If you are building a startup alone or with a small group of friends or colleagues, you will inherently face certain limitations that can hold your business back from realizing its full potential. No one is great at everything; and, while you may be able to guide your new venture to success, it takes another level of commitment to make sure it reaches the market saturation (and valuation) that it is ultimately capable of achieving.
Simply put, businesses often stagnate because their leaders try to exert too much control. Call it ego, confidence, or naivete, but asking for help is something that is far too seldom among startup executives and entrepreneurs. One way to avoid getting in your own way is to build an advisory board, and with the right advisory board you may be able to grow your business to new heights that you previously thought were unimaginable.
What is an Advisory Board?
In the business context, an advisory board is a group of individuals who help business owners and executives consider issues and make informed decisions that they could not make independently. Members of advisory boards are often experts in their fields – human resources, product development, marketing, sales, company management, etc. Ideally, your advisory board will consist of executives from other businesses that are in your space – though typically not your competitors – and that are currently experiencing a realistically achievable level of success for your business.
An advisory board is not a board of directors. A board of directors is established in a company’s governing documents, and directors on the board have the ability to make binding decisions on behalf of the company. Directors can also face personal liability (without the necessary legal protections in place) for the company’s acts and omissions. Advisory board members, on the other hand, serve in an advisory capacity only. They provide input – that’s what they’re there for – but decision-making authority (and potential liability) remains with the presiding members or officers of the company.
How Should You Select Advisory Board Members?
Forming an advisory board for a startup is part art, part science. As a preliminary matter, your pool of candidates may be limited by the nature of your business, your geographic location, your network, and your networking skills. Although advisory board members generally get involved because they want to (though it can often be beneficial to cover advisors’ expenses and provide them with some form of compensation to recognize their contributions), serving on an advisory board is still a commitment, and potential advisors will want to know that serving on your board is worth their time.
When identifying potential candidates for your company’s advisory board, here are some considerations to keep in mind:
- What Are Your Goals? – What are your specific goals in building an advisory board? Do you want to focus on growing your market share? Repositioning your brand? Building an attractive and productive culture for your employees? Until you know what you hope to gain for instilling an advisory board, you will not be able to target candidates who have the experience and insights you desire.
- Who Do You Know Who Might Be Willing to Help? This is where your existing network comes into play. Do you have strong enough relationships with other executives whom you think you could get them to join your advisory board? Do you have other connections who could make introductions to potential board members? At the very least, do you know people in your area who you think might be receptive to a cold request – maybe for lunch on you to start a dialogue?
- What Do You Have to Offer? People who agree to be advisory board members generally do so because they see value in getting involved. So, what do you have to offer? Is your company on the brink of something big, but in need of help to make a breakthrough? Will the other members of your board be valuable contacts? Think about ways that your board members can realize value from giving you their time.
- Who Do You Want to Avoid? Keep in mind that, while you will not be under a legal obligation to take your advisory board members’ advice, they most likely are not going to stick around if they perceive that their insights are falling on deaf ears. So, you need to choose advisory board members whose input you value. You also will generally want to avoid anyone with whom you have a personal relationship – friends, family members, spouses – so that any differences of opinion do not cross into other aspects of your life.
- How Many Board Members Do You Want? Most advisory boards include three to five members – enough to explore ideas and have thought-provoking discussions, but not so many that meetings devolve into unproductivity. Your goals in establishing the board may help guide your decision as to size, in combination with other relevant factors.
What Else Should You Consider When Forming an Advisory Board?
Along with choosing the right board members, there are a number of other considerations involved in establishing an advisory board, as well. For example:
1. Confidentiality
Your advisory board members will become privy to competitive and proprietary information about your business, so you will need to take appropriate measures to ensure confidentiality. A fairly straightforward Non-Disclosure Agreement (NDA) should suffice, though you will want to make sure that your NDA is appropriately tailored to protecting your company’s interests without being overly burdensome for your advisors.
2. Conflicts of Interest
While this most likely will not be an issue – especially if you rely on your existing network to recruit advisors for your board – it is important to at least consider the risk that your board members may have conflicts of interest. Do they serve on boards for your competitors? Are they interested in becoming competitors themselves? To be safe, it will generally be prudent to obtain written commitments that advisory board members will only act in your company’s best interests.
3. Acknowledgement of Advisory Role
While most experienced advisory board members will understand and appreciate their role, there is always the chance that they will expect more than you are willing to give. Clearly establishing roles and setting expectations up front will help avoid uncomfortable situations down the line.
4. Term, Termination, and Renewal
Finally, establish parameters for the duration of advisory board members’ involvement. You generally will not benefit from attempting to force an advisor to stay involved, and on the same token it is important that you retain the flexibility to remove advisors whose contributions are no longer desired. Establishing a relatively short initial term (such as one year) with a renewal option at the end can be one way to keep quality advisors on while removing others without confrontation.
Contact Jiah Kim & Associates for More Information
Jiah Kim & Associates is a business management law firm that represents startups and established companies worldwide. If you own a growing business and would like more information about the steps involved in establishing a board of advisors, feel free to contact us for an initial consultation. To speak with an experienced attorney in confidence, call (646) 389-5065 or schedule an appointment online today.
This blog post is written for educational and general information purposes only, and does not constitute specific legal advice. You understand that there is no attorney-client relationship between you and the blog publisher. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.