The Power of an Advisory Board

 In 2023, the Startup Genome completed a five-year study of some 10,000 global startups and found that companies using five or more advisors grew seven (7) times faster than companies with no advisors:

Even if the company had just one or two advisors, the startup doubled its growth rate compared to companies with no advisors.  It should be noted that Advisory Boards are non-fiduciary; i.e. they are not the same as a Corporate Board of Directors. Advisory Boards serve the founder(s) of the startup, covering critical execution areas or weaknesses that are important to growth and success. Advisory boards are at the discretion of the business owner and are not required for a startup business.

 

Board of Directors	Advisory Board
Has authority to make decisions such as approve investments, set executive compensation, etc.	Lacks authority, non-binding recommendations are made directly to the CEO
Serves long term such as 10 or 15 years with an emphasis on financial results	Serves short term such as two years to assist the CEO in solving various problems
Meets for a full day on a quarterly basis	Meets every other month for 1 or 2 hours
Shareholders vote to form board members	CEO selects board members based on skill gaps that are not filled by existing personnel
May be liable for company results and thus, Director and Liability insurance is needed	No liability, not required or regulated by government agencies
Part of a formal corporate structure, serving the shareholders of the corporation	Not part of corporate structure – serves the founders or CEO

“We know for sure that fast growing companies have advisory boards. Only 8% of companies use advisory boards and about half of those companies using advisory boards are not using them correctly.”

-          Cathy Fischer, The AB Platform

Advisory boards bring experience and wisdom that is often lacking with startups. Think of it this way: If you could have access to five (5) experts to help you run your business, who would you choose? Like hiring an employee, what are their backgrounds, experience, and special areas of expertise that empower the company.

As a starting point, describe key advisory areas where you need help; such as industry knowledge, recruiting key personnel, obtaining product market fit, attracting customers, or developing artificial intelligence. You should think big and bold when developing an advisory board. Do not be afraid to reach out to well respected people who often are willing to help because they enjoy the challenge of adding value for startups.

Building a strong Board of Advisors will take some time and effort, but the strategic guidance and connections they provide can be invaluable for growth. This is especially true if the company lacks a strong management team; i.e. you need a core execution team to help without a lot of expense. You should also seek a high degree of diversity. For example, if a single customer accounts for substantial sales for the company, consider having someone from the customer’s company serve on your board.

Advisory boards work best when there is a firm commitment of time, scheduled for the calendar year and the group works as a team to grow the company. If possible, try to have the same level of compensation for all board members. This compensation often takes the form of advisory shares from the corporation. For small businesses that are pass-through entities (non-corporate), simply seek out some mentors or experts that can help you execute on the basics and meet on a regular basis.  

“Advisory shares are a type of equity compensation that companies use to incentivize advisors. In exchange, advisors are expected to provide guidance, services and support to the company. Equity compensation aligns the interests of advisors with the company. It also creates a sense of ownership and commitment.” -Cap Board

The goal is to have a highly cohesive group, working together to grow the company. If you have board members who fail to add value after two or three meetings, then correct the situation just like you would if you had a poor performing employee. In some cases, you may need to re-launch the board if members are acting too much on their own and there is a lack of open and honest communication. You also need a designated person to schedule meetings, release meeting agendas and communicate minutes and action items from each meeting. A final point; conduct an annual assessment of your board – how effective is the board, what changes need to be made, is the board meeting the expectations of the CEO?

“The best place to find members of your startup advisory board is within your very own network. It’s common for mentors to become formal advisors if they’ve been valuable to you in the past and you’ve been able to form a trusting relationship with them.” – Lena Eisenstein, BoardEffect

The evidence is clear – advisory boards are a powerful asset for growing startup businesses and there are other benefits to having an advisory board such as CEO coaching, avoiding group think and giving your company increased creditability. Don’t go it alone; otherwise, you will only hamper your long-term growth.  

Don't Go It Alone

More and more cities across the United States are recognizing how important it is to support new startups for growing the local economy. We now live in a great entrepreneurial age where people recognize they must control their own destiny and solve the world’s pressing problems. Unfortunately, many people seeking to start a business are not tapping into the wealth of resources available throughout the United States.

“Nearly four out of five small business owners admit that they have not taken full advantage of national and community resources dedicated to helping small businesses develop and grow.” – Survey Conducted by Fifth Third Bank

Embracing UX Design

Growing and maintaining a product now requires recognition of User Experience or UX Design. Even service oriented companies should pay attention to UX Design because the world is so digital and connected – your online presence requires great UX design.  Regrettably, many companies have yet to embrace the concepts of UX design. 

Hand Shakes vs. Lawyers

We live in a world where timely execution is critical. Obstacles and delays can be detrimental to many businesses in this fast paced changing world. What helps is when you can trust someone based on a handshake and get things done quickly before having to execute legal agreements. Yes, this may fly in the face of a more cautious and traditional view of business which advocates, get everything in writing and make sure you hire a lawyer. However, this traditional view of business is increasingly not grounded in the reality of how people need to get things done.  

Lessons from the Shared Economy

The shared economy has become very real and can no longer be ignored by all businesses. According to PriceWaterhouse Coopers, the shared economy is likely to grow from $15 billion in 2013 to $335 billion by 2025. Part of this growth is out of necessity. Cities are becoming very urban and this is where everyone is migrating to; thriving in a world that increasingly is getting very crowded. You can’t continue to add more cars, hotels, and other infrastructure. Instead, people are adjusting and accepting the fact that a better way is to share the infrastructure in highly concentrated environments. Businesses will need to adjust to this new reality and recognize several lessons from the shared economy. 

The New Math for Pricing

It represents one of the most difficult decisions you will make: What price do I charge for my products? Many people, including myself, have always held that pricing should be based on covering all of your costs with some allowance for profits. However, thanks to Robert Dolan of Harvard Business School, there is a new math for calculating price that goes beyond the financial numbers.  

Recognizing Intellectual Capital

The traditional accounting model with its financial statements is increasingly inadequate in helping us understand what drives value in our business. These value drivers are highly intangible and the accounting model is not setup to measure and report these critical assets. Part of the problem is simple – it’s hard to measure intangible drivers of value. They can include things like:

• Your ability to retain and have loyal customers
• The fact that your workforce is highly motivated and requires minimal supervision
• Having strong leadership that creates the right culture for performance
• Obtaining brand recognition that makes it harder for others to compete against your company
• Turning ideas into real product improvements for continued market leadership
• Leveraging your know-how against the assets of others in a shared economy

A Better Way to Grow

The consensus amongst most is that bigger is better. With increased pressure on our natural capital (soil, water, oceans, etc.) and an ever increasing gap between rich and poor, it’s time for all businesses to re-think what growth is really about. Take for example inequality - the United States has the fourth-highest income inequality among the world’s developed countries; only Chile, Mexico and Turkey rank higher with trailing countries represented by Russia, Ukraine and Lebanon.

In their book The Big Enough Company, authors Adelaide Lancaster and Amy Abrams make the argument that owners should be true to themselves and grow a company to a size where they can still enjoy running the company. You should not grow just for growth’s sake. A “big enough” company delivers benefits to a broad audience and continues to have a positive impact as the owners originally envisioned.   

How to Capture Useful Feedback

Capturing feedback is important to the success of every business. Feedback represents a conversation with your employees and your customers. These conversations keep you within a zone of reality and best of all, these conversations create relationships. And in the world of business, relationships matter.

How to Use the Minimum Viable Product (MVP)

Over the last few years, successful entrepreneurs have pointed to the Minimum Viable Product or MVP as a roadmap for creating long-term success. MVP is about creating a product or service with just enough value to make it attractive to a small group of customers. In some cases, the product or service is released on a test basis. This allows you to move incrementally without committing huge resources. A strong development team will be needed to capture feedback and turn out new releases. If you are releasing something very unique, you should validate the offering with a private or internal group well in advance of going to a larger test market.

Understanding Your Value Proposition

Getting your value proposition right and knowing when and how to tweak it is extremely important. Intense competition and change are forcing many companies to re-visit their original value propositions. The best value propositions are those that solve major pain points for lots of people. Start by looking at how your customers spend their time – what frustrations do they encounter?

Science Explains Creativity

With so much emphasis on creativity and innovation, it helps if we can all cut directly to the chase – namely what's behind creativity? Thanks to various scientific studies and author Jonah Lehrer, we have great insights into where creativity comes from. In his book, Imagine: How Creativity Works , Lehrer highlights some very important research that explains creativity.

For starters, creativity is not one train of thought. It is about how people can switch their thinking from one mode to another. For example, we all get stuck on some problem, struggling to break through and reach a solution. What creative people do is they switch gears from say analytical thinking to day dreaming and imagination. Knowing when and how to make these switches is critical to creative problem solving.

Keep on Bootstrapping

Regardless of where your company stands in the growth life cycle, you should always consider some form of bootstrapping. Bootstrapping is the use of little or no money by leveraging available resources. Bootstrapping enables you to control cost by getting things done without committing cash. This approach is viewed favorably by current and potential investors since you are setting priorities around maximizing value.   

Find Your Aggregation Points

The world is full of aggregators who can bring enormous value to your business. For example, you may hire great designers in Italy, enlist programmers from India, manufacture your product in China, and manage the business from the United States. Aggregation is the bringing together of different parts to meet important business objectives.  Aggregation often involves broad and global participation. And the use of aggregation results in higher value as opposed to doing everything in-house.

Why Games Belong in the Workplace

Games elevate productivity and innovation

Suppose the world had a workforce that was highly skilled at solving some of the most challenging problems. This workforce is motivated, hard working and highly collaborative with others. And to make matters even better, this workforce is not driven by traditional rewards such as money, but more by the thrill of accomplishing something great. Such a workforce exists and it is estimated to be 500 million strong and growing rapidly. It's the workforce of gamers. People who play games are perhaps the most untapped resource on the planet. 

The Challenge of Becoming Customer Focused

Real Customer Focus is Difficult

If customers drive business success, then becoming customer focus is mission critical. Trying to stay customer focus is considerably difficult. Here are some of the many challenges you will have to confront if you expect to be customer focused:

Lessons from the Entrepreneur - Part 3 of 3

What makes an entrepreneurial culture

It should go without saying that we now function in a world of intense competition. Additionally, those who invest in companies are becoming less and less confident in management's ability to create value. As a result, financial markets are becoming increasingly volatile. We also need to consider things like shorter product life cycles. Because of these factors and many more, it is absolutely imperative for every organization to build an entrepreneurial culture. This article will summarize some key components within the entrepreneurial culture.

Lessons from the Entrepreneur - Part 2 of 3

Seven key characteristics of an Entrepreneur

In our first lesson, we described a few basic concepts that entrepreneurs follow in managing a business. We will now expand on how entrepreneurs create value by looking at some characteristics of entrepreneurs. One common characteristic behind almost every entrepreneur is a strong commitment to a set of skills. Invariably you will find that entrepreneurs are extremely highly skilled in their chosen profession and as a result, they can attract customers based on this high level of expertise. Entrepreneurs are able to exploit this expertise and build a business around what they are good at.

Lessons from the Entrepreneur - Part 1 of 3

Three grounding principles

One of the best ways to create higher values is to simply think like an entrepreneur. If we can think like an entrepreneur, we can find numerous ways of changing how we manage and create wealth within an organization. Over the next three articles, I will summarize several concepts that I believe are paramount to creating higher values. All of these concepts come from thinking like an entrepreneur. Lesson 1 (which follows) will introduce some basic concepts. Lesson 2 will explore characteristics of the entrepreneur and Lesson 3 will outline the entrepreneurial culture.