An advisory board can be an important option for small businesses looking to grow and stay competitive. They can provide a range of services from acting as a sounding board or a second set of eyes, to providing expertise, guidance and insight to the business owner. As your personal team of experts, they are professionals with diverse experiences, who can offer fresh insights, strategic advice, and industry connections. Whether you’re struggling with growth, navigating tough decisions, or just want a sounding board for new ideas, an advisory board can provide valuable guidance without the formal commitment of a board of directors. Let’s explore whether building one is the right move for your business.
It’s Lonely at the Top
“The company cafeteria,” replied a business owner when asked what he missed most about the corporate world. He missed the environment where he could:
- Easily discuss issues and opportunities facing him.
- Bounce ideas off someone who had already, “been there, done that.”
- Float ideas that were way outside the box to see what kind of reactions they created.
Owner isolation is a real issue for business owners. Understanding ways to effectively deal with it can help your business go from good to better to best.
Advisory boards are fairly common for a start-up. You use them to:
- Help form the company
- Supplement the skill set of the company founders
- Assist in identifying and obtaining investors
- Launch the business
An advisory board for a growth company operates differently than with a start-up but is just as valuable. The focus of this series is on companies that are generating revenue and are looking to grow.
What is an Advisory Board?
An advisory board is a group of external experts who provide strategic guidance and advice to business owners. The goal is to act as a sounding board and help them make better decisions. These individuals typically come from diverse backgrounds, bringing specialized knowledge in areas like finance, marketing, operations, or industry-specific trends. Their role is to offer fresh perspectives, challenge assumptions, and support the business in achieving its goals. The members can do this without being involved in day-to-day operations.
An advisory board can be as simple as one outside person who can provide insight, perspective and guidance on growth, operations, exit planning or many other issues specific to the company. Or it can be comprised of several people who represent specific business functions where the business owner does not have expertise.
For example, the business owner is an engineer with no marketing or sales experience. He needs assistance in planning marketing and sales to fully leverage their product or service. If your advisory board has marketing and sales expertise, they can help create a plan for marketing and sales. This will typically be done at a lower cost than if individual hires were made to address the skill gaps. The key is the outside perspective provided by people who have weathered the storms of business ownership.
Why Do You Need an Advisory Board?
You started your business with an idea, a product or service. Eventually you realize your skill set doesn’t span the entire landscape of issues, functions or activities that are part of successfully running your business.
An advisory board:
- Offers access to expertise and perspectives you might not have in-house. Running a business means making tough decisions daily. Having a team of seasoned professionals in your corner can help you navigate challenges and spot opportunities you might otherwise miss.
- Acts as a sounding board for your ideas, provides accountability, and helps you stay focused on your long-term goals. They bring fresh insights from different industries, allowing you to adapt and grow in ways that set you apart from competitors. With their guidance, you can make more informed decisions that drive success.
Advisory board members from another industry can bring a new and different perspective to your business. It can help you do some or all of the following:
- Optimize your business – processes, people, vendors, channels
- Find growth where none was previously seen
- Help define or refine direction – change of direction; stability of current direction
- Create or refine a long term plan that holds the business owner accountable
Board of Directors vs Advisory Board
So what’s the difference between a board of directors and an advisory board? They sound very similar, but there are distinct differences.
A Board of Directors:
- Has a fiduciary responsibility to the company (and shareholders) and can be liable for mistakes that a company makes.
- Has an obligation to the company (and shareholders) first, and the business owner second.
- The proper size of a board of directors is debatable, but the size is mostly based on the life cycle stage of the company. All companies face limitations on the size of their formal boards.
Advisory Board members:
- Don’t have fiduciary responsibility, and thus cannot be held liable.
- Put the business owner first and help steer you in the right direction to best care for your company.
- Members can be added for specific needs and removed when no longer needed.
While an advisory board is there to help guide the business owner, it does not have authority on decisions or over staffing. The advisory board also does not act as the business coach or mentor for the business owner.
Whether an individual or a group of people, two items are of utmost importance.
- An advisory board is not a quick fix for problems. Advisory boards work best over a period of time where you create a long term strategy and plan and achieve short term goals against the long term strategy and plan.
- You, the business owner, must be open to hearing opinions and advice that may be contrary to the way you have always acted.
For both of these reasons, you must choose an advisory board that you respect and who will tell you the truth.
Tips on Choosing Advisory Board Members
- When creating an advisory board, it is advisable to NOT include family members or friends. You really want someone who will tell you truth, has experience in business areas where you do not and won’t just agree with whatever plans or decisions you make.
- Seriously consider recruiting people who could be described as doubters – those who will challenge you to thoroughly think through the decisions you are making.
- Ideally, you should fill in the board with skills that complement yours, not ones that mirror yours. Remember, you are looking to fill gaps.
- Be sure to actively vet potential advisory board members to be sure they have the skill set you need and also to make sure you can work with them in a constructive manner.
Term Limits and Contracts
It is always best to set term limits for advisory board members. That way, the composition of the board can change as your business changes. Keeping terms to one to two years could provide the right amount of consistency while allowing you to bring in new viewpoints and skills as required.
This is your business. You wouldn’t conduct it informally, with just a handshake. The same goes for your advisory board. There should be an advisory board agreement in place between the members and the company. The agreement doesn’t have to be long and complicated. It needs to specify the scope and purpose of the advisory board, the parties involved, what is expected, the frequency of expected meetings and compensation.
There are sample advisory board agreements available online that have been blessed by attorneys. Look at using one of these and customizing it for your situation. An agreement helps ensure advisory board members will continue to provide their time and attention to your company.
While start-up advisory board members typically are compensated with equity in the new company, advisory boards for going concerns are compensated for their anticipated time and depth of involvement. You may want to pay a fee per meeting or a retainer for a 30, 60, 90+ day time period. The time period varies on your needs.
Is It Time to Invest in an Advisory Board?
In the end, having an advisory board can be one of the smartest investments you make for your small business. Their collective wisdom, objective feedback, and network of connections can help you overcome obstacles, seize opportunities, and avoid costly mistakes. Its members don’t just help you solve immediate problems. They challenge you to think bigger, plan better, and keep your business on a path to sustainable growth. If you’re serious about taking your business to the next level, building an advisory board could be the key to unlocking your full potential.
Debra Murphy is a marketing coach and consultant helping small businesses navigate the complex maze of online marketing. Experienced across all traditional marketing channels, Debra specializes in inbound marketing, a combination of search, social media and content marketing, to help small businesses effectively utilize this new media to gain visibility and generate inbound leads. Debra regularly writes about small business marketing on her Masterful Marketing blog.
