Power of an advisory board for startups
Creating a meaningfully engaged advisory board is one practical way of filling in the competencies gap that a startup may have.
Most startups are resource-starved and hence, not in a position to employ people for the various skill sets required for building the business. This often means that the entrepreneurs end up doing the thinking on the most critical aspects about the business EVEN IF THEY ARE NOT THE EXPERTS ON THAT PARTICULAR SUBJECT OR AREA OF ACTIVITY.
E.g. a team of two founders with experience in technology and marketing respectively would also ATTEMPT to double up on other areas like production, procurement, logistics, supply-chain, customer support, etc. Each of these is a specialized area and would require someone with years of experience to provide a perspective on the opportunities and challenges.
Thinking and planning and implementing on things that you are not an expert on may is high risk. Think of it this way… If you were starting a cardiac care hospital, and because you are a startup and cannot afford a good surgeon, would you go ahead and operate on a patient if you were not a cardiac surgeon? Well, you won’t because that would be a dangerous thing to do!!!
Exactly for the same reason, like cardiac surgery requires a surgeon with specialized expertise, different aspects of a business — supply chain, marketing, sales, technology, people management, operations, finance, compliances, processes optimization, etc. — should be ideally thought through and managed by some folks with some experience in those areas. But with the cash and resource constraints of a startup, it is not practical to fill in every competency gap with the most appropriate personnel.
Creating an advisory board allows the founders to get the brain-power, guidance and insights from senior function/domain experts, without having to actually hire senior resources to handle those functions.
Why would someone accept to be on the advisory board of a startup?Well, this is where the ability of the founders to sell the vision of the company comes in handy. Of course, you should have a large, aspirational vision to begin with. If you have a large vision and if you aspire for your company to have a large impact on that industry, and if you communicate that with passion, the right people may consider being on the advisory board.
If you come across as THE team which can do it well, many of the people you approach for an advisory board position would not want to take the risk of turning you down as they may regret it later in case you become super successful. Because, if you do become super successful, they would like to have the bragging rights to say that they were an advisor to your company.
How should I get someone to join as an advisory board member?
Before creating an advisory board, the founders should make a list of the skill-sets that would be required for building a company around your concept/idea. E.g. in an D2C venture, areas like supply-chain, procurement, logistics, customer support, omni0channel marketing, customer acquisition, digital communication, etc. would be critical, of course in addition to technology and of-course the expertise about the domain in which you are planning your venture.
Once you have identified the skill sets required, you should identify the competencies that the current team has, or could get from among those individuals you can regularly tap into e.g. a senior friend or a relative who has agreed to help you. That leaves you with the competencies that you would need to seek external advice and assistance on.
You should then identify the folks who you think could be ideal as advisory board members for your startup.
Here are some things that you might consider for your advisory board:
Engage the folks for ‘what they can do for you’ and not for ‘who they are’. I.e. even if your uncle is the chairman of a large corporation, it makes no sense to have him on the advisory board if he is not from a relevant domain. In other words, you do not need a ‘show & tell’ board but an advisory board who can assist you with specific things that will add value to your company.
When you approach someone to join your advisory board, plan well in advance what you are going to pitch to him.
Understand what their motivations and drivers are going to be and then see if there is something that you can excite them with. In many cases, the excitement of assisting a startup is interesting enough for people to sign up… of course, if the startup comes across as ‘high-potential’.
Set the expectations right and get their commitments up front. Be clear in communicating what you plan to do and what you expect them to contribute with. Be transparent about the challenges and be honest about the roadblocks.
Define the interaction frequency and process of interaction. Clarify what the preferred mode, time and day of interaction would be. Some people may prefer on-mail interactions with occasional in-person meetings, while some may prefer face-to-face meetings. Some may prefer meeting on weekdays, while some on weekends.
Offer some equity. , While many may not seek and some may not even accept, it is appropriate to offer nominal equity to your advisory board members. A startup is not likely to have the resources to remunerate them monetarily.
Formalize the relationship. Document the engagement. Set a formal advisory board meeting date, even if on a conference call. Set a clear annual calendar of engagement and interactions. Provide monthly reports with at least a quarterly conference call with all advisory board members together, even if you meet / interact with them individually separately.
How much equity should I offer an advisory board member?
Well, there is no standard on this one. But often the number ranges between 0.25% to 3%, usually depending on the level of involvement, the value that the person brings to the startup, etc. It can even be higher in case the person is more actively involved. (Avoid giving equity for ‘access’ i.e. do not give away equity for someone who promises to introduce you to customers or investors. Give equity only for someone who is willing to give advice and assistance).
The important point is NOT to make it transactional and to keep it as an honorarium. This ensures that the engagement is for the right reasons i.e. because the person, like you, is excited about what you are doing. And because the aspiration should be to build a large company, if you are super-successful, even a 0.25% equity will offer substantial upside to an advisor or board member.
Some things to consider when distributing equity to advisory board members:
Provide a vesting clause i.e. the equity should vest — i.e. be due — after a period of 6 months. This allows both — the startup as well as the advisor — to test the relationship and see if they are both enjoying the interactions and are seeing value in continuing the relationship.
Treat all advisory board members as equals; even if someone is more senior or accomplished than others. As your advisory board member, they are equals.
What can advisory board /board members do for you?
Apart from guiding you on areas in which they have a competence and experience in, advisory board members can assist a startup in the following ways:
Make introductions to the relevant folks in your industry.
E.g. vendors, customers, media, and other stake holders.
One way to leverage the connections of your advisory board members is to request them to mention your company on their LinkedIn profile, especially if they are active on social media.
Bring the domain expertise
Advise you on strategy, validate your plans and challenge your assumptions
Help you interview staff.
This can be especially useful when younger founders have to interview senior folks who are older than them.
Speak on your behalf at events — this can be extremely powerful
Monitor your progress — provide early warning signals when things are not going right
Please do share your experiences about creating and leveraging an advisory board.
To download a free PDF of my book on Starting Up and Fundraising, click here.
By Prajakt Raut — Managing Partner Supply Chain Labs — A sector-agnostic fellowship fund investing in startups disrupting supply chain, and Founder applyifi.