With counselors there is safety: Steps to setting up an advisory board for your startup
Startup founders are aware of the high failure rates for new businesses. In fact, for first-time entrepreneurs, success rates are as low as 18%, according to author Alison Shontell, deputy editor at Business Insider. Success rates do increase with each successive venture, as founders build experience- John Boitnott.
In the Book of Proverbs, Solomon writes, “Where there is no counsel the people fall, but in the multitude of counselors there is safety”. He adds in another line, “without counsel, plans go awry, but in the multitude of counselors they are established”.
Somewhere in 2017 we had the opportunity to meet with some key people in one of Ghana’s leading law firms. Over the course of the meeting we were ‘lawyered’ and the minute details of our business were probed to give them a comprehensive understanding of what we claimed to have been building. In the course of the conversation came the question, “Who are your board of directors?”. The reply from us was, “We are now forming one”. The ensuing response was to educate us on the primary role of the board of directors and the formation of ad hoc committees we can call an advisory board. In the startup world, where most of the time directors are the founders, it only makes sense that the advisory board plays an ‘informal’ overarching role. The reason being the advisory board is often constituted of experienced professionals who are very adept at offering the necessary critique of the operations of small and medium businesses.
In the words of Kelly Hoey, strategist and angel investor, the best investment a startup can make early on, may be the selection of its advisory board. What is an advisory board? It’s always good to start with what they are not. They are not substitutes for statutory boards of directors and do not have authority over the governance of an organization. The selection and oversight of management, monitoring of performance, approval of strategy and assessment of risks are all subjects properly reserved for the main board. An advisory board can support the board by providing expert insight or contacts, but it must be clear where ultimate decision-making authority and collective responsibility lie.
Advisory boards can be considerably more ‘light touch’ in terms of process. There is no need for elections, term limits, committee structures or extensive disclosure of the advisory board’s role, remuneration or performance. They are therefore free to concentrate their energies on their core role, namely to complement the main board by providing specialist experience, knowledge and contacts not readily available elsewhere. Most businesses decide to create advisory boards when it is apparent that there is a subject area where expert outsiders can augment the knowledge, understanding and strategic thinking of the board and management team. Experienced advisory board members can provide technical or specialist advice and extend the range of skills and understanding of management and the board in areas beyond their day-to-day fields of expertise.
But before any small business, startup or enterprise forms such a board it is important to ask a key question of why the advisory board is being set up and what the business wants out of it? A general assumption in Ghana is that most entrepreneurs shy away from involving outsiders in their business. Largely, most Ghanaian entrepreneurs will prefer to use their own expertise to run and scale their businesses. However, the introduction of an advisory board can help some to normalize such decisions, by enabling a startup or small business owner to be more comfortable in providing information and receiving advice from an outsider, well a known outsider.
A few things to watch out for when forming or considering an advisory board:
Define Purpose and roles
Define the core purpose of the advisory board and what you’ll be getting from each member. Most business owners only constitute the board then start thinking of ways they can engage such people. In such an instance, there is very little value derived from such skilled and experienced professionals. It is imperative that you set and communicate the roles and expectations of individual advisors. Using the Workshed example, we are real estate and consulting business, to be more specific our focus is on space, community and advisory. To push our business to new ranks we could have a renowned consultant, who believes in our core purpose, who could advise us on the consulting unit of our business. The same can be made clear about other units and the respective consultants. Airbnb for example, in recent times invited property hosts to some executive board meetings to serve as advisors. For them, hosts are more sway with elected officials and this helps create more room for the business they are doing.
Catalysts are essential
Most of the time, catalysts are key to helping spearhead growth for small business owner and startups. Inherent in the word catalyst is a connotation that the person will precipitate events and happenings in the business. By virtue of them not being the ones in charge, it is the role of the individuals in the advisory board to recommend, critique and analyze ways that will spur growth in any growing business. In my view, businesses like Nokia and Blackberry, could have done better if an effective advisory board complemented the role of the instituted board of directors. Uber, amidst its numerous challenges, could have former certain traits if investors and key staff, who are closely related to the business were not the only one who analyzed the operations of the business, but they’re picking up now so it’s good times.
Prepare an offer letter and compensation package
It is important that you document every exchange between your business and every individual advisor. This letter should explain why you see the selected advisor as the suitable person, what is in it for them and what you expect at least from them. For most small businesses and startups, because there are not available funds to fund such an investment, there is often the option of owning a part of the business. Nevertheless, be careful to make sure every documentation is properly done.
In conclusion, an organization may draw on an advisory board to strengthen its understanding on any number of topics, including technology, economics, demography, geopolitics, or the thinking of an individual government, to name a few.
There is no one way in which an advisory board should work. It may meet infrequently, providing high-level, long-term strategic insight to the board. Or its role may be more similar to that of a business development consultant, seeking to make introductions, open doors and generate new leads. Either way, the advisory board must be clear about its purpose and mission from the outset. And the board should be structured, resourced and led accordingly. With a clear mission and the right composition, a board of advisors can be a powerful, value-adding asset in a changing business environment.