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Advisory Boards:
Getting the Most Bang for your Buck.

We get questions about Advisory Boards just about every week, so I thought I'd share some best practices and lessons learned as an entrepreneur for the last 26 years.

The most common questions that people ask are:

How many Advisory Board Members should we have?  

What kind of compensation should we give them?  

How do we get the most value out of Advisory Board Members?  

How many Advisory Board Members should we have?  
I could tell you the average number, but I hope that you are aiming for above average value from your Advisory Board.  You will get a lot more "bang for the buck" if you clearly identify what your needs are and then determine who and how many people you need in order to get where you want to go.  I have seen anywhere from 3 to 30 people participate as Advisory Board Members, but they were clearly grouped into at least 2 categories based on different levels of availability and commitment of time and energy.  

The "official" Advisory Board typically has 3-5 members who the CEO will call when evaluating big decisions where the answer is not clear.  Trust me, as an entrepreneur, there will be many times when you will be grateful to have experienced mentors who are available when you need a sounding board and a little bit of "forest for the trees" perspective.  There should be a mutual expectation that this "inner circle" of Advisory Board Members will be reasonably available for a couple of phone calls per month to discuss big picture thinking around hiring, strategic partners, funding rounds and positioning the company for success.  

The "light touch" Advisory Board can have as many as 25-30 informal advisors, but the expected level of commitment and availability is much lower in this group.  The CEO should feel confident that if he or she sends an email request for an introduction, a question or to request a phone call that they will get a response within 24-48 hours.  However, keep in mind that if you are not specific about what you want them to do, you may not get a response very quickly and they may need to take extra time to clarify what you are really asking them for. Most of them are more than happy to help you, but it is important to recognize the value of their time and to make your request as concise and specific as possible. 

Categories of Expertise:

Technical/Scientific Advisory Board:
Most entrepreneurs get excellent value from having 3-5 members of a Technical or Scientific Advisory Board.  Focus on experts in the field who can provide you with cutting edge insights on the state of the art advances in science and technology.  These people will help you uncover any blind spots and keep your product roadmap updated as new discoveries are developed so that you can stay ahead of the competition.  


Senior Executive Leaders
If you are like most entrepreneurs, your goals are going to take you places that you've never been before.  Having one or more people that you can call for candid advice who have "been there, done that" can dramatically increase your chances of success. In an ecosystem where you have a statistical probability of failure above 85%, you need every advantage you can get.  

Sales & Marketing Operators
This is a big one that most entrepreneurs completely miss out on.  The biggest risk in your business is your ability to actually deliver that hockey stick revenue forecast that you’ve been pitching to investors for months. You can have the best product in the world, but if you don’t have someone on your team that has taken a similar product or service from zero to the first $5 million in revenues as the sales leader of the organization, that’s a gigantic hole in your team’s skillset. 

Think about it:  You’re asking an investor to write you a check that will probably give you 12-18 months of runway.  And everyone at the table knows that you’re going to miss your revenue forecast when you get there, but the question that keeps the investors awake at night is “by how much”?  If you miss your revenue forecast by 5 or 10 percent, you might need a small bridge financing before you close the next round.  But if you miss by 30 percent or more, everyone knows that you’re going to ask the investor for more money and more time to get your sales numbers up to where you promised they would be. 

You might be the smartest person on the planet, and you might be able to “figure it out” on your own, but if you’re asking me to write you a check for $1 million and another startup asks me for the same amount, but the difference is that they have someone on their team – or on their Advisory Board – that has already spent someone else’s time and money to figure out how to consistently get customers to pay real money for your product, it’s an easy risk/reward decision. 

The Advisory Board is the smartest and least expensive way to fill any gaps in experience on your Executive Team.  And we all know that most investors bet on the jockey and not the horse.  So I strongly encourage you to build an Advisory Board with expertise and “scar tissue” from lessons learned because it gives you and your team a big boost in credibility.  In my humble opinion, having someone on your Advisory Board that has already sold at least $5 million of product to the same type of customer that you are targeting goes a long way towards validating your confidence when you talk about how you’re going to crush the competition. 

I always like to say “if you want to go to the Super Bowl, you’ve got to surround yourself with people who have already been to the Super Bowl before”.  There simply is no substitute for experience when it comes to expensive lessons learned – especially when it comes to “getting the dogs to eat the dog food”. 

Compensation:
​​​​​​​Very few startups provide any cash compensation to Advisory Board members, but most of them receive some amount of equity participation.  This can come in the form of stock grants, stock options, or warrants. 

Like any other member of your team, compensation will vary based on the expertise that the advisor brings to the table, the level of commitment you expect from them and the potential value of what they can deliver early in your company’s development.  How much is it worth to have someone at the table that has already sold 2 or 3 companies in your industry for several hundred million dollars?  Five minutes of advice from that person could save you hundreds of thousands, if not millions of dollars simply because they have already learned from having tried something similar. 

The simple truth is that you cannot put a dollar figure on the value of experienced advice from someone who has been walking the same road that you are traveling on for many years before.  The key is to choose your advisors very carefully, get them to share your passion for the problem you are solving and the customers that you are solving it for, and then give them a reasonable amount of participation in the upside value that they help you to create. 

I know, I know – you just want a number.  In the early stages, depending on how many advisors you have, anything in the range of 0.1% to 1.0% is fairly typical and in line with what your peers are doing.  They should be stock options and if you expect them to stay engaged for 2-3 years, consider putting a vesting schedule on those options similar to what you do with full time employees.  The difference is, you will need to mutually agree on the expected amount of time and energy that the Advisor will provide in light of other companies that they may advise, own, or consult with. 

Getting the Most “Bang for the Buck” 
​​​​​​​Lots of startups have Advisory Boards, but quite honestly, very few do a good job of getting maximum value out of them.  Many entrepreneurs (myself included) are moving at high velocity and have the ability to absorb large amounts of informational input, quickly spot a pathway to success and leverage a bias towards action to stay ahead of the competition.  These are all good qualities in an entrepreneur.  But they aren’t the only valuable qualities.  When you’re moving that fast, it is easy to miss important pieces of information that could make or break your business. 

On the other end of the spectrum are entrepreneurs that analyze every decision down to the N’th degree, evaluating every detail and possible risk, and by the time they execute their well-researched and carefully documented plans, their competitors have already passed them by.

The greatest value is in the perspective.  Good Advisory Boards enable you to move quickly AND include more analysis and deep thinking to guide your decisions.  Which is why you want to have an Advisory Board with a diversity viewpoints and opinions.  If you don’t have any skeptical thinkers on your Advisory Board, I encourage you to find a few.  Invite them to poke holes in your business plan.  And then accept the challenge to find ways to fill those holes before a competitor does. 

Here are 5 specific recommendadtions for getting the most value out of your Advisory Board:

1 - Be intentional and selective

Before you start “shopping” for Advisory Board members, sketch out several categories of expertise and viewpoints that you want sitting around your table.  Make a list of companies that have been successful in your industry in the past – companies that you respect.  And then get an intern to research the names of key Executives that were on the team that created that success.  Aim high – go after people that you don’t think would be interested in your company.  Review their LinkedIn profiles and find common connections.  Get a warm introduction and ask them for feedback on your product and your company.  You’ll be surprised how many successful entrepreneurs are willing to give you feedback and advice.  And please, don’t make the mistake of agreeing to bring someone onto your Advisory Board because they asked.  The Advisory Board members that are the most valuable to you are the ones that you will have to pursue. 

2 - Be specific with your “ask”

This is true with your Advisory Board, your voting Board of Directors, and your entire employee team.  As CEO, one of your most important jobs is to rally people around a common vision, be specific and clear about the company’s goals, and be specific when you ask people for help. 

If you approach successful people with a few bullet points that clearly identify your target investors, target customers, strategic partners and team members that you want to recruit – it will be relatively easy for them to help you out.  However, if you are still trying to figure out where to find 10,000 new customers and you ask them to help you “get more customer traction”, you probably need more time and guidance than just an Advisory Board position.  You may need some “roll up your sleeves” help from a consultant or a coach so that you can bring a draft plan of action to Advisory Board members for them to provide feedback and advice.

3 - Include people who will challenge you

If everyone on your Advisory Board sits around and marvels at how brilliant you and your team are, and no one really “pressure tests” your assumptions, you may not have the right people around the table.  Everyone knows that if you want to be a great tennis player, you have to play against people who are better than you – people that give you a challenge that motivates you to be at the top of your game, consistently developing and sharpening your skills. 

4 - Keep them updated

Communication is one of the most common areas where just about everyone can do a better job, and it’s one of the easiest, least expensive things to fix.  I want to encourage you to get in the habit of sending email updates to your Advisory Board and the “friends of your company” on a regular basis.  Once a month is a healthy cadence and I encourage you to get in the habit of publishing a concise, yet informative email to everyone in your “tribe” who is rooting for your success. 

The key here is to show consistent progress – whether it is big or small, it is important to create and maintain MOMENTUM, and to communicate it to your stakeholders.  Celebrate the big wins, the little wins, announce new team members, share customer successes (although you may want to keep specific names anonymous), and always ask for something specific.  One example is “we are recruiting for a new Sales Manager for the East Coast to open up that market”. You can also include event announcements “we will be featured as one of 5 presenting companies at the XYZ Incubator Pitchfest on Friday, Sep 14, please come and support us and bring any investors that you know”. 

Everyone wants to be part of something that is moving and growing.  Become one of the emails that people look forward to receiving every month – because it is exciting to be a part of something that is breaking new ground.  It motivates you and your team, it attracts other people who will want to help you, and it is one of the best ways to “shockproof” your company.  There will be days and weeks when your entrepreneurial journey will be very difficult.  You will be completely out of energy, you will feel a sense of defeat, but most of you will get up the next morning, dust yourself off and remember your “WHY”.  The reason that you started your company – that, along with a team that rallies around you when things are going well, and they support you when things get challenging – that is the recipe that successful entrepreneurs follow.  And that is what often separates the 15% of startups that succeed from the 85% that don’t. 

Make Progress. 
​​​​​​​Communicate Your Progress. 
​​​​​​​Rinse and Repeat. 

5 - Leverage their network
​​​​​​​This is the one that most people talk about, but not everyone effectively executes.  If you pick the right Advisory Board Members, they probably have relationships with people for 10+ years that you have no visibility of.  They probably have attended many industry conferences, participated in panel discussions about your industry, interviewed for jobs, created strategic partnerships, and built friendships with customers during their career. 

I get a lot of entrepreneurs that come to me and say that they were disappointed with a certain investor and advisor because “they didn’t really make that many introductions for me”.  And my response is always the same – did you give them a specific list of names of people that you wanted introductions to?  Did you tell them that you would give your right arm to get a 15 minute meeting with the CTO of Twitter?  Most of the time the answer is no.  And more often than not, if you explain WHY you want an introduction to that person, your advisory board members will actually work harder than you think to find a way to get that door open.  Why?  Because they like you, they believe in what you’re building, and you gave them stock options, so they have some skin in the game. 

And, the fact that they put their name on your deal – they are risking professional credibility and relational capital, betting that you and your company are going to be successful.  They have a vested interest in your success, not just because you gave them a small amount of stock options, but because they get a certain sense of pride of accomplishment for having helped guide you and support you along the way.  The simple truth is, most of them WANT to introduce you to people, but if you aren’t specific enough with WHO you are trying to connect with, then the lack of an introduction is actually not their fault. 

About the Author:
Jeff (J.D.) Davids is the Managing Partner of SmartMoney Startups and he is one of the most accomplished startup dealmakers in the world.  He has completed well over $1 Billion in financial transactions over the last 25 years.  This includes raising money from Venture Capital firms, Angel investors, and Strategic Corporate Investors as well as completing IPOs and mergers and acquisitions – both from the buy side and the sell side of the deal.  

J.D. has served on the management teams of 8 VC backed startups and 3 of those companies completed successful IPOs and 3 of them were acquired by large corporations.  In a market where the success rate for startup companies is less than 15%, J.D.’s success rate of 75% places him squarely into an elite class of startup dealmakers that understand how to get deals done. 

Now, J.D. has dedicated his life to helping thousands of entrepreneurs raise money, build great companies, and close exit events that generate huge financial returns for entrepreneurs and their investors.  Companies that work closely with J.D. are able to transform from merely "good entrepreneurs" into Accomplished Dealmakers.  The difference is 85% of "good entrepreneurs" simply have never been taught how to navigate the waters of fundraising and exit.  J.D. helps good entrepreneurs become part of the "Elite 15%" who break out of the pack and deliver a financial return to their investors' cash investments and to their teams for their hard work and sweat equity.  

J.D.'s foundational methodology is to seek "SmartMoney Investors" - people who bring alot more than just cash to the table.  


 https://www.linkedin.com/in/jddavids/

TERMS  & PRIVACY POLICY | © 2017 SMARTMONEY START UPS
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