Updated October 2016
Think Bill Gates started Microsoft alone? What about Paul Allen and the nine other people in Microsoft’s 1978 family photo?
Apple’s Steve Jobs had Steve Wozniak. Starbucks’ Howard Schultz had Alfred Peet ― and Jerry Baldwin, Gordon Bowker, and Zev Siegl. Even the legendary Warren Buffett had seven partners in his first investment business.
In fact, you can ask any successful entrepreneur or businessperson and they’ll tell you that success isn’t a solo effort ― it’s also built with essential contributions and timely advice from others.
Small or large, venture-backed or owner-funded, rapid growth or slow and steady ― for most privately owned businesses, formalizing the process of seeking assistance and independent advice is an essential component to success.
One way for your business to ensure that it’s getting great advice on an ongoing basis is to create an independent advisory board ― a sort of brain trust of bright and connected people with the background, expertise, and relationships to help you succeed.
Although there’s no one right way to implement and manage an advisory board, there are commonly agreed upon best practices.
Developing a Strategy
Before you invite the first person to join your board, take a little time for strategy. It’s important to understand how you’ll use the advisory board, at least for the next year or two.
What are your business’ needs and expectations? Are you seeking mentors or additional expertise ― perhaps in a new industry sector, a new service category, or a new technology? Do you need new or expanded connections to potential investors, customers/clients or employees? Would you benefit from big-picture strategists to help grow your business, or expert tacticians or project managers to help implement an existing strategy ― perhaps a product-develop project or a product launch? Is your business facing an important new threat or challenge? Are there new opportunities that you’d like to explore?
Implementing an Advisory Board
Although an advisory board is not as formal as a board of directors ― and doesn’t have the same legal and fiduciary responsibilities ― it usually benefits from some structure.
How formal do you want to be? How often will the advisory board meet? Where and when will the meetings be held? How long will they last? Will you have a formal agenda? How will you document the meetings? Will you record them or will someone take notes for minutes?
You’ll also need to determine the number of members who will serve on your board, at least initially.
Most boards have an odd number of members, with a minimum of three. Although there is no absolute upper limit, nine is an often-cited maximum. Any larger and it’s difficult for the members to work efficiently and effectively together as a group.
Will your board members serve for a predetermined term? How will you rotate members on and off of the board?
The larger your board, the more it may cost to implement and maintain.
At a minimum, you should provide meals or snacks and beverages as appropriate for the meetings, and reimburse your board members for any out-of-area travel or other expenses.
Many boards serve without compensation. However, depending on your expectations for your members (e.g., time commitment) and the caliber of people you’re seeking, you may choose to compensate your board members. Examples of compensation include meeting fees, honorariums, or other cash payments; profit-sharing; equity (stock or options) ― or a combination of these.
Finding the Right Advisors
You may already know industry experts, professionals and businesspersons with the skills, expertise, and connections to serve on your board. You can supplement your knowledge by asking your attorney, accountant, banker, broker, and other service providers for referrals. You could also research potential candidates on the internet or at your local library.
Although you may ask your accountant and attorney to participate in meetings when appropriate, they’re generally not included on the advisory board in an official capacity. You already have access to them. The intent of implementing an advisory board is to broaden the range of people from whom you can seek advice.
The amount of information you make available to advisory board members is up to you (unlike with a board of directors), but it’s important to select people you feel you can trust. Their input is less valuable if you aren’t comfortable enough to share the information necessary to provide a basis for sound decision-making. A good nondisclosure/confidentiality agreement should usually be a part of getting started.
When you’ve identified the people you’d like to serve on your board, you can invite them personally, live or through a written communication. Your invitation should include information such as background on you and your company, your goals in establishing the board, a fairly detailed explanation of what your advisory board members will be expected to do, and what they will receive in return.
Be prepared for rejection ― not everyone will respond affirmatively to your invitation. There are many reasons for declining to serve on a board, including a lack of time, conflicts of interest, or scheduling conflicts, among others. Don’t take a “no” response personally.
Ultimately, you will find advisory board members with the experience, expertise, and connections to help your business succeed.