Starting a new business is a multi-step process, and there are many things that have to be considered. Not only do you need to register your business, obtain licenses and insurance, file tax forms and deal with your local and state governments, you also need to appoint officers, form a board of directors and possibly seek out business advisors.
Business advisors differ from a board of directors because they are less formal and can be easily changed depending on your needs. Additionally, advisors are not required to hold meetings, and are only expected to devote a few hours each year (i.e. anywhere from 20 to 40 hours) advising you on your business.
How to Select Your Advisors
The best way to determine who to solicit is to consider what expertise you need. Ask people you trust for their advice on the areas of business where you may be lacking. It’s easy to identify your biggest weaknesses, but an outsider might be able to identify another area you haven’t thought of.
Advisors are also useful in networking and making introductions to otherwise inaccessible business leaders or entrepreneurs. You want advisors who have credibility in the industry or in their respective field of expertise. It is most important, however, for you to find and select advisors who can provide you with the expertise you’re lacking. They should complement your strengths and/or remedy your weaknesses.
When interviewing potential advisors, asking a few simple questions is the best way to determine if they are a good fit. Some common question topics include:
- Ask about previous advising experience. If your potential advisor has advised other companies in your industry, you don’t want to start any conflicts of interest between your candidate and his or her former employer. Make sure that he or she is comfortable advising you to avoid any complications.
- Ask them about their previous successes and challenges as an advisor. You’re looking to see how much he or she learned from what’s happened in the past. If he or she can only speak in specifics about a given situation, he or she may not be able to apply what was learned to a new scenario.
- Ask the candidate to advise. Provide a few tough scenarios your company might face and see what kind of advice you’re given.
- Ask if he or she has worked in a situation similar to yours. Comparing your organization to another is fine, but what you really want to hear is how he or she views your situation as different and what he or she would do to address those differences.
Formal vs. Informal Advisors
Formal advisors are typically compensated with equity in the advised company, so you want to be careful of how many advisors you reach out to and what you ask of them. It’s possible you already work with a small network of informal advisors, who are people you bounce ideas off of or talk through a problem with and who don’t expect compensation. A lot of these informal meetings might take place over coffee or a drink.
Once you’ve approached someone to be an advisor in a formal capacity, however, you will need to offer them equity and sign an advisor agreement. This is a legal document that outlines the nature of your relationship, including what is expected of the advisor, his or her commitment to the company and how he or she will be compensated.
Make sure you have your advisor agreement reviewed and approved by an attorney. Preferably, this shouldn’t be an attorney you are looking to bring on as an advisor, but an impartial third party.
Types of Advisors to Ask
While the people you ask will really depend on what you need, here are the typical groups people select from when looking for advisors.
Connected Advisors (or Influencers)
The real benefit of connected advisors is their ability to introduce you to others in the industry. But keep in mind that once those introductions are made, their importance to you and your business might fade. First, consider the nature of the introduction, and then decide if you need someone solely to make an introduction for you. If there’s another way you can make that connection yourself, it’s a possibility worth exploring.
True to the name, these advisors fill in the gaps in your knowledge base. These are the experts in technology, accounting, human resources, marketing, sales, etc. These are the folks you will ask about a certain area or topic because you legitimately can’t find the answers on your own. They should have significant experience in their area of expertise.
These types of advisors primarily come from a field or industry different than yours, so it’s their contrasting perspective that is valuable. That perspective might help you identify problems or potential roadblocks that you or your other advisors might have missed.
Starting your own business is a scary proposition. It’s risky, time-consuming and full of pitfalls. Finding an emotional advisor can be the difference between success and failure, because they’re the ones who help you stay on the right track, counter your self-doubt and broaden your horizons by asking intelligent questions. Too often, small business owners assume their partner or spouse will fill this role, but truthfully, you need someone with the knowledge of how business works and a healthy dose of pragmatism to keep you emotionally upright.
Additionally, you should look for advisors who will be helpful in the long-term. If you are not a lawyer, enlisting the ongoing advice of a lawyer or other legal expert is extremely important and should serve you well in a variety of business-related legal situations. Similarly, hiring an accountant or other financial expert will be valuable throughout the year, especially when tax time comes. Hiring a brand expert before assembling your marketing team can help you get your company’s identity off the ground, and help with name recognition before you make your first deal.
Ideally, advisors should fulfill specific needs that directly address where you as a small business owner are the weakest, and offer you advice on ongoing topics that will serve you for years to come. It’s tough to go it alone. But luckily, by offering a little bit of equity up front, you can secure the expertise of people who have been there before.