“If we knew what we were doing, it wouldn’t be called research, would it?” – Albert Einstein
It is impossible to know everything that you will need to know to build a successful business before you start. While you should have some industry expertise, some experience building products and a decent understanding of start up fundraising there will be many twists and turns along the way that no one can predict. If you were to spend the time to become an expert in everything you might need, it would take dozens of years and you would never get started.
So, by definition, when you are starting a company you are in over your head. That is both thrilling and scary at the same time. Good luck!
One of the many ways you can increase your chances of success is to assemble a team of advisors for your new company. Advisors can fill in some of the gaps you have in your own knowledge and experience and provide outside perspective on important decisions. When done well, advisory boards can provide an invaluable resource for your company. However, done poorly they can provide a distraction when you can least afford one.
Step 1. Picking Good Advisors
When you are considering who might be a good advisor, here are some good criteria. They should:
- Have expertise in at least one area that is at the core of your business.
- Have a strong network to connect you to others when necessary.
- Provide advice and insight that is thoughtful and specific to your situation.
- Be someone who you like and respect.
If someone doesn’t meet these criteria they can still be an informal advisor, but it likely does not make sense to make them a formal advisor. Formal advisors have a formal relationship with the company because they can materially help the company succeed and you compensate them in some way for that. Informal advisors have a friendly relationship with you and can be helpful just like any of your friends. The difference is subtle, but in general formal advisors commit more time and effort on behalf of your company. Whether you need formal advisors for your company is completely up to you, but most successful companies have at least a few formal advisors.
The good news is that almost everyone loves to be an advisor for start up companies. As an advisor you get to learn a new business, meet some passionate people and help work on new problems while not needing to invest a lot of time. It is rare that anyone, no matter how successful or distinguished, would turn down an advisory opportunity if they like you, find your business interesting and have the time available. So, be aggressive in recruiting advisors and don’t be embarrassed to reach out to someone you do not know.
Step 2. Setting Up and Advisory Board
Once/if you’ve identified some potential formal advisors you should give some thought to the overall advisory board. The name “advisory board” is somewhat of a misnomer as, unlike your board of directors, your collection of advisors is unlikely to ever meet together at the same time. Some key points when assembling your advisory board:
- It should have at least 2 but not more than 4 members. You want at least 2 perspectives on important decisions but managing more than 4 advisors is too time consuming to be useful.
- Expertise among the advisors should be well distributed. You want to cover as many areas as possible so you want a diversity of advisors since you don’t know what questions you might face. Having two advisors with exactly the same expertise would be a waste since they should, in theory, tell you the same thing.
- Advisors should be compensated with between 0.1% and 0.5% equity (depending on stage and value they add). If an advisor isn’t worth that much you shouldn’t make them a formal advisor to the company. Equity should vest monthly over at least two years.
- You should set expectations on how often you need their help and how much of their time you require. Establish this up front so there are no surprises on either side later. You should talk to advisors at least every quarter but likely not more than once a week (the more time you want the higher the equity would be as well).
The reason that you will rarely, if ever, have a meeting of all the advisory board members is that typically their experience is so varied as to make such a meeting unproductive. The best way to make use of advisors is to have them engage with specific problems and issues you and your team are facing that are within their area of expertise, as if they are an extension of your team. Treating advisors like members of the team usually creates the most productive chemistry.
Advisors should all sign advisory agreements that are a combination of the advisor contract and NDA. Your law firm should have a standard advisory agreement that you can use.
Step 3. Using Your Advisory Board
Now that you have an advisory board in place, it’s time to make use of them! It is easy to set up an advisory board and not utilize it effectively because of everything else going on around you, so it can help to make using the advisory board part of your process. A good use of your advisory board may look like the following:
- When a new advisor joins, have them present something from their area of expertise to your entire team. It is a great way to introduce them to the team and learn new things.
- Hold quarterly sessions with each advisor to either review the product roadmap, talk about your sales pipeline or brainstorm solutions to hard problems – depending on their area of expertise. Having this regular cadence will help build a habit of using the advisors.
- Encourage your team to connect with advisors directly over email with questions whenever they occur. Having a single point of contact for advisors will limit their usefulness and having them build relationships with your team will make it easier for them to help.
- Send regular updates to the advisors on progress your company has made. Since you are already sending regular updates to your investors and board members, you can just send a slightly watered down version to the advisors. The more they are up to date on your business, the more helpful they can become.
Remember that your advisors have their own day jobs and are likely very busy, so they don’t spend every waking minute thinking about your company like you do. You should be very specific in asking them for things and giving them clear ways to contribute to your success since it might not be clear otherwise. By their nature advisors want to be helpful so tell them explicitly how to be helpful.
Learning lessons the hard way can cost you time and money, adding additional risk to your already risky new venture. Advisors can help you avoid some of those pitfalls since they have already learned those lessons. It is also helpful to have someone on your team who can critique your pitch, challenge your assumptions or validate your decisions.
Since you are in over your head in starting a company, you need to give yourself every advantage. Having an advisory board is like having backup, they won’t make you successful but they can help when you need it.