By Lawrence J. Udell
When creating a new company, there are many critical parts.
None more so than an advisory board.
Based on my 60+ years of launching some 40 companies, I’ve found quality advisory boards provide credibility, contacts and critical feedback. They also offer a reality check to “group think” because they are not bound by many of the same legal and fiduciary constraints of a board of directors.
How do you assemble a stellar advisory board?
- Start with three to five seasoned management-level professionals
- Include a mix with experience or backgrounds in your industry; consider including those with degrees in academics, law, medicine or business
- Make sure you explain – and they have a clear understanding and appreciation of – the mission of the company
Ideally, most or all of your advisory board members will be well connected, which is handy if you intend to ask them to tap their network for fund raising. Because money is involved, you don’t want to have family or friends on your advisory board.
Another breed to avoid are those who look good on paper, but bring little substance or passion to your business. Stay away from “rich and famous” for the sole purpose of having a “rich and famous” face on your advisory board.
I have seen cases where an advisory board was assembled to bolster the sense of importance of the founder. Ego is a bad litmus.
Once you’ve assembled an advisory board, what do you pay these folks?
Offer an ownership share, stock options or compensation notes to be paid when the company reaches certain milestones or a defined plateau. Set expectations that they will be paid only when or if those milestones are met.
Time often is their most valuable asset. Respect that. But ask that they commit for at least one year.
Mutually agree on frequency and duration of meetings. Whether it’s once a quarter or twice a year, make sure you have commitment from all of them at the outset. Given advances in teleconferencing technology, these meetings can be done virtually, rather than at physical locations.
Along those same lines, make sure to send advisory board members meeting agendas a week or so in advance. Solicit suggestions and questions. This gives them time to formulate quality feedback and reduces meeting times. Remain focused on the agenda during those meetings.
As a practical and legal matter, keep detailed minutes of the meetings for company records.
Advisory boards run on a two-way street.
You’re providing members an exciting opportunity to be involved in building a company from which they can personally, professionally and – hopefully – financially benefit.
Likewise, a quality advisory board will offer you quality and sometimes painfully candid advice. A wise leader knows when to take hard feedback to heart.