A young entrepreneur I met recently asked me how to think about advisory boards and I ended up writing him a long email, which forms the basis of this post.
The biggest value-add I can impart here is a piece of advice that was passed along to me by an associate at the VC firm that funded my first startup, and it’s this: define success for each of your advisory relationships. Don’t just sign someone up as an advisor and then start leaving them messages asking what they think of the latest site design. Instead, be very specific about the kind and amount of assistance you want to get from this person, and then hold them to it. This entails some personnel management on your part, but it’s the best way to know you’re getting your equity’s worth from them. Advisors don’t get a very big slice of the pie, but as an entrepreneur, any slice is a big slice, so you want to know you’re getting an appropriate amount of value out of the relationship in return.
So define what success is in each case. From one person, you might expect to get an hour-long conference call every month in which you can seek feedback on the latest site design. From another, you might expect a steady flow of meetings with potential investors (one a month? one a week? depends in part on where you are in your funding cycle). Or you might have an advisor you’ve recruited because they’re well connected to engineering managers, so your criteria for success here is, help us land our Director of Engineering within the next three months.
Note that in some cases you’ll want your advisors to know what these criteria are, and in some cases you won’t. Regardless, it’s you who needs to know what you’re looking for from each. Plenty of people will tell you, “Sure, call me anytime,” but that doesn’t say anything about their obligation to call you back.
And be sure that the kind of help you’re seeking from each advisor is something they can provide. Don’t ask the open-sourcenik file-sharing dude how to market your B2B service to enterprise purchasing managers. You want to ask people for things you know they’re able to deliver. Or, put another way, you don’t ask for swimming lessons from a drowning man.
Other criteria for recruiting people to an advisory board:
- they believe in what you’re trying to build
- they’re well connected to a class of people you’re trying to reach
- they have experience building a company in or near the space you’re working in (or, they’ve worked at a high level in or near your space)
Not all advisors will hit all three of these criteria, but they’re a good way to start thinking about what you’re looking for — in part because you can generally expect to get one or more of three things from an advisor: marquee value, introductions, and/or advice:
Marquee Value: If you can recruit a well known figure from the space you’re working in, it can open some doors and/or be attractive to other people who may want to get involved or invest just so that they can get next to your advisor. So if you’re building an app that delivers a daily dose of comedy to your smartphone, you’ve got a huge win if you can recruit Jon Stewart, for instance, who could be valuable to you even if he never actually made any introductions or gave you any advice. That said, this is generally the worst reason to put someone on an advisory board, if you ask me.
Introductions: Possibly the best person to recruit as an advisor is someone who can help introduce you to partners of whatever kind, be they potential investors, potential employees, potential business partners, potential customers, etc. Not that you’re recruiting someone hoping he or she can introduce you to all of the above, but you’re recruiting someone hoping that they can introduce you to a very specific set of people. One advisor might be able to introduce you to great engineering managers, for instance, while another might know a lot of investors, another might be well connected in your target market, etc. You’ll probably get more than one type of introduction from a single advisor, but my advice would be to recruit an advisor based on a single type of introduction (makes it easier to define success), and be happy with anything on top of that.
Advice: Advisors can of course give you advice as well, in the form of feedback on designs, business plans, your approach to a market, monetization strategies, or any of the many other decisions that go into building a business. This is something you can expect from any of your advisors. In some cases, this is all you’ll expect. In that case, you probably want to find someone who has built a business that’s similar to yours in some way or who has great experience in the market you’re working in, and can lend you the benefit of their experience.
In addition, advisors can also provide you with a bit of moral support, especially if they’ve built a startup before. Don’t underestimate the value of this kind of assistance. And finally: advisory relationships can be a good way to feel someone out as to what they might be like as a full board member or executive of the company at some point down the line.
In terms of time commitments, don’t expect much, but do push for a conference call or meeting of the entire board once a month, if you can get it, or once a quarter at a minimum. And feel free to avail yourself of individual advisors’ help between meetings. Most people take advisory relationships not because they see a huge payoff in the 1/4 percent of equity you’re offering them, but because they think they can help you and they have an honest desire to do so. That said, they’re usually busy people, so I would say one of the number one rules here is: don’t be afraid to ask. And remember that there’s a time commitment on your part as well. You’re probably already creating a weekly update email for your investors (or if you aren’t, then you should be). Send it to your advisors as well, and also send along any material you want advice on in advance of any calls. Treat these people like their time is valuable to you.
You should also create an advisory agreement that lets their stock vest over time and allows you to call off the relationship whenever you want as well. Then, if your criteria for success aren’t being met, you can call things off.
How much stock do you offer? (Generally stock options, actually.) Anyone’s guess, but you’ll see anything from 1/8 percent to 1 percent, depending on who you are and who your advisor is, what you’re looking for from them, etc. No cash compensation unless you’re looking for specific deliverables, and then you want to do that in a separate agreement / transaction. But do offer them travel expenses to come to meetings, and buy them lunch occasionally.
So that’s the long way to answer the question of advisory boards. My advice would be to consider whether this would be useful, think about what kinds of people you’d want to recruit for a board like this (and start slowly with just one or two), and go for it if you think it’s the kind of thing that would help you get things going. It takes a little time and energy and equity, but I think it’s worth it.