Second-Stage Entrepreneurs

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Working With an Advisory Board

An Edward Lowe Quick-Read Solution

Advisers with special knowledge and expertise can help you resolve specific problems or develop aspects of your business that can open up new avenues for growth. The key is knowing who to ask for advice, how to work with advisers, and when to take their advice seriously.

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OVERVIEW [top]

An advisory board is different from a formal board of directors. It's less formal and often unpaid but still important in the life cycle of a growing business.

From the outset of any new venture, every entrepreneur relies on the advice of at least one guide. Whether with parents, peers or friends, these mentor relationships are informal, and usually you will grow beyond their advice as your company grows.

As a result, you'll find that you need more specialized guidance. If the growth of your business has reached a plateau that none of your current mentors can help you cross, and if you don't have a board of directors or the board lacks the perspective you need, consider forming an advisory board. Advisers with special knowledge and expertise can help you resolve specific problems or develop aspects of your business that can open up new avenues for growth.

In this Quick-Read you will find:

• Benefits of a board of advisers.
• Qualities to look for when selecting advisers.
• Working with an advisory board.

SOLUTION [top]

Your business could benefit from an advisory board in at least six ways:

1. If you're not ready to incorporate and establish a board of directors, a more informal group of advisers can give you valuable assistance in the meantime.

2. Well-selected advisers provide business experience and perspective on the business environment that company executives lack. For example:
   • Advisers can help you get back on track if your business has experienced setbacks or is in financial trouble.

   • If you're planning to expand your business, an advisory board can help you avoid mistakes that could leave you overextended or struggling to survive.

3. Advisers can be useful mediators of conflicts among company officers.

4. Advisory board meetings provide an opportunity to get to know potential candidates for the board of directors.

5. Unlike directives from a board of directors, advice from advisers can be ignored. Advisers can be laid off or replaced without a consenting vote from stockholders.

6. Unlike directors, advisory board members are paid only meeting expenses and (sometimes) minimal consulting fees. Most advisory board members will assist your company because they believe in your vision and because they want to give back to other entrepreneurs. Even so, some entrepreneurs still pay advisers a token amount or at least will send gifts to the advisers in appreciation for their assistance.

What You Need in Your Adviser

Your advisory board members should offer:

• Knowledge and expertise specific to the problem or issue you want help with.

• A good mix of skills. For instance, you might include people in marketing, finance, human resources or the law.

• Entrepreneurial experience. Have at least one adviser who has started and developed a business and therefore understands firsthand the challenges you face.

• A high level of success. High achievers will have a richer store of successes and failures on which to draw when advising you.

• Willingness to be completely honest with you about problems relating to your business.

• Respect for you and your decisions as the head of your company, as well as for others in your organization.

Recruiting Advisers

As you search for the right advisers, you need to:

• Be selective when recruiting advisers. You want to find someone you trust and respect.

• Find advisers through your contacts. Talk to fellow entrepreneurs, your accountant, your lawyer and your banker. Ask them to recommend someone who meets your criteria.

• Tell potential advisers up front that you are interested in having them serve on your advisory board. Explain why you are particularly interested in their help.

• Set up a time to meet face-to-face. Because you aren't paying them, make sure you cover all expenses associated with the meeting.

• Ask yourself why someone would perform this service for little or no compensation. The answer is vision. Most entrepreneurs are willing to give some of their time to help a worthy cause. If they buy into your vision, they might be willing to help you as you grow your business. Therefore, make sure you have a compelling vision to share.

• Respect the adviser's right to say no. No one is under any obligation to help you. If the person turns you down but seems positive about your business, ask her or him to recommend someone else who might be a good fit for your board.

Working With Your Advisers

After you've picked your board, you need to set some ground rules.

• Don't expect or allow advisers to run your business. Their function is to give you advice, not orders. Find a face-saving way to drop advisers who don't respect your decisions or your right to make them.

• Encourage advisers to share their own experiences. You'll learn a lot from their achievements — and from their mistakes.

• Meet with your advisers at least once a month. You might prefer to meet with them individually rather than as a group. This works well if you want to tap the specific expertise of each adviser rather than have them work as a group on company issues.

• Be specific and clear about the problem you want solved. This is particularly important when you put together an informal advisory board to work on one main problem.

REAL-LIFE EXAMPLE [top]

Example 1

In 1999, Gayle Martz created an advisory board for her New York City-based Sherpa Pet Trading Company, a $4 million-a-year manufacturer of pet carriers and accessories distributed by major airlines and sold at retailers and better pet stores worldwide. Martz founded Sherpa Pet in 1989, one year after designing a soft-sided carrier that enabled Sherpa, her Lhasa Apso, to travel in the passenger cabin instead of cargo.

"I didn't know [a board] was an option or opportunity I could have. Plus, I didn't have the know-how to do it," says Martz, explaining why she waited a decade to form the board. "Several people said that if I did a board, they wanted to be on it. It just started to unfold."

Martz realized she needed people with different professional abilities — someone with financial experience, another with public relations expertise, for example. And she wanted a board that shared her commitment to animals. "When you do what you love and you're out to make a difference, you want the same type of people on your board," she says.

To form the board, Martz turned to Susan Stautberg, owner of Partnercom of New York City, a company that helps companies create advisory boards. "A growing company's influence, visibility and credibility can far exceed its size if it has advisors," explains Stautberg. "A board can give you established talent and strategic thinking, share relative market research, introduce you to useful contacts, evaluate and mentor great hires, and obtain and leverage capital."

Sherpa Pet's 10 board members — who meet two to three times a year, are paid $500 for each meeting they attend, and get Sherpa products for life — have done many of those things. They flagged Sherpa's high shipping costs, which prompted Martz to use the U.S. Postal Service instead of FedEx and UPS when possible. They recommended the company hire a marketing manager, then formed a committee to help recruit and hire one. One board member contacted famed New York columnist and pet owner Cindy Adams, who now owns a Sherpa bag. Currently, the board is working to make connections and alliances for European expansion.

"When you're an entrepreneur, doing as many things as [entrepreneurs] have to do, it's good to have an experienced, business-savvy board," Martz concludes.

Example 2

A board of advisers helped Devon Wilkins revamp the marketing department of her $4 million public relations agency.

"We'd hit the wall on growth, and I'd known for at least a year that re-visioning our marketing department was critical to breaking through that barrier," Wilkins notes. "But I hesitated because I didn't have the know-how to carry out such a major change."

Wilkins says she's had many helpful mentors and a great network of informal advisers over the years. "But none was able to guide me where I needed to take the business at that point."

Then one of Wilkins' long-time mentors suggested she pull together an advisory board comprising individuals with extensive marketing experience. "It was, like, 'Eureka!' she says.

"We kept the board small — three members — so we could pair them with three of our marketing people," Wilkins explains. "Seven of us — including me — took just two three-hour meetings to come up with a dynamite new marketing plan."

That transformation has doubled Wilkins' business in each of the past two years.

Bringing in outside advisers with a high level of marketing knowledge and experience was "as far as I can see now, the only way we could have come up with a new marketing vision," Wilkins maintains. "The four of us agency folks involved kept a totally open mind about whatever our advisory board suggested. I think that's key if you expect your advisers to point the way to major change."

DO IT [top]

1. Seek advice from members of your personal network or other entrepreneurs who have set up an advisory board. Ask not only for their suggestions regarding the creation of such boards but also for any warnings about things you should avoid.

2. Contact a nonprofit organization that can help you. The National Association of Corporate Directors (NACD) advises entrepreneurs on selecting and working with advisers and directors. Alternatively, Board Builders helps businesses owned by women set up their first advisory boards or boards of directors.

3. Seriously consider the advice you receive from your advisory board. If you decide to take it, report back to your advisers on the results. They'll be expecting such feedback. If you find yourself frequently ignoring the advice of your board, ask yourself why you are using them. Either change board members to fit your vision or start listening better. Otherwise you are just wasting the time of busy professionals.

4. Give back. Serve on other companies' advisory boards if you're asked. You'll learn plenty about how boards can operate most effectively. At the same time you'll also benefit from expanding your own network and perhaps your client base.

RESOURCES [top]

Books

The Director's & Officer's Guide to Advisory Boards by Robert K. Mueller (Quorum, 1990).

Board Book: Making Your Corporate Board a Strategic Force in Your Company's Success by Susan F. Shultz (AMACOM, 2001). The Board Book mostly deals with directors not advisers, but the roles of directors and advisers are similar enough to make the book useful.

Articles

"Building the Board" by Jill Andresky Fraser, Inc. (November 1999).

"Keep It Together: Prevent Your Board Members from Jumping Ship" by Patricia Schiff Estess, Entrepreneur (October 1999).

"Advisory Board: A CEO's Secret Weapon" by Mark Lefko, Los Angeles Business Journal (January 20, 2003).

"Words From the Wise: get free guidance by recruiting a team of business advisors" by Jacquelyn Lynn, Entrepreneur/Business Start-Ups magazine (October 1997).

"Diary of a Small-Company Owner," Part I. Inc. (May 1993).

"Diary of a Small-Company Owner," Part II. Inc. (June 1993).

Associations

Board Builders, based in Tustin, Calif.; (714) 832-5741.

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Article Contributors

Writer: Kathleen Conroy and Kathy Furore

This Quick-Read Solution was originally published in 2000.

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