July 2, 2021 | 5-minute read (962 words)
No startup entrepreneur achieves success on their own. Even after developing the seed of an idea into a full-fledged, profitable business, entrepreneurs should rely on outside skills to keep their organization thriving. It's time to create an advisory board.
What is an advisory board?
At their most basic level, advisory boards comprise influential leaders, experienced business leaders and subject area experts. An advisory board's job is to counsel a business's executive team on the company’s vision, innovation, risk management and profitability. Although they advise management, they cannot vote on corporate affairs.
For example, a lawyer adviser might provide certain legal advice, a public relations specialist may add branding or marketing advice, a former entrepreneur may advise on growing a company and selling to an acquirer, an industry specialist (e.g., consumer, fintech, etc.) could contribute toward depth of knowledge and partnership development, and an investor could offer fundraising advice —could all be added to an entrepreneur's team.
What are the advantages of an advisory board? What is their primary goal?
For a startup, an advisory board is made up of people chosen by the entrepreneur to offer advice and assist the company to grow. They are distinct from a board of directors and must not be confused as such. Entrepreneurs might choose advisers depending on the talents they require or the gaps they need to fill in their business.
If your firm already has a formal board of directors made up of outsiders and family members, you may already be reaping the benefits of an ad-hoc advisory board. And yours would be an exception among privately held businesses. Nonpublic enterprises, mainly family-owned businesses, frequently rely on the family or management team to "lead themselves." As a result, entrepreneurs are often unable to have a broad picture of their true situation because they are preoccupied with intricacies, leading to management styles prone to errors.
An advisory board may provide a firm and its management team with invaluable insight, information and guidance without learning the hard way, scheduling outside training or risk-making expensive blunders that could have been evaded if the team had more appropriate experience.
Advisory boards assist management in scouting the industry, predicting future trends, pursuing new strategic positions and acting as a catalyst in the company's attempts to develop recurring, high-quality consumers.
American Express, Molson Coors Brewing, and Toyota are among the big corporations today that have formed committees with influential customers and respected specialists to propose beneficial connections and potential collaborations and, in certain circumstances, to assist with benchmarking. As you can expect, their boards of directors are highly active.
Unlike a board of directors, your advisory board has no power over your company's CEO or management. Advisory boards aren't required in your organizational papers, and you don't have to follow their recommendations. Consequently, there is no danger in disregarding their advice, other than potential harm to the relationship.
How to form an effective advisory board
Use these steps to get the process rolling once you've completed the ROI analysis and decided to go ahead.
Step 1: Determine what you require
The first stage in the plan should be to figure out what the firm wants from an advisory board. The more precise, the better—a strategic outcome that can be measured is preferable. Determine how these objectives relate to the mission, vision, strategy and milestones. You'll also need to consider if the time and money spent forming an advisory board will result in a significant positive return on investment.
Step 2: Make a list of job titles
Following that, the firm must create written profiles of suitable applicants. It's critical that each profile be distinct and meets a high standard of credentials. A well-functioning advisory board will include a wide range of perspectives from which the advisers may learn. After the profiles have been developed, a job description for the advisory board may help attract individuals and educate them of their responsibilities and expectations. This phase is critical because it provides the basis for identifying who is needed rather than assuming you already know a competent candidate and creating a profile to meet their experience.
Step 3: Identify and recruit potential candidates
After you've completed the paperwork, you'll need to find people to fill the positions. As previously said, potential board members should have no prior contact with the firm or its management team — these individuals are already serving as informal advisers. As a result, don't be afraid to reach out to applicants who haven't heard of the firm before.
To contact applicants and start a conversation, use your candidate profile and job description. A decision should be made only after interacting with several applicants. Firstly, it permits the firm to absorb certain information throughout the hiring process, and secondly, it assures a good personality match. Make a point of thanking the other applicants who were not chosen and informing them that you would like to keep in touch. These developing friendships may turn out to be beneficial in the future.
Step 4: Seal the deal
Have applicants sign a job description or a memorandum of agreement before they accept. Although advisory boards might be casual, formal papers should set the tone and indicate the board's seriousness. The can be a one-page document that outlines time and participation requirements.
Step 5: Set KPIs (key performance indicators)
Finally, it's important to define goals and KPIs. It's critical to set goals, track progress against KPIs, and replace team members who are no longer a good match. Formalize your KPIs and adequately explain them. Working toward milestones, measuring achievements against KPIs, and swapping out individuals who are no longer a good match is crucial. Don't be afraid to do evaluations as good advisers want to be held responsible and have goals.