Lessons from the Edge
I like to say that “I had my 15 minutes of fame 17 years ago”. That was when the book I co-authored came out. Lessons from the Edge […]Read more
As an advisor to fast-growth companies, I spend a lot of time with entrepreneurs who want to take their businesses to the next level. Given my legal background and experience in raising growth capital, the starting point for these conversations has always been money. However, in my experience you are not going to raise money unless you have surrounded yourself with people more skilled than yourself, starting with your board of directors or advisory board.
As you build a board, whether a formal board of directors or an advisory board, here are some best practices that you might want to take into consideration:
1. Carefully consider the type of board you need. A board of directors is a legal entity whose members have fiduciary duties and obligations to shareholders, which can give rise to substantial liabilities. Furthermore, they have actual voting powers and can impact your ability to control the company. No such worries loom over members of a board of advisors, which is an informal group that meets as determined by the CEO. If you don’t have to answer to external shareholders, you won’t want to limit your decision-making ability with a board of directors.
2. Recruit advisors who can really help. The makeup of your board should reflect the needs of your company. Apart from some standard positions, such as legal and finance, the board should be filled with people who complement the management and industry expertise of the CEO. Often boards are comprised with various people with operations, finance, technology, HR, sales and marketing and industry expertise.
We also want advisors who can contribute at each level of the company’s growth — there’s no point retaining an advisor who knows only how to build a $20-million company when your plan is to go to $100 million.
3. Don’t secure too many cooks. Your board needs enough people to cover off the diverse issues your business will face, but not so many that it can’t react quickly to the issues at hand, and that creativity is impeded.
4. Meet quarterly. I’ve found it difficult to get advisors to commit to more than four meetings per year. Besides, your board should provide input at the 30,000-foot level, which can be accomplished quarterly.
5. Make every meeting matter. Distribute an information package at least a week before each meeting, allowing the advisors to prepare. Among its contents should be a comparison of the previous quarter’s financials against budget, as well as projections for the next quarter. There will be a fixed agenda of other issues, including new strategic initiatives. However, we envision allotting time to lateral thinking, which takes advantage of the experience and creativity of the board. Don’t be shy about meeting with your advisors individually as needed and have lunch or dinner with each of them between meetings in order to build strong personal bonds.
6. Pay your advisors. Many firms pay little more than a great meal or a small honorarium to their advisors, who contribute as a way to “give back,” apply their skills and build their networks. But my experience suggests that formal remuneration is more likely to attract serious advisors who are prepared to commit their time, energy and expertise to the business. Typically, cash-strapped startups compensate with stock options in the company. Established, profitable firms tend to pay a quarterly fee (which can range from $500 to $1,000 per meeting to thousands of dollars a year), reimburse expenses and offer some equity, usually in the form of options.
7. Formalize the arrangement. Perhaps the lawyer in me is talking when I recommend that companies and their advisors sign written agreements detailing their respective roles, responsibilities and expectations. This will avoid any miscommunication and will help prevent you, the CEO, from overselling the business to your board.
Entrepreneurs can meaningfully discuss their businesses with very few people. That’s why smart business owners join networking organizations like EO or YPO, where they can meet and learn from other entrepreneurs. But the smartest proprietors assemble an advisory board to assist them along the way.