and Why to Develop a Successful
Board of Advisors
By Eric Graham
rapidly changing and highly competitive markets, many privately held
companies are creating outside advisory boards to give owners and CEOs
fresh, knowledgeable advice.
Even for small businesses,
setting up an advisory board can give you a significant advantage over
competitors that are relying solely on internal talent. An experienced
and well-connected board of advisors can help your business grow and
prosper in ways you’ve never imagined.
a Board of Advisors?
board is an outside group that is informally organized to provide business
owners and corporate leaders with support, advice and assistance. While
formal boards of directors have legally defined responsibilities and
fiduciary duties, advisory boards have no formal power or binding legal
authority. They serve at the pleasure of the business owner or CEO.
of an Advisory Board
several advantages that companies with advisory boards have over their
competition. A board offers your business:
- An unbiased outside
- Increased corporate
accountability and discipline.
- Enhanced CEO
and management effectiveness.
- Greater credibility
with investors, vendors and customers.
- Help in avoiding
- Rounding out
skills and expertise lacking in current management team.
- A sounding board
for evaluating new business ideas and opportunities.
- Enhanced community
and public relations.
- Improved marketing
results and effectiveness.
- Strategic planning
assistance and input.
- Centers of influence
for networking introductions.
- Crisis and transition
leadership in the event of the death or resignation of the CEO.
- Help anticipating
market changes and trends.
Steps to Creating
an Effective Board of Advisors
- Analyze the
strength and weaknesses of your current management team. Look
for critical areas of expertise and knowledge that your company could
use help with such as marketing, legal, finance, eCommerce, and research
and development or information technology. If your company is planning
on going public within the next few years, seek out advisors who have
successfully taken companies down that path.
- Set clear,
written goals and objectives for your board of advisors. Getting
maximum value from a board of advisors begins with clear objectives
and goals. Board members must know why they have been asked to serve
and what is expected of them.
the board, the CEO and senior managers should sit down and ask some
of the following questions:
What are the main areas we need advice and guidance in?
What specifically do we need the board members to do for
Who are a few potential candidates for board membership?
How do we avoid giving away too much control to outsiders?
What will be the powers and limitations of the board?
What will setting up the board cost initially? Annually?
Will it be worth the cost?
the size and structure of your board. Advisory boards range in
size from two members to over thirty. The right size depends on many
factors, such as your company’s size, complexity, stage of development
and individual skills needed. My experience and research has found
that for most small to mid-sized, growing companies or start-ups,
a 5 to 7 member advisory board is an ideal size. Smaller firms can
start with just one or two members and add new members as they grow.
Determining whom you invite to join your board is one of the most critical
decisions in setting up a board of advisors. Often a business owner’s
first instinct is to ask friends, family members or professional advisors
to sit on their board. This is usually a mistake. Unless your friend
or family member is a recognized authority in an area of expertise lacking
by your management team or a highly successful entrepreneur, they are
probably not the wisest choice.
reason to avoid asking family or friends to join your board is lack
of objectivity. Often advice from a friend, family member or management
insider is sugar coated to protect relationships. An outside advisor
can give you a much more objective and honest assessment of the situation.
advisors such as your lawyer, banker or accountant as board members
has it’s own pitfalls. These advisors are already working for
you and may not be as objective as you need, due to having an interest
in generating future business from your company.
Some critical action
steps for recruiting a dynamite board of advisors are:
- Develop a
candidate profile. After you have determined the areas of expertise
your company is in need of, create a profile of candidates that successfully
fit these needs. Take care to address knowledge and skills that your
company will need to meet projected growth and future challenges.
- Seek out experts.
Search online and offline for experts and proven leaders that meet
your candidate profiles. Contact them and begin discussions about
possible board membership.
- Ask for recommendations.
Solicit recommendations from the experts you speak with that cannot
serve on your board, of collogues of theirs that they feel would be
a good fit for your needs. Begin networking with your attorney, accountant
and other professional advisors. Once you have successfully recruited
an advisor, he or she can often lead you to another good candidate.
- Find your
candidates motivation. Most of your candidates are not going to
be motivated by money alone. In fact, if money is their primary reason
for joining your board, they may not be what you are looking for.
The most effective board members are motivated by the challenge and
intellectual stimulation of building successful companies. They serve
because they are already high achievers and enjoy the challenge.
- Have variety
in your board. Try to include experts and successful entrepreneurs
from several different disciplines. Often board members who are successful
marketers, CEOs and business owners from different industries can
bring a fresh perspective to your business. These individuals can
often help you incorporate best practices from other industries, into
your own industry, creating revolutionary changes and opportunities.
- Look for a
proven track record. Find the leaders in their field. The best
board candidates are successful CEOs, business owners, professionals,
university professors and consultants who have achieved success in
their own businesses and careers.
- Clearly communicate
your goals and objectives. Invest time in talking to and meeting
with potential members. Communicate to them what your goals and objectives
are. Let them know that you are not looking for “yes men”
and that you want advisors who will challenge you and hold you accountable
for your businesses growth.
expect and deserve to be compensated for their time, efforts and advice.
board compensation includes a stipend from $5,000 to $25,000 per member,
per year. Some companies pay their board members per meeting, with
payment ranging from $500 to $3,000 per meeting, with a monthly retainer
of $500 to $2,500. Companies should also cover transportation, meals
and lodging for members when attending meetings.
boards also give or require members to buy stock or some form of equity
in the company. This gives the board members equity participation and
a vested interest in the growth of the company.
problem areas to avoid when setting up or working with your advisory board
- Members missing
meetings. Because board members are usually running successful
businesses of their own, they may not always be available for every
meeting. However, board members should be made aware that attendance
of board meetings is important and expected. If a member is chronically
absent, the value of their membership on the board should be reviewed.
of senior managers. Some company insiders may feel intimidated
or threatened by the involvement of outsiders. The CEO or owner must
make every effort to communicate to his staff the benefits and importance
of having a board of advisors.
personalities. This is a challenging situation, because most members
of your board will be strong willed, achiever types, who have gotten
where they are by taking charge. Many will have strong convictions
about their opinions and may find it hard to defer the leadership
of the meetings to the CEO. You must determine when a member’s
personality is “too strong” and becoming disruptive.
number of board members. Because of their strong personalities,
if you have too many members on your board, the more assertive members
often dominate the debates, depriving you of the contributions the
quieter members may have made.
- Lack of CEO
communication. Withholding company information or not regularly
communicating with the members of your board of advisors destroys
trust and effectiveness. Regular communication between meetings is
essential to maintaining an effective board.
compensation. As I mentioned, you do not want compensation to
be the determining factor in a candidates membership on your advisory
board, however successful individuals of the caliber you seek expect
to be fairly compensated for their time and knowledge.
Keys to Board Effectiveness
- If you build
it, use it. Owners and CEOs who invest the time and money in creating
a board should be committed to soliciting and using its advice on
important issues and decisions.
- Value their
input, even when they disagree with what you want to do. Sometimes
a board is at it’s most valuable when it recommends against
a course of action the CEO wants to take. If you recruit a good board,
often they have already been down the path you are on, and their experience
(and past failures) can help you to avoid costly mistakes.
with your advisors. Keep the members of your board informed about
what is happening in your company and industry. Counsel with individual
members on the phone at least monthly and send them information well
in advance of your meetings, to help them prepare and keep the meetings
- Hold regular
meetings. Most boards meet once per quarter. However, boards
should meet more often during times of rapid growth or if company
needs merit additional oversight and guidance.
- Have an objective
for each meeting. Your board members are busy people and their
time is valuable. Make the most out of your meetings with them, by
having a clear agenda and objectives for each meeting. Make sure
to cover the most important items of business first, in case the discussions
take longer than planned or some members have to leave early.
- Annual assessment
of board performance.
assessing the board’s effectiveness is a critical factor in
ensuring a good return on investment. Each year the board should
set performance goals and define their criteria for success. At the
end of the year the CEO and the board should assess it’s performance,
compared to its goals and criteria for success.
Over 80 percent
of all private companies are operating without a board of advisors or
board of directors. Odds are your competitors do not have one. Because
of this, developing a board of advisors can give your company a distinct
advantage over your competition. This is particularly true for start-ups
and family run businesses.
There is tremendous
value in receiving objective, knowledgeable advice from a board of advisors
who share in the financial and equity growth of your business. I encourage
you to begin recruiting your advisory board today!
About the Author
is the owner and CEO of several successful online and offline businesses.
Recognized as one of the top authorities on eCommerce and Internet Marketing,
Eric is a sought after speaker and consultant. He may be available to
serve on your Board of Advisors. For more details vist:
http://www.web-site-evaluations.com/board-advisors.htm. He is
also the publisher of the Conversion Tips newsletter. Visit www.web-site-evaluations.com
to sign up for a free subscription.
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