WHEN TO FORM AN ADVISORY BOARD
- Not too early. “Advisory boards are super helpful (and cheap) if done right, and an expensive (in equity) waste of time if done wrong.” – Josh Elwell, a partner at ValueStream Labs, a FinTech accelerator. “Asking someone to become a formal advisor in the early stage of your company’s growth might be overkill. You can gain many of the same benefits through lunches or phone calls every couple of months – something most can commit to.” – Kerrie MacPherson, Principal, Financial Services Office at Ernst & Young (h/t to Betsy Mikelof Women 2.0 for pointing me towards her post).
- If you’ve raised an angel/seed round without a lead investor. “The problem and the challenge with not having the board after the Seed round is that there is no outside, non-executive perspective on the company. There is no higher level accountability for CEO, there is no regular milestones, and no regular check-ups… great boards help keep the business healthy and help accelerate it” – Alex Iskold, managing director of TechStarsNew York (h/t to Brittany Laughlin of USV for pointing me towards his post).
WHO TO HAVE ON THE BOARD
- Advisory board members are people who can either make introductions to key people (former travel executives, for example) or solve hard problems but you don’t need them full time.
- Ideally look for people who have been on “real” boards and/or have been CEOs or C_Os of companies that you admire.
- I see executives hire “big names” to advisory boards and it looks good on your website but if they never read your emails or make intros then it’s just marketing. So you should reference check people.
Via Tim Peek of Peek Disruption:
- While it’s important to have people in your industry on the board, I also believe that diversity of thought and experience is even more important for a disruptive player like Hitlist. So, I’d look for people in “adjacent” industries — areas of business that share some attributes with the travel industry but also are different or perhaps already experiencing what you hope to create in travel. What other industries have followed a trajectory similar to the one you hope to create in travel? Look for people from there to advise you.
- I do think culture is the major differentiator for businesses in this century. In my experience too many startups are solely focused on execution (makes sense – there is a lot to do, not much time, and not many people to do it) and culture grows unnoticed. They end up with cultures that ultimately are unsustainable — I believe this is why so many startups don’t survive or have a deep “sophomore slump” and can’t come up with an effective 2.0 product or strategy once they are off the ground. So, what businesses have cultures which are successful and which you want to emulate — get those folks on your board.
- A leadership advisor specifically for you. Someone you believe can take your leadership to the next level, support you in finding solutions to tough questions, and help you keep your head above the rising tide of daily business to focus on the big questions and direction.
Again from Josh Elwell:
- Try to get at least one person who is “friends” with lots of people you want to know (investors, partners, customers, etc). Warm introductions are valuable, but that person pushing on “friends” from behind the scenes is even better at getting things done quickly.
- Try to get at least one person with a “big” exit who fully understands the strategic process of getting a business sold (the second part is critical, because lots of entrepreneurs were lucky, not strategic). I get the best advice from people like that because they think about the end goal and how little decisions made now can help later.
- Those might be the same person.
- Relevant industry experience is nice, but I find that people with it aren’t as helpful as I had initially expected if they don’t have 1 and 2 (apart from just using their names for credibility).
- I have an advisor who used to be a senior level management consultant. He is super helpful with lots of stuff even though he doesn’t have 1, 2 or 3. He always asks the right questions, cleans up all our pitch decks with ease, and is just generally a great person to get rapid feedback on new ideas.
Again from Alex Iskold:
- Include 2-4 people plus the founders.
- Recruit one or two of your top angels + other experienced operators/mentors.
HOW TO RUN THE BOARD
- Commit to talking to each board member every 4-6 weeks and meeting with the whole board every 2-3 months. People can dial in if necessary, but in person is ideal.
- “Don’t be afraid to swap folks out if it turns out to not be a fit.” – Iskold
- Set clear expectations for commitment. “Board members will only rise to the level of performance articulated to them and expected of them, so as a board, it is important to clarify expectations with potential new members from the beginning.” – Sarah Najarian and Caroline Page of Robin Hood(h/t to Betsy Mikel of Women 2.0 for pointing me to their post)
More from Thorpe:
- Grant up to 2 years for your advisory board’s stock grants (typically 10–25 basis points, in my experience, depending on their contribution and experience), but then have it renew by mutual agreement every quarter and vesting happens quarterly. If someone isn’t helping you or they get busy, then you simply don’t renew them for the next quarter.
- Building the right culture around your board is paramount and it’s one of the things that’s really hard to do when you’ve never done it before. In my opinion for a new CEO, it’s ideal to have a friendly “chair” who can help you manage the rest of the board. This is ideally a former CEO who shares your cultural values, is busy with other things, and doesn’t want your job.
- Practice building your communication skills with them, talking about issues, presenting company strategy, cash flow, income, creating a plan and showing your progress against the plan (and how the plan evolves over time – it’s a startup, not a public Fortune 500 company). Make a habit of calling your board members in advance of your meetings and making sure they understand what’s going to happen and that you have a chance to answer their questions and address their concerns.
- At some point investors will want to take a board seat or have formal board meetings. That’s why it’s important to have already established strong relationships and board culture that work well for your company, so that your existing board members can keep meetings in line with that culture. Culture helps prevent unproductive habits like board members ordering you about what to do, regularly showing up late, talking directly to your employees, or going “off the ranch” to others outside your company. A good maxim is “eyes on, hands off” (or “fingers out”). And you kind of need to see people in action for a while before you know. Do they support you as CEO in the board meeting and prepare you ahead of time with their issues? Do they seek to support you when bad things happen, or do they surprise you in the middle of a board meeting with a hostile question? Do they work through you, not around you? Do they ask you hard questions that make you defend your decisions and understand your assumptions better, even if you don’t change your mind? Do they respect your deep understanding of the landscape more than their own brilliant insight from 30,000 feet? Etc.
- Board meetings can turn into a lot of work, so try very hard to limit the amount of work to just the amount needed to keep you accountable and get strategic and tactical advice. I’ve seen a lot of startups spend way too much time preparing detailed analyses and predictions on the basis of data that are too limited or early stage to be of much predictive power. Understand what you can reasonably know and not know, and what you can reasonably predict from that knowledge. Don’t be afraid to say “this is the best we can say given what we know today, and we’ll update it as we learn more.”
Image credit: CC by Paul Downey