Unlike a Board of Directors, an advisory board has no legal authority over a company. Founders, who typically take it upon themselves to appoint members of the advisory board, are free to take the advice of advisors or dismiss it.
But by selecting advisors wisely, outlining their responsibilities early and keeping them well-informed, founders can create a huge asset to their company that offers credibility, contacts and invaluable guidance.
Here are the six steps to building a Board of Advisors:
1. Work Backwards
Instead of thinking about people in your life who could be helpful to your business, begin by thinking about the milestones that your company hopes to reach. Are you aiming to acquire a certain number of customers? Improve product design? Land a crucial partner?
Jot down those milestones and, beside each one, create a list of people in your immediate and extended network whose skills and experience could help you achieve them.
2. Picking Personalities
Diversity is key here. Your advisory board should be between five and ten people and include each of the four different types of advisors:
- The Expert: Your company lacks skills in a certain area, but doesn’t necessarily need a full-time employee with such skills. The Expert has deep knowledge of the area in which you’re deficient and effectively fills the void, at the least for the time being. For example, if you’re launching a company in a highly regulated industry, you may want to recruit an advisor who has experience navigating that particular regulatory environment before you hire a full-time compliance officer.
- The Connecter: As the name suggests, this individual is highly connected to the people you need on your side—the high-profile journalists, investors and influencers who rarely return calls and emails from people they don’t know.
- The Outsider: This advisor comes from a different industry. He or she may not even be a business person in the traditional sense. Maybe they’re an artist or an academic. What’s most important is that this person is not afraid to question norms within your industry and continually ask insiders like you “Why not?”
- The Motivator: This advisor is a friend, mentor or family member who inspires confidence and keeps you and your top brass grounded, because running a business has no shortage of euphoric highs and excruciating lows.
3. Landing Advisors
Ask your friends, colleagues, mentors, vendors and investors if they know people who meet the profile you’re after.
Before seeking an introduction or pitching target advisors in your immediate network, research their interests. Know what causes they care about, what boards they already belong to and what their hobbies are.
Solicit candidates with a two-page prospectus describing your business and explaining why you want them on the board. Simultaneously work with your lawyer to draft a written agreement that includes a nondisclosure agreementand a charter outlining your board’s meeting frequency, expected time commitment, term of office and the terms of payment.
After you land an advisor and the agreement is signed, draft a release announcing the addition; promote it on Twitter and Facebook and add his or her name, picture and bio to your website along with your other advisors.
4. Pay Up
Don’t expect advisors to serve on your board for free. Some form of compensation—even modest—will sharpen an advisor’s sense of commitment. (Compensation for your advisors should be less than what your Board of Directors receives because advisors don’t have any fiduciary responsibility and therefore cannot be held liable.)
Steve Blank, a Silicon Valley-based entrepreneur who’s now a professor at Stanford, suggests you compensate advisors by giving them stock and asking them to match the grant with an equal investment in the company so they have some so-called “skin in the game.”
If you’re granting stock, experts suggest that it vests in equal increments over a 24-month period—that is, advisors earn the equity over time.
Other experts suggest that you pay each advisor a per-meeting fee that might range from a few hundred to a few thousand dollars. At the very least, you should cover any expenses they incur to attend meetings and provide meals when you get together.
5. Design Meaningful Meetings
Your board should meet two to four times a year. The meetings should last no longer than three hours each, and they should take place in a location where the broader company is not distracted, such as a hotel, a private room at a restaurant or a meeting room at another company’s offices.
Avoid over-analyzing the previous quarter during these meetings. Rather, they should be forward-looking. That means setting an agenda beforehand with three or four core matters that target future milestones. Send the agenda to advisors at least a week in advance of the meeting along with an invitation for advisors to suggest additional topics that are up for discussion.
6. Integrate and Communicate
Communication with advisors should certainly not be limited to advisory board meetings. Set up an email list with informal updates and invite casual discourse between the group.
Have advisors stop by the office or company events and allow them to establish relationships with employees at the firm.
The more you integrate advisors into the communication flow of your company, the more likely your advisors will be up to speed when they collaborate at board meetings or when they meet someone outside the company who can change the trajectory of your business.
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