How do we create and manage our advisory board?
Discussions on How To Structure An Advisory Board For A Private Company
Very few privately-held companies have independent board members or formal advisory boards, yet these companies often have challenges and needs that are virtually identical to their publicly traded counterparts. By not having an advisory board one must question, are the private companies losing a competitive advantage? This article discusses how an emerging growth venture can structure and manage their first advisory board.
Experienced boards can also help lead entrepreneurs through uncertain times. Michael Dell discovered this: “If a company is having problems, the role of its board becomes greater. Many board members may have seen recessions and downturns more closely than the people who are operating companies today. Because most managers have probably not been through something like this, the board can provide perspective.” And marquee board members can lead the venture to funding. Eugen Chan, CEO of U.S. Genomics, recruited Dr. Craig Venter, president of the first company to map an entire human genome, and by the end of 2002 U.S. Genomics received $25 million in funding.
Building A Board of Advisors
As we mentioned in a previous Article, we highly recommend the use of creating a formal external advisory board. Such a board of experts can begin working with you on an informal basis very early on. They can immediately help fill in the gaps in your venture team and even help you recruit new executives and employees. Your advisory board can immediately provide you execution intelligence, domain expertise, and connections without the legal entanglements and formalities of a regular board.
You have greater freedom with an independent board of advisors. You gain control of advice and counsel from outsiders without being legally bound by their decisions. People can serve an independent advisory role for a closely held company either as members of the corporate board of directors, or as members of a separate advisory board.
Under the law, directors would have a substantial role in, and responsibility for, corporate governance. Advisory board members generally have a more limited role, with no power or authority, or are retained to provide specific expertise. The lines blur, however, and the specific needs and goals of the particular company will control the structure. If you use an advisory board, it should have a clearly defined, and limited, charter. Sometimes formal agreements defining the role of the independent advisors will be desirable.
Advantages with an Advisory Board
Independent advisors, if carefully selected and used properly, can help your company in many ways.
– 1. Bring a fresh, unbiased perspective on issues. Closely held companies run the risk of becoming too inbred and narrow in their management visions. The “way it has always been done” may be deadly in today’s fast moving, highly competitive business environment. Many entrepreneurs tend to surround themselves with too supportive “Yes” people. They also tend to get too close to their strengths and weaknesses. In the end, it is difficult to for entrepreneurs to become objective. As General Patton once said, “No one is thinking if everyone is thinking alike.” Entrepreneurs can often start a fatal flaw of “breathing their own exhaust,” and they and the business run the risks of suffocating from the lack of new insight and ideas.
– 2. Provide regular advice in areas where the company may not have expertise.
– 3. Provide new contacts and referrals for your business around the world.
– 4. Add credibility with your venture capital sources, customers, suppliers, and regulatory agencies.
– 5. Mentor your management team.
– 6. Serve as intermediaries between you and your management team.
– 7. Serve as a resource about new innovative management and business techniques.
– 8. Help assess your management team.
– 9. Help you prepare for an IPO.
– 10. Help bring you new customers and clients. Sales!!!
The first step is for you to identify your needs:
– What major strategic issues are we facing right now?
– Where are we weak within our organizational capabilities?
– What new skill sets will we need in the future?
– What experience, educational background and business skills should the candidate have?
– How mature or seasoned should the advisors be?
Once these questions are answered, you can begin to define the attributes of qualified candidates, and begin its search. It is usually a good idea to consider bringing on several people at the same time, to facilitate the education process.
Finding Candidates with the Right Characteristics
Finding good people is mainly a process of networking with your existing advisors, acquaintances and peer executives. Do not make too many offers, and be clear with potential candidates about your overall process. You do not want to create ill will toward your company or the person who referred the candidate to you if you decide not to select the person. Bring your key managers, shareholders, and family members into the selection process. Consider forming a “search” committee to define your needs and goals.
Be Coachable: Listen And Learn
Treat your independent advisors seriously. Listen, and learn from them. It is OK if you do not always follow their advice, but you must listen to your advisors. The quality of people you want to have involved in this process will not be around long if they think you are not listening, and they certainly will not want to be figureheads or “window dressing” on your Web site. This process, while not simple, can be very rewarding. By following our advice here, independent advisors can add real value to your company. The risks are small, and the upside, both professionally and personally, can be great.