A few years ago, I was part of the founding team of a startup company. We had raised some capital from a small group of investors to whom we had promised a board seat. The first few months went fine. We were given some good advice and some helpful intros were made for us. Then things turned and it became obvious that we had the wrong guy. Although he would agree with us in board meetings as we stared our strategic direction, he was second-guessing us to his fellow investors. We found it useful to have constructive criticism and an environment of transparency; however this person was undermining our strategy, getting in the way of our progress, and distracting us from our work running the company. We asked the other board members to choose another person. We were lucky and they did so. We felt that confronting the problem quickly was important to our success.
One of the (many) difficult things for a small business is to develop and use an effective board of advisors or board of directors. But it can make a huge impact in a lot of ways. If you lead a small business, I’d certainly encourage you to explore putting together a group of informal advisors or even a more formal board of directors. But as with any business decision, it can come with some drawbacks. So how do you get the benefits of an advisory group while limiting the difficulties that can arise? After this personal experience and having worked with a number of other organizations (both for-profit and non-profit) over the years I have a few tips.
So, how do you arrange for a board that is the right balance between supporting your efforts and challenging you to get better?
1. Be clear about the board's role
Having a group of advisors who always agree with you and simply rubber-stamp all your ideas is really not helpful. In my opinion, advisors should challenge you to get better.
A couple of roles they can play include:
- Challengers. Challenging your broad assumptions about the market, customer-relationships, finances, strategy, etc. They should remain strategic and get involved in only a very few operational, day-to-day matters.
- Community supporters. Support you in the community – in the community of other investors, in the community of other business people. They can broaden your set of relationships my making strategic introductions to other prospective investors, prospective customers, and service providers like accountants and attorneys, and help you garner media attention. They are lending you their name and providing you some cred. That is valuable.
One thing you’ll need to decide is the level of formality you want your set of advisors to play. There are advantages and disadvantages to each. A more formal board of directors will have a more formal role, more specific responsibility for oversight (sometimes even a fiduciary responsibility), and usually some form of compensation (cash, equity, etc.) to acknowledge their contribution.
2. Define the skills you need
Before you start trying to identify prospective advisory board members, consider what types of help you need. If you are a younger, less-experienced leadership team, then access to more experienced management and financial expertise might be helpful. If you are a more experienced team, your needs might lean more toward introductions and a “sounding board” for key strategic ideas. If your product/service is immature, it might be technical or go-to-market advice and assistance you need. Develop a set of characteristics or roles you’d like.
3. Outline the types of personalities you need
Trust me. Personality is important. Advisory members should be thought of like any key team member. There most likely will be a lot of interaction between your team and your advisors. And they will have access to some level of confidential information. These relationships must be based in trust - from which transparency flows. Developing these role definitions will be helpful.
While this seems like a smaller, more secondary issue, let me tell you it isn’t. Typically you will be interacting with this person A LOT. You have to truly assess whether it’s someone you can work with in a constructive, trustworthy way. Are they a good “fit” culturally for your company?
4. Think of it as an interview process
Share your needs with others you know in the community. Have others keep their eyes open for prospective board members. Plan how you will target and bring on board new advisory board members. It’s as if you are bringing on a very important employee. (You sort of are.) Develop a set of key questions that you will ask. Often this is looked at as a one-sided deal. We sometimes look at this issue as an advisor “doing us a favor”. And if the person is a VIP in some way maybe they are. But often it’s really more of a two-way street. Your company gets something valuable, but they need to be the right person to play that role.
As with anyone you might be bringing onto your team, do your due-diligence. Make sure they in fact can provide the things you need from them. Talk to others for whom this individual played a board/advisory role. Keep in mind that (like a prospective employee) you won’t have all the inside information. So if your reports are less-than-stellar, dig deeper to understand why – and how that might impact your relationship with them.
5. Review performance
One of the companies I helped lead had an advisor (not a formal board member, but more of an advisor). We expected them to help us meet certain people in the early-stage finance community (and even clearly defined that as our primary need from them). They did not live up to our expectations. Although we were clear about our expectations, in hindsight I wish we had been more aggressive in making sure they were delivering on those expectations. In the end this person did not deliver on our behalf. And we should have noted it and probably severed our relationship. They weren’t hurting us, but they weren’t helping either. But they still had insight into our strategy and input into our direction. They had access to confidential information. A small company can ill afford to have someone involved to that level that simply doesn’t provide what was promised. In my experience, they tend to be more of a distraction and you waste lots of time trying to get them to deliver on their promises.
6. Deal with difficulties directly and swiftly
Nothing’s perfect. Sometimes relationships just don’t work out as anticipated. And when any sort of significant challenge pops up, don’t ignore it. These are important strategic relationships and it’s worth investing the time and energy to find the right “fit”. And if you either made the wrong decision or the relationship just doesn’t work as anticipated, be sure not to tick your head in the sand. Tackle the issue openly and head-on. Do not let it drag you down. You will find it distracting, stressful, and difficult. The faster you deal with it, the better.
So there, my friends, is my two-cents about working with boards of advisors. They can truly be a great boon to your business; but they can also not live up to your expectations. And sometimes the problem starts by not proactively defining what your company’s needs are and what type of person would and wouldn’t be a good fit. The better defined the advisor (or board member) role is and the process for assessing whether the relationship is working, the more likely you are to have success. The upsides can definitely outweigh the downside if handled properly. Commit yourself to carefully putting the pieces in place and you will develop a set of fruitful relationships that will serve your company well for many years.