Opinions expressed by Entrepreneur contributors are their own.
Never be the smartest person in the room. If you are, then you’re in the wrong room. That’s one piece of advice I would give to all entrepreneurs.
As a founder, the talent you hire at your startup is crucial. While difficult to attract and retain any employees at all, the individuals you bring on board should ideally be more knowledgeable than you in their respective domains. After all, startups are built by generalists and scaled by specialists.
It’s no secret that entrepreneurs are expected to be versed in many areas. Nonetheless, with so many aspects to building a business, founders often hire employees to fill gaps in their knowledge or experience. Top talent isn’t cheap, however, which leads us to an advisory board.
Below I discuss the importance of having advisors, steps to ensuring the right fit, typical terms offered and ways to leverage the most value from these relationships.
Related: Why Every Entrepreneur Needs a Board of Advisors
What is an advisory board?
An advisory board is a group of individuals whom you trust, as the leader of a startup, to provide valuable business advice. The role of an advisor is, in essence, to serve as a mentor for both you and your company.
For the most part, advisors typically offer suggestions or guidance in the following areas:
- Finding investors
- Building company culture
- Implementing growth tactics
- Acquiring and retaining employees
- Planning or executing an exit strategy
Your board should be diverse. Whether it’s a CMO who can coach you on marketing or a lawyer to help navigate legal challenges, advisors are meant to be complementary to you as a founder. Relationships with these individuals will often be personal, and at informal times, leaving both sides to communicate via text, email or video chat.
Related: 8 Steps to Creating an Effective Advisory Board
Benefits of having advisors
The most common question asked is: Does the return of an advisory board justify its cost?
I generally recommend that all entrepreneurs recruit advisors as the foresight of these individuals are often invaluable. Many founders initially balk at the idea of giving up equity, however, seldom regret this decision as they progress.
With prior experience to offer, advisors allow to eliminate countless mistakes that entrepreneurs could very well prove fatal to any startup. It only takes a few occasions to see an advisory board investment return tenfold, and on that note, let’s look at some of the benefits of having advisors.
- Ability to fill knowledge gaps and improve your performance as a founder and CEO
- Serve as a testimonial for your business to foster trust among investors and customers
- Offer advice around critical business functions to help accelerate your startup’s growth
- Establish credibility if lacking in the eyes of both internal and external stakeholders
Once you decide that an advisory board is suitable, it’s time to begin your search.
Related: 10 Reasons Why Leading Entrepreneurs Join a Peer Advisory Board
How to select members for your board
Finding people is easy, but finding the right people is tough. Here are some tips to consider as you look to fill spots on your advisory board.
- Assess your needs: What areas do you lack most in terms of knowledge? For example, if it’s your first time raising capital, you may seek an advisor that has experience dealing with investors. Once you establish your needs, you can then narrow the search.
- Leverage personal relationships: Ideally, an advisor will act as a close confidant, providing advice on short notice when required. Consider whether you have any personal relationships in your network that could add value to you and your business.
- Screen candidates thoroughly: Always do your due diligence. Make sure to research the prior roles of a candidate and obtain testimonials, if possible. Additionally, determine if a candidate has potential conflicts of interest that may cloud their judgment.
- Go to entrepreneurial hotspots: Sometimes the best place to find advisors are geographic hotspots where other startups are located. Many of these cities have conferences, conventions, and shared workspaces where entrepreneurs and alike come together to network.
Related: What Makes a Great Company Culture (and Why It Matters)
Terms offered to startup advisors
Once you have advisors in mind, both parties should align on the expectations prior to commencing a working relationship. Typically, this is set forth in a written agreement that explicitly outlines the tasks, responsibilities, and compensation of an advisor. Here are a few items that should be included:
- Meetings: Will advisors be expected to meet regularly or ad hoc when necessary?
- Confidentiality: Prevents a leak of information that could be detrimental to success.
- Equity: Compensation often varies from 0.25 to 1.50% of your total shares per individual.
- Vesting: Contracts range in length from two to four years and equity is dispersed accordingly.
- Cliff: Advisors can be terminated within six months, for example, and you’d retain all equity.
- Non-compete: Restricts advisors from offering similar services to companies in your space.
- Ownership: Any ideas or developments put forth by either party belong to the company.
- Disclosure: Do you want advisors to disclose their relationship with your startup publicly?
Tips for managing an advisory board
- Connect regularly: Scheduling meetings consistently and in advance is often best. It not only allows advisors to prepare for discussions ahead of time but gives you the opportunity to pinpoint areas in which you need help.
- Create an agenda: Draft an outline of topics for each discussion and share it with your advisors beforehand. Make sure to follow up on issues that you don’t get around to discussing and save particular topics for specific advisors.
- Be open and transparent: If you’re not fully open and honest with advisors, they won’t be able to offer valuable advice. Remember, they’re part of your team and are rooting for your success. Don’t just share the highs, but the lows as well.
- Foster each relationship: There’s a strong chance that whatever you’re working on does not pan out. Startups fail every day for a million different reasons. Establishing a strong connection with each advisor may lead to future collaborations down the line.
As any successful entrepreneur can attest, the people whom you surround yourself with determine your success. Building an advisory board can accelerate your company’s growth in more ways than one and help navigate that oh-so-treacherous early startup phase, where most businesses are doomed to fail.
Business Strategies, Entrepreneurial Advice & Inspiring Stories are all in one place. Explore the new Entrepreneur Bookstore.