things where their involvement can make a big difference.
Don’t expect the world: As we have mentioned they are busy, probably sit on many boards and you haven’t given them a lot of equity plus no money. Now you expect what? Even though they have joined the board you should not expect them to open up their ‘little black book’ all at once. They will likely wish to spend a few meetings to get comfortable with you and the company and to make sure it really is a cool as you said it was when you talked them into joining the board. Of course, they may open up and be change your world immediately with great introductions and high activity levels just don’t count on it. Better to be positively surprised!
Thank you: A small word. Often forgotten. If you are lucky enough to get board members that help out and add value then don’t forget to thank them along the way. You can do that in whatever way you feel is appropriate but they are also only human and we all appreciate when someone recognises and thanks us for our effort. If you win a start up award for instance or do a press interview then don’t take all the credit. Remember to thank them as well. They will be appreciate it. They will help you even more and you will have an even easier task recruiting board members for your next start up.
As mentioned there is no firm rule to say that you must go ahead and create an advisory board for your start-up. Many people don’t. I am however a complete convert to making such boards a key part of any start up that I am involved with and have truly seen the benefits of doing so.