Growing a business is challenging and sometimes lonely for the business owner. It helps to have a group of experienced business advisors to test ideas, challenge assumptions and support the business in a many areas. Finding the right people to populate an advisory board is crucial to your success.
What is an Advisory Board?
An advisory board is a group of individuals, typically outsiders to the business, who possess knowledge and expertise to guide, grow and manage the business. Advisory boards can:
- Act as a sounding board for the business owner
- Fill gaps in expertise that is lacking in the business.
- Offer assistance in all disciplines including sales and marketing, finance, human resources and operations.
- Steer the business towards achieving their objectives and goals.
Advisory boards are essential for the success of businesses of all sizes. Advisors working as a team can provide guidance that those working independently cannot hope to obtain. Advisory board members can play many roles within the business:
- Help fill gaps in management capability
- Provide valuable insight into challenges you may be experiencing
- Add years of experience that can accelerate growth
Advisory boards can be very helpful in directing operations and keeping business owners informed of industry and financial trends. If the business does not have a legal advisor or an accountant, these should be the first roles to fill on an advisory board.
Why have an Advisory Board?
The first thing the business owner must do when creating an advisory board is to answer these two questions.
- Why is this advisory board being created?
- What is the end result desired from having an advisory board?
Answering these questions ensures the correct mix of skills and expertise are represented on the advisory board. This also ensures the business can maximize the benefit of the board to the business.
For many business owners / entrepreneurs, the decision to involve outsiders in their business may be a difficult one. Some owners fear diluting their control of the business. The introduction of an advisory board can help some come to terms with this decision, by enabling the business owner to feel comfortable providing information to, and accepting advice from, an external group. This can pave the way for an effective relationship with a formal board of directors.
Why work with an advisory board?
Advice and Counsel
There are many reasons why business owners feel isolated. It is difficult to identify and build relationships with trusted advisors who can provide effective and meaningful advice and counsel. Sometimes the business itself is very complex and the speed at which the industry is changing makes it even more difficult to find the right individual or mix of individuals who can fill this role.
An advisory board can provide consistency, longevity and background knowledge that enables them to provide reliable, effective advice and counsel. Having an advisory board that is being properly compensated (monetarily or through other means) helps to ensure requests for help are taken seriously and that the forthcoming advice is not given in a cavalier manner.
No Judgement Zone
Advisory boards can provide a no judgement zone for a business owner to try out new ideas and options before presenting them to the formal board of directors.
When presenting to a board of directors, the business owner must be forceful, definitive and assertive. Presenting new ideas – even partially defined ideas – before an advisory board gives the business owner an audience that can be challenging and helpful because their sole purpose is to provide advice and counsel.
The advisory board can act as a sounding board. Many times, ideas presented before the advisory board morph into bigger and more well-defined plans that can transform the company.
There may be a very specific aspect of a business that the business owner feels unprepared or unable to address on their own. Among others, this oftentimes involves areas such as marketing, sales, product management and finance.
An advisory board can be created to address only the specific issue and need not be involved in any other aspects of the business. This can free the advisory board and the business owner to become extra creative in problem solving.
Having successful entrepreneurs from outside the industry on the advisory board can expand the business owner’s vision since these professionals will look at the business with a fresh perspective.
Stepping Stone to a Board of Directors
The creation and implementation of a formal board of directors is a long-term project. But an advisory board comprised of individuals with the appropriate skills can be a great interim step.
In some cases, members of an advisory board can effectively transition to the board of directors. The business owner can get to know the individuals, how they contribute and how they communicate while on the advisory board before asking them to become a member of the board of directors.
A smaller advisory board can work more effectively than a larger board of directors. Advice and counsel can be acquired from an advisory board for a defined period of time.
Formal board directors expose themselves to a variety of liabilities (responsibility for unpaid wages, unpaid taxes, environmental damage, etc.) and to fiduciary and other duties that can lead to liability. An advisory board would need to take a very active role in company management (strategically and operationally) before realistic risk that liability could be attached to the advisory board members. Because of the fiduciary responsibilities that go hand in hand with a formal board of directors, individuals who do not want to expose themselves to such potential liability may be better suited as advisory board members.
Business owners must be committed
Remember, an advisory board is set up to provide advice and counsel to the business. At the end of the day, if the business owner creates an advisory board but ignores the advice and counsel provided by advisory board members, those advisory board members will know there is a lack of commitment. In the end, the business owner will get out of an advisory board exactly what they put into the creation, development and operation.
Learn what you need to do to properly operate an advisory board for your business.