Most entrepreneurs understand that early stage ventures live and die by the talent they are able to attract. In reality investors are investing in little more than the management team. And while the talent and energy and commitment of the management team are certainly some of the most important aspects of a startup, the advisors (or the more formal advisory board if defined) can play nearly as big of a role in the company’s success. Here’s how your advisors can make or break your startup.
- Advice – advisors can help you see the forest for the trees, and they often can identify patterns that relate to a similar situation they’ve seen handled well or poorly
- Network – advisors can open doors, whether with investors, employees, partners, or customers
- Credibility – a seasoned industry executive or pioneer can lend credibility to early stage companies at a time when this is at a premium
- Moral Support – many advisors have been through the trials a founder faces regularly and are in advisory roles because they are inherently good at empathizing
- Rounding out Skills – even the most skilled management team is unlikely to have expertise in the myriad specialties required for success (accounting, finance, legal, marketing, design, operations, technology, international business, etc). A well placed advisor can help to augment these skills until the critical mass exists to acquire this talent
- Independent Opinion – good management teams often have deep backgrounds with one another and can sometimes fall victim to groupthink. A great advisor will stand up and ask the hard questions that others may not be able to
Now that you know how important your advisors are to your startup’s success, the next important step is to build a great advisory board. Here are 11 key considerations in building your board, in no particular order.
- Pick at least one or two advisors that compliment the strengths of the management team. If your management’s strength is in tech but lack experience in finance, reach out to the former CFO you met at a recent Meetup.
- Pick at least one industry veteran. You may be disrupting the very industry they’re experts in, but they can help you avoid the pitfalls they encountered, such as regulatory hurdles or union considerations.
- Have at least one advisor that HAS invested in the company. Investors have a unique interest in the company that can drive engagement at important times.
- Have at least one advisor that HAS NOT invested in the company. As important as investors are, at times you need a perspective that isn’t colored by money that has been invested in your venture. This is especially important when raising follow-on rounds from your existing investors.
- Choose at least one advisor that provides skills that are more geared towards administrative issues (accounting, legal, etc). Entrepreneurs are sometimes very good at these items, but more often they are visionaries focused maniacally on product, or customers, or sales. Spend less time on administrative concerns by including someone who can help you sort these out when they become important.
- Set clear expectations with your advisors and sign formal agreements with a limited term. They can only help you if they know what you expect of them.
- Don’t feel constrained by a certain size for the advisory board. If you can bring on a talented advisor that rounds out your team, who cares if they’re number 12 or 13 on the board?
- Compensate your board according to what they bring to the table. Some advisors bring tremendous value, and you should give them more than others. Equity in most cases is entirely appropriate, although for some cases cash payments may be called for.
- Avoid “professional advisors.” You’ve seen them, they have LinkedIn listings of 10 companies they’re advising. You want people who find your venture interesting rather than a title to add to their collection
- Don’t put people on the advisory board if you don’t see how they can add value. The only reason they should be there is if it makes the company better period.
- Avoid people who can only tell you why something will fail. At least in the early stages. As you work to change the world through your startup, there will be plenty of people doubting your ability to do it. There will be a time to hear their opinion, but you don’t need it when you’re working 80-hour weeks. You need encouragement and guidance that focuses on your success. Many smart people look for opportunities to poke holes in things rather than seeking out opportunity and tackling it head on. There are plenty of reasons why you may fail, but if you focus on them you are MUCH less likely to succeed.
Taking the time to thoughtfully plan your advisory team isn’t something to be overlooked or done as an afterthought. Your startup’s advisory board can be the differentiator between success and failure of the company.