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The complete guide to forming and managing an advisory board.

Building a successful business is really hard. So you should do everything you can to improve your likelihood of success. Startup advisors often play an important role in improving the speed and outcomes for the startups they advise. This article explores what advisors are, what they do, and how to get the most out of them.

What is an advisor?

Do advisors invest in the company.

• Why you need advisors
• Real life examples

Helpful mentors dramatically increase fundraising success

• Why you need REAL advisors

What to look for in advisors

Forming your advisory team, advisor compensation, advisor contracts, maximizing advisor contributions.

Startup advisors help management teams make better decisions, move faster, and improve outcomes. Examples of the sorts of things advisors often help with include:

• Advice on business model strategy and positioning
• Advice on key areas of the business (e.g., user acquisition, product architecture)
• Honing your pitch decks and presentations
• Introductions to potential investors
• Introductions to key customers
• Help identify and recruiting talent
• Acting as a sounding board for organizational and people issues

Advisors are almost always experienced business people or domain experts who know things or have relationships the startup management team doesn’t.

What advisors are not

Advisors are not mentors , at least in our lexicon. Mentors offer personal support and advice to entrepreneurs, not to the broader company. Advisors work on behalf of the company and all of its shareholders.

By definition, advisors are not employees . To the extent they formally engage (the relationship is often informal), they are independent contractors.

Legally and practically, advisors are not board directors . Directors also advise and support the company, but the context is quite different. Board directors have a legal status that comes with certain rights and duties that don’t accrue to advisors. Directors have the right to contribute to decisions about the strategy and operations of the company, and a right to be informed about the company. They also have a fiduciary duty to act on behalf of the interests of all the company’s shareholders, ensure they remain suitably informed about the company, and a duty of care in performing their duties. Advisors have no such duties or rights outside those expressed in a written advisory agreement.

Because advisors are not employees or directors, they often act more like mentors—meaning they emphasize the interests of the management team over the other shareholders. For that reason, in many cases entrepreneurs find they can be more open with advisors and more easily avoid conflict with them when dealing with high stress situations.

Advisors may invest in your company as well. Many of them are wealthy, and if they’re interested enough in what you’re doing and believe enough in you to actively help, it shouldn’t come as a surprise when they ask to invest.

But there are many reasons why advisors might not be able or willing to invest. Some simply don’t have the cash. Others might have external constraints that make it too difficult, for example corporate employer policies on equity holdings, or venture capitalists who have to avoid even the appearance of conflict for LPs and partners. Frankly when you’re early on, many advisors are waiting to see where you get before they decide to push any cash your way.

It’s trite to say (as some do) that entrepreneurs shouldn’t engage advisors who aren’t willing to put some money into the company. There’s almost always a point on a company’s path when it’s interesting enough for some advisor attention, but still too uncertain for them to risk cash on it. Cash is emotionally and practically different from time, particularly for non-entrepreneur advisors who may not have as much experience with risk capitalization.

Advisors who do invest are very often more engaged and attentive, so it’s almost always a good thing when they do. One potential downside is that advisors who invest sometimes begin to feel that you have an obligation to listen to their advice, or even an obligation to heed it.

My advice generally is to first focus on the value contributions and working relationship you have with advisors. Any conversations about investment should flow naturally, and should be viewed in the context of their advice more than their money—unless of course they are sophisticated investors with enough capital to really move the needle for you. And don’t exclude promising advisors just because they won’t invest. In the end, there are no hard and fast rules here, and you should constantly seek to optimize for a faster, better outcome.

Are advisors important?

In a word: yes. The right advisors engaged in the appropriate way can dramatically speed progress, reduce risks, and increase your likelihood of success. Changing the way things work (e.g., creating a new business model), inherently involves a level of complexity that requires diverse expertise and difficult problem-solving. Advisors can offer operating experience and insights into areas of expertise that you’re very unlikely to have available on your early stage team. Those insights can have a fundamental impact on your company.

One of the most important things a good advisor will do is force you to reconsider your assumptions. It seems intuitive that diversity improves decision-making by bringing to bear differing perspectives. That’s true, but it doesn’t tell the entire story. Research out of Kellogg School of Management demonstrated that :

“Diverse groups outperformed more homogeneous groups not because of an influx of new ideas, but because diversity triggered more careful information processing that is absent in homogeneous groups.”

Real world examples

The product did too good of a job.

In 2008, I was doing a startup turnaround as CEO of a recruiting technology venture portfolio company. I had no experience in recruiting at the time, hadn’t been part of making the original investment, and stepped in as a venture capitalist on behalf of my firm to try to fix a company that was quickly headed in a bad direction.

We made a seemingly impossible turnaround on the product in six weeks (the product team I brought in was amazing). But we were surprised that the recruiters targeted by our product were ambivalent about it. It was one of our advisors who pointed out a perspective that seemed alien to us: our product was doing too good of a job. Recruiters report their value to their bosses in part by filtering thousands of resumes into a much smaller set of good candidates. Our product automated a lot of that work for them, giving them more time to be good at the parts of their job only a human could perform. But because it made them feel left out of the loop, they felt threatened and diminished by it.

The solution was fairly quick and easy; we built in more participation and choices on their part, and ensured all the reporting showed the scale and complexity of the applicant funnels they were managing. Their satisfaction immediately improved.

As performance-driven entrepreneurs without an insider perspective we would likely have remained blind to the recruiter concerns until it was too late. Score one for advisors.

Near premature scaling

A number of years ago I was on the advisory board of a startup operating a two-sided marketplace connecting small businesses and consumers. Registered user growth was strong, and CPAs (Cost Per Acquisition) were in line with industry averages. Unit margins were good, and NPS (Net Promoter Score) was great. It was early and low scale, but the founder was convinced things were working well enough to ramp up growth by increasing spending on acquisition.

However, I was concerned the acquisition model wouldn’t scale—it relied too heavily on street marketing by the team, which I believed was artificially skewing the CPAs down. I also was concerned that the CAC (Customer Acquisition Cost) was higher than it should be because consumer geographic demand had to match the small business supply geography, which often didn’t occur. In other words, newly registered users often couldn’t convert into a paying customer due to lack of local coverage. And finally, I thought they should factor in the cost of acquiring the other side of the market (their small businesses) into the equation because it was very costly, and the volume per business location was too small to justify the volume they generated on the consumer side.

I recommended a strategy of focusing intensely on each geographic area to create a sustainable cycle instead of trying to scale more broadly. At first, the team pushed back. But as they looked further into it, they saw the risk of premature scaling. They paused a planned funding round, and refocused on achieving sustainable metrics. Within a year the business was humming, and they later sold to an acquirer. But things could have gone a very different direction had they attempted to scale before resolving the core unit economic elements of the business.

Scale can sneak up on you, too

This next example shows the other side of the scaling dilemma. This founding team was purchasing goods at Costco for resale to their corporate customers. It was intended to be temporary: an expedient way to learn what worked without too much up front cost and complexity. Their instincts were right, but they hadn’t done the math or thought through the implications of switching their process too late. We pointed out to them that:

• Their volume was low, but growth seemed to be reaching an inflection point
• The time and energy to set up wholesale sources would be very painful if the transition occurred when they were already at scale
• The payment timing for Costco (immediate, or at least 30 days on a credit card) was generally worse than they could get working with a wholesale provider
• Costco shopping wouldn’t scale (nor would their credit card)
• Costco prices at scale would significantly impair their working capital cycle
• The limited choices at Costco constrained their ability to effectively test demand

Thankfully, the team listened to us and acted quickly. Within a few weeks we had them set up with wholesale vendors who extended them credit based on our relationships with them. It was disruptive, but manageable at their then current scale. The result was a significant improvement in margins and cash flow cycles, as well as further increases in growth because the founders could spend more time selling—and less shopping. If they hadn’t made this change, they would have quickly run into a wall where their working capital was insufficient to support continued growth, but it would have happened without enough warning for them to raise the capital needed to support continued operations. Thankfully they avoided that existential threat, and continued on to grow 11x in top line revenue over the next 12 months. Cash flow was really tight, but they made it happen.

Examples like the above are probably why startups with helpful advisors raise so much more money than ones that don’t. The Startup Genome Report shows that average funding raised by stage was dramatically higher for startups with helpful advisors.

Funding raised is a reasonable proxy for startup success and progress. The findings from the Startup Genome Report imply that beyond validation stage in particular, startup advisors add tremendous value. In fact, it appears that startups that “don’t have helpful mentors” don’t raise any money at scaling stage—another way of saying that most never get there.

It’s all about REAL advisors

Unfortunately, many founders seem to think of advisors as more of a checklist or branding exercise than a real resource. We regularly see advisors listed in pitch decks only to find later that the advisors have virtually no interaction with the team.

Starting up is hard, lonely, and often frustrating. It often feels like the world just doesn’t understand the potential for what you’re working on. That’s probably why so many founders treat advisors as a sort of endorsement or validation, particularly early on. “Take me seriously, look at my advisors!” or “You know I’ll be successful with advisors like this!”

The problem is that advisors do no good unless they’re actively engaged. What sort of endorsement is it to have a headshot in a pitch deck, but the advisor isn’t willing to take the time to actually help? And what good will an amazing advisor do by merely appearing in a pitch deck and taking a call or two?

That’s why having inactive advisors in a pitch deck is a form of vanity that at best offers no real benefit, and at worst reflects very poorly on founders. Venture capitalists are very likely to check in with your advisors—we certainly do—and it’s quite awkward for entrepreneurs when we find that the advisor almost never speaks to the team. We occasionally find that the advisors don’t even recall the company or the team and is confused as to why we’re asking about them. That’s a sure-fire way to eliminate your fundraising prospects with that VC.

The lesson here is simple: have (and list) only real, engaged advisors.

Founders too often look for obvious or flashy advisors rather than focusing on finding the ones who will add the most value to the business. Another common mistake is settling for the most readily accessible people instead of taking the time to identify and cultivate relationships with the most valuable advisors.

As we said previously, flashy but uninvolved advisors aren’t helpful. Poorly suited advisors can be even worse. That’s why I recommend a thoughtful and planned approach to identifying and recruiting advisors. I recommend looking for advisors who:

• At least understand the realities of running a startup (some should be seasoned startup executives)
• Have a deep understanding of the domains that touch upon your business (e.g., technology, industry)
• See the world differently from you and from each other
• Know people, particularly people you don’t know who might be useful
• Aren’t afraid to challenge you and ask tough questions
• Have the time to focus and actually help
• Share your passion and are inspired by your vision

And don’t forget about actively incorporating diverse perspectives. It can be incredibly eye-opening (and value creating) to witness a very different perspective being laid out before you.

Some checkboxes you should probably be able to check in terms of advisors:

• Someone who has successfully built a company with a similar business model and customer (e.g., enterprise SaaS)
• A veteran of your target industry who knows the prevailing attitudes and many key players personally
• A customer meta-expert: someone who really understands how your target customer thinks, feels, and behaves, and preferably is also one of them
• A serial entrepreneur who knows the ins and outs of building startup teams, operations, and cultures
• A technology or product expert, preferably with experience building teams

Attracting advisors is similar to seeking funding; you have to inspire them with excitement about the vision for what you’re doing. Transactional advisor relationships are unlikely to work well. After all, startups are highly risky and unpredictable. Convincing an uninspired advisor to help—and potentially expose her brand and network to risk—via transaction is unlikely to happen. Vision is a critical component of a successful entrepreneurial venture. You’ll definitely have to bring it out to attract quality advisors.

It also often takes personal interactions over an extended period of time to instill a sense of excitement in potential advisors and to identify the ones who can actually help you. That’s why I recommend building your advisory team gradually over time. Building gradually helps avoid bringing on poorly fitting advisors and enables you to avoid the clutter imposed by unnecessary advisor interactions. Time is precious, and you certainly want to avoid too much management overhead in the formation and maintenance of your advisory team.

Evolution of your advisory team

I tend to think of advisors existing at three distinct levels:

• Advisory network
• Advisory board

I also tend to think about forming your advisory team in the context of slowly building from level 1 to level 3 above.

Advisory Network

Your advisory network comes first. It’s a relatively broad set of people who have an expressed or at least implied willingness to offer advice and assistance to you. How do you find these people? I recommend constantly asking people for advice. Invite the smart ones to your advisory group.

Probably the best way to interact with this network is via regular (quarterly) emails supplemented with targeted asks depending on needs and advisor capabilities. The regular emails should keep the advisors abreast of what’s going on to keep them engaged and reduce friction when you do get around to making asks of them. These regular communications can also incorporate your most important general asks. On top of the regular emails you can reach out directly to appropriate members of the advisory network as needed.

As I mention later in this article, your advisor network members shouldn’t be compensated, and shouldn’t be asked to sign advisory agreements or NDAs. It’s just not worth the cost and complexity for you or for them. If there’s something you’re worried about sharing with them (you probably shouldn’t be), then be careful sharing it or tone down the details.

Your advisory network is most likely to offer fairly passive and infrequent contributions such as pointing out interesting companies, a few introductions, and general ideas and feedback. When members of the network come to you with more specific contributions, consider moving them to an advisor role.

One minor risk that’s worth pointing out is that if you have an advisor who engages too deeply, and starts to feel that she has made meaningful intellectual property contributions to the company, you could find yourself in a legal dispute about IP absent an advisory agreement. That’s one more reason to consider pushing someone to advisor status if they’re becoming more active in helping you.

Your advisors should form naturally from your advisory network. These will be the people who provide the most value to you, both because their capabilities match your needs and because they reliably offer assistance—and come through with it.

Advisors may or may not be compensated, as mentioned later in this article. In many—in my experience most—cases advisors are doing it because they like to help, not in the hopes of compensation. But in the end, I recommend compensating your advisors for reasons discussed in later.

As you get to know your advisors you will start to identify a few who can stand out for their advice and assistance. It tends to happen naturally due to the nature and direction of your business. That’s when you might consider adding an advisor to your advisory board.

Advisory Board

Your advisory board should be formed of key advisors who agree to engage on a regular cadence for a specified tenure. This board should have a regular call and meeting schedule—perhaps monthly calls with once quarterly in-person meetings. The board should be small enough to be nimble, but large enough to offer the key expertise and experience that you need during any given time period. That usually means between 2-4 people.

The tenure of members of your advisory board should map to likely evolutions in the needs of your business. I strongly advise an explicit tenure (e.g., not open-ended) for several reasons:

• Your needs for advice and assistance are likely to evolve over time
• It sets expectations in advance, and makes it much easier to transition people off as needed without offending them
• It constrains their commitment, making it more likely for busy people to accept the role

Terms should probably be for one to two years. If you have a near-term need that’s unlikely to persist, one year might work. Otherwise, two years probably makes more sense because things always seem to take longer than you think, but two years probably offers enough time to get a lot of value out of an advisor.

As I mentioned previously, you should generally expect to compensate your advisors with some equity. I do not advise offering equity to your advisory network; presumably they will accept this light level of engagement without an expectation of compensation. It would also be hard to justify the cost in both equity and time (and legal costs) of offering equity to a fairly broad set of people in an advisory network.

Your advisors, and certainly your advisory board, however, will probably expect some equity. And even if they don’t, there are good reasons you may want to give it to them. Offering equity allows you to require an advisory agreement, which can clarify expectations and offer important intellectual property protections for the company. If you have an advisor who’s clearly adding value and appears to be a level-headed, reasonable person, you probably don’t have to worry about getting her under contract. But less sophisticated or rational people should probably be under contract—or maybe shouldn’t be advising you at all.

How much equity do advisors get?

Advisor equity commonly ranges between 0.10% and 0.25% for a (typical) two-year engagement. In unusual circumstances it can be much higher: 1% or more. Generally I think it’s a bad sign if an advisor expects too much equity. It implies she doesn’t assign too much value to the company, and likely means she isn’t particularly passionate about your vision.

The amount of equity that’s appropriate depends on several factors:

• Stage / value of the company
• Level of effort
• Expected contribution of the advisor

On the other side of the coin, this isn’t a time to be an equity skinflint. I’ve already pointed out how much value an advisor can generate. So instead of thinking about how much equity you’re giving away, I’d recommend thinking about how much net value their participation will add to your company. If you give away $25,000 worth of equity, but see a $100k increase in enterprise value, you’ve made a good deal for everyone involved.

Another way to think about it is that startups are extraordinarily unlikely to achieve a meaningful liquidity event. But when they do have meaningful exits, they’re often really (really) meaningful. As such, I advise optimizing more for the likelihood of a positive outcome rather than the amount of it you own at the time. One-hundred percent of nothing is—wait for it… nothing.

To put things in context, for a startup with a post-money valuation of $10 million, a 0.10% award is nominally worth $10,000. If an advisor allocates three hours a month on average over the course of two years, that’s $138.89 per hour—theoretically. For one thing, value is in the eye of the beholder and many startups are overvalued and advisors know it. For another thing, advisors are typically awarded common equity, which is worth less than preferred equity, so it’s not as simple as multiplying equity percentage by post-money valuation to get the equivalent value.

Advisor equity structure and vesting

In my opinion, advisor equity should be in the form of common stock options. There’s no reason to add complexity to your cap table and voting structure by offering preferred equity to advisors. And as long as the option strike prices are properly set (e.g., at a reasonable fair market value at the time of award), advisors can expect to defer any tax payments until the time of liquidity. As always, consult your tax and accounting professionals and pay attention to regulatory elements such as 83b elections.

All advisor equity should vest. The timeframe should map to the expected time horizon for value creation, which is typically one to two years. I recommend a three-month cliff because there’s always a risk that an advisor won’t work out. And if that happens it’s likely to be obvious fairly quickly. A cliff enables you to end the relationship with the advisor with the three month window without losing any equity, and without having to deal with a hard to explain entry on the cap table.

Advisor equity should feature 100% acceleration on single trigger. In other words, if you sell the company before they’re fully vested, they should get everything they would have gotten over the entire vesting period upon sale. After all, they probably did their job, and there shouldn’t be an expectation for them to hang around to advise the new owners.

You need an advisory agreement for any advisor who will receive equity. There are many reasons to put it in a legal document:

• Putting expectations in writing ensures clarity and a “meeting of the minds” about the nature and level of contributions that can be expected
• A contract makes it harder for them to skimp on their duties
• It shows that both parties are serious and actually committed
• Establish clearly that the advisor is not conflicted, and that she will inform you if she becomes conflicted
• A properly constructed agreement protects intellectual property that you may expose from them, or even receive from them (e.g., patentable ideas that by law can lose protection in the absence of NDAs)
• It provides an opportunity to vest advisor equity over time, which is an important tool for recapturing equity that wasn’t really earned

Some advisors will agree to an NDA, IP assignment, and even non-competition without complaint. Sophisticated ones will almost always balk at some or all of those provisions. Venture capitalists, for example, generally won’t sign any of these sorts of provisions. We see so many deals and so many ideas that it’s far too risky to expose ourselves to claims of infringement. Corporate executives are likely to balk as well, for similar reasons. If you do end up at an impasse about any provisions like these, I would recommend dramatically narrowing the scope of your requested protections. The risk that any of your advisors will take advantage of you is small. And it’s nothing compared to the value they might create for you. If you construct appropriately narrow provisions, then you can probably protect yourself against the actual bad actors without capturing the 99.99% of good actors in your net.

It’s generally a good idea to seek legal counsel when constructing important agreements. A good lawyer, for example, can play a critical role in negotiating an appropriately narrow agreement for an advisor who is concerned about your standard provisions.

Alternately, there are standard forms that might work if you’re really tight on capital. Here are two good ones worth considering:

• Founder Institute’s standard advisor form
• Upcounsel’s standard advisor form

It’s not enough to just find and recruit advisors. You have to take the initiative necessary to maximize the value of their contributions. For the most part your advisors will be very busy, and it will be up to you to ensure that you pull the most value from them.

Just as importantly, you ought to minimize the management overhead associated with your advisory team. Startups feature a crushing enough workload as it is.

I’ve seen advice to focus on transactional engagements with advisors to minimize overhead. I think that’s a poor idea. Instead, a regular and thoughtfully managed advisor system can ensure that your advisors remain informed about what’s going on with your business and the industry, so you don’t have waste cycles on reeducating them every time you interact with them.

And a properly managed advisory board can offer a very strong incentive for busy advisors to brush up on things and bring their A-game to advisory board meetings; the last thing they want to do is look like an idiot in front of their advisor peers. And it forces you to think through your needs and goals in advance, which is likely to lead to a more efficient and productive meeting.

Advisors also tend to have strong opinions and inherent curiosity. And for many (most?) advisors, their role helping you is a rare chance to indulge in things that interest them rather than having to be disciplined about their own affairs. As a result, it’s not unusual for them to barge into areas of the business where they’re uninvited and maybe even unhelpful. At least there is a risk they won’t focus on the areas where you need them most.

That’s why I recommend some best practices for working with advisors:

Structured interactions

It’s best to set a regular cadence for core interactions with advisors. For example, I recommend monthly calls and quarterly in-person meetings with your advisory board. This ensures that they can plan ahead to be available, and makes it easier for them to maintain an awareness about what’s going on. If you let things stretch too long between engagements, they’re likely to forget context, requiring inefficient catch-up cycles and increased confusion. That’s not to say that you shouldn’t reach out to advisors on an as-needed basis as well. It’s just that your ad hoc requests should be on top of regularly established interactions.

Share information in advance

You should prepare advisor briefs in advance of advisory board meetings—something like a board deck. You should also try to do brief write-ups before every meeting or call with an advisor to give them context. This ensures that you can spend your time creating value rather than catching up. Experienced business people are accustomed to walking into meetings well-informed.

Focus on specific issues / asks

Most advisors help companies at least in part because they enjoy it. And because they’re not involved in the daily activities of the business, they are often curious about how things work, and may have ideas about directions the business could go. I would recommend listening to whatever it is they want to talk about, but balance that with the need to keep them focused on the task at hand. That’s why your write-ups and initial framing of conversations should be very specific. I recommend listing the specific area(s) where you’d like their help, and where possible describe the options you’re considering. Once you’ve framed the issue(s), you’re much more likely to cover the things that matter most to you.

Advisors can be a critical resource for startup teams. Yet many founders make strategic errors in assembling and managing their advisor group. Don’t assemble a fake or perfunctory advisor team. My advice is to treat it as an important initiative that will require time and energy to achieve full potential.

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What Is an Advisory Board? A Comprehensive Guide

Explore the essentials of advisory boards: their history, structure, roles, and benefits. Learn how to effectively set up and leverage their expertise

‍ Introduction

An advisory board is an essential tool for businesses looking for guidance and expertise in achieving their goals. In this comprehensive guide, we will explore the concept, structure, functioning, and benefits of advisory boards. We will also provide step-by-step instructions on setting up an advisory board and selecting the right members for it.

• What is an Advisory Board?

An advisory board is a group of external experts and professionals who provide strategic advice and support to a company or organization. Unlike a board of directors, an advisory board does not have formal decision-making authority but serves as a valuable resource for the management team. The main role of an advisory board is to offer guidance based on their knowledge , experience, and industry insights.

Advisory boards have a long history and evolved as a response to the changing business landscape. Initially, advisory boards were formed to provide advice to royal families and rulers. These boards consisted of trusted advisors who were knowledgeable in various areas such as finance, law, and diplomacy.

Over time, their purpose expanded, and advisory boards became more prevalent in the corporate world. Companies started recognizing the benefits of having a group of external experts who could provide objective perspectives and help navigate complex business challenges. Advisory boards began to emerge in various industries, including technology, finance, healthcare, and more.

In recent years, the role of advisory boards has gained even more significance, especially with the rise of startups and the need for expert guidance. Startups often lack the experience and resources to make critical decisions, making advisory boards crucial for their success. These boards bring together individuals with diverse backgrounds and expertise, ranging from seasoned entrepreneurs to industry veterans.

Advisory boards play a vital role in shaping the strategic direction of a company. They provide valuable insights into market trends, competitive landscapes, and emerging technologies. By leveraging their collective knowledge, advisory board members can help companies identify new opportunities, mitigate risks, and make informed decisions.

Furthermore, advisory boards can also assist with networking and business development. Members often have extensive networks and can open doors to potential partnerships, investors, and customers. Their connections and industry relationships can significantly benefit the company they advise.

Another important aspect of advisory boards is their ability to provide mentorship and guidance to the management team. Startups and small businesses can benefit greatly from the wisdom and experience of seasoned professionals. Advisory board members can act as mentors, offering advice on leadership, management, and overall business strategy.

Overall, advisory boards serve as a valuable resource for companies and organizations, offering a wealth of knowledge, experience, and industry insights. Their role in providing strategic guidance, networking opportunities, and mentorship is crucial for the success and growth of businesses in today's competitive landscape.

The Structure of an Advisory Board

An advisory board is a group of individuals who provide strategic advice and guidance to a company. It is important for an advisory board to have a well-thought-out structure in order to effectively support the company's growth and success.

Typical Composition of an Advisory Board

When forming an advisory board, it is crucial to carefully consider the composition of the board members. The ideal advisory board should be composed of individuals who possess the relevant expertise and industry knowledge that aligns with the needs of the company.

The composition of an advisory board may include industry veterans who have years of experience and deep insights into the market trends. These veterans can provide valuable guidance based on their extensive knowledge and understanding of the industry.

In addition to industry veterans, subject matter experts can also play a vital role in an advisory board. These experts have specialized knowledge in specific areas, such as technology, finance, marketing, or operations. Their expertise can help the company navigate through complex challenges and make informed decisions.

Successful entrepreneurs can bring a unique perspective to an advisory board. Their firsthand experience in building and scaling businesses can provide valuable insights and practical advice to the company's management team.

Furthermore, it is beneficial to have professionals from various fields on the advisory board. This diversity in backgrounds brings different perspectives and insights to the table, ensuring a well-rounded advisory board. Professionals from legal, finance, human resources, and other relevant fields can contribute their expertise and provide valuable advice in their respective areas.

Roles and Responsibilities of Advisory Board Members

Advisory board members have several key responsibilities that contribute to the success of the company. Their primary role is to provide strategic advice and guidance to the management team. They use their expertise and industry knowledge to help the company make informed decisions and develop effective strategies.

One of the important responsibilities of advisory board members is to analyze industry trends . They keep a close eye on the market dynamics, emerging technologies, and changing consumer preferences. By staying up-to-date with the latest trends, they can help the company identify new opportunities and stay ahead of the competition.

Advisory board members also play a crucial role in evaluating potential risks and opportunities. They conduct thorough assessments of the company's operations, financials, and market position to identify areas of improvement and potential challenges. Their objective analysis helps the company mitigate risks and capitalize on opportunities.

In addition to providing advice and analysis, advisory board members serve as valuable connectors. They leverage their networks and connections to introduce the company to potential partners, clients, investors, and other valuable resources. These connections can open doors to new opportunities and help the company expand its reach.

Furthermore, advisory board members serve as sounding boards for the management team. They actively engage in discussions, brainstorming sessions, and strategic planning meetings. Their diverse perspectives and experiences help refine strategies and offer suggestions for improvement.

In conclusion, the structure of an advisory board is crucial for its effectiveness. By carefully selecting board members with relevant expertise and diverse backgrounds, and defining their roles and responsibilities, a company can benefit greatly from the guidance and support of its advisory board.

The Functioning of an Advisory Board

An advisory board is a group of individuals who provide guidance and advice to a company or organization. They operate through regular meetings, which can be conducted in person or virtually. These meetings serve as a platform for the management team to present challenges, seek advice, and discuss business strategies.

During these meetings, the board members contribute by offering their insights, asking critical questions, and proposing solutions based on their expertise. Their diverse backgrounds and experiences bring a wealth of knowledge to the table, allowing for a comprehensive and well-rounded discussion.

One of the key aspects of the relationship between an advisory board and the management team is collaboration. It is essential for both parties to work together towards the common goal of the company's success. This collaboration is built on trust and mutual respect, as the advisory board members provide advice while the final decision-making authority rests with the management team.

Open and transparent communication is crucial in maintaining a strong relationship between the advisory board and the management team. The management team should actively seek the input of the advisory board, considering their recommendations and taking them into account when making decisions.

Advisory boards can play a significant role in the growth and development of a company. Their expertise and outside perspective can help identify opportunities, mitigate risks, and provide valuable insights into the industry and market trends.

One platform that connects businesses with top advisory board candidates is AdvisoryCloud.com . It serves as a bridge between companies and high-quality advisors, allowing organizations to find individuals who can bring valuable insights and expertise to their organizations. Through this platform, businesses can access a diverse pool of candidates and select the ones that align with their specific needs and goals.

Benefits of Having an Advisory Board

Having an advisory board can bring numerous advantages to a company. Not only does it provide a fresh perspective on the company's challenges and opportunities, but it also helps the management team make informed decisions. The diverse backgrounds and experiences of advisory board members ensure a broad range of viewpoints, enhancing strategic thinking and problem-solving.

One of the strategic advantages of an advisory board is the access it provides to a wide network of industry connections, potential clients, and investors. These valuable connections can accelerate growth and open doors to new opportunities for the company. Advisory board members often have extensive networks built over years of experience, which can be leveraged to benefit the company.

Strategic Advantages of an Advisory Board

Advisory boards offer strategic advantages that go beyond just providing advice. They can serve as a sounding board for new ideas and initiatives, helping the management team refine their strategies and avoid potential pitfalls. By tapping into the collective wisdom of the advisory board, companies can gain valuable insights that can shape their future direction.

Moreover, advisory boards can bring industry-specific expertise to the table. Whether it's in technology, finance, marketing, or any other field, advisory board members can provide valuable insights and guidance based on their deep knowledge and experience. This expertise can be instrumental in navigating complex industry landscapes and staying ahead of the competition.

How Advisory Boards Enhance Corporate Governance

Corporate governance is a critical aspect of running a successful company, and advisory boards play a crucial role in enhancing it. By providing independent advice and oversight, advisory boards ensure that the company operates in compliance with legal and ethical guidelines. They act as a check and balance mechanism, ensuring that the company's actions align with its stated values and objectives.

Additionally, advisory boards contribute to the development and implementation of effective internal controls and risk management strategies. They help identify potential risks and provide guidance on how to mitigate them, safeguarding the company's reputation and ensuring its long-term sustainability.

The Rise of Virtual Advisory Boards

In recent years, virtual advisory boards have emerged as a popular option, especially for startups. Virtual advisory boards leverage technology to bring together experts from different locations, enabling startups to access a broader pool of talent without geographical limitations. This approach can significantly benefit startups by providing access to diverse expertise and reducing costs associated with travel and accommodation.

Virtual advisory boards also offer flexibility in terms of scheduling and participation. With members located in different time zones, meetings can be scheduled to accommodate everyone's availability. This ensures that startups can tap into the knowledge and experience of their advisory board members without the constraints of physical proximity.

Furthermore, virtual advisory boards can foster a collaborative and inclusive environment. By leveraging digital communication tools, members can easily share ideas, provide feedback, and engage in discussions. This level of collaboration can lead to innovative solutions and strategic insights that can propel the company forward.

In conclusion, having an advisory board brings numerous benefits to a company. From providing strategic advantages and industry connections to enhancing corporate governance and embracing virtual collaboration, advisory boards play a vital role in the success and growth of businesses.

Setting Up an Advisory Board

Steps to establish an advisory board.

Setting up an advisory board involves several key steps:

• Define the purpose and objectives of the advisory board
• Identify the specific expertise needed
• Determine the optimal number of advisory board members
• Create a charter outlining the roles, responsibilities, and expectations
• Recruit and select advisory board members
• Conduct an orientation session to familiarize the members with the company
• Establish a meeting schedule and communication framework

Selecting the Right Members for Your Advisory Board

Selecting the right members for your advisory board is critical for its success. Consider individuals who possess the required expertise, industry knowledge, and relevant networks. Look for candidates who are passionate about your company's vision and have a proven track record of success. Conduct thorough interviews and reference checks to ensure the chosen members align with your company's values and goals.

In conclusion, an advisory board is a valuable asset for any company or organization seeking expert guidance and support. By understanding the concept, structure, functioning, and benefits of advisory boards, businesses can leverage them effectively to navigate challenges, seize opportunities, and drive growth. Setting up an advisory board requires thoughtful planning and selecting the right members, ensuring a diverse and impactful team. With platforms such as AdvisoryCloud.com and the rise of virtual advisory boards, startups can now access the expertise they need to flourish and succeed.

Ready to build an advisory board?

• An advisory board is a group of external experts and professionals who provide strategic advice and support to a company or organization. Unlike a board of directors, it doesn't have formal decision-making authority but offers guidance based on members' knowledge, experience, and industry insights.
• How does the structure of an Advisory Board typically look?
• An advisory board should consist of individuals with relevant expertise and industry knowledge that align with the company's needs. This may include industry veterans, subject matter experts, successful entrepreneurs, and professionals from various fields like legal, finance, and human resources.
• What are the primary roles and responsibilities of Advisory Board members?
• Advisory board members provide strategic advice to the management team, analyze industry trends, evaluate potential risks and opportunities, serve as connectors by leveraging their networks, and act as sounding boards for the management team's ideas and strategies.
• How do Advisory Boards function and communicate?
• Advisory boards operate through regular meetings, which can be conducted in person or virtually. These meetings allow the management team to present challenges, seek advice, and discuss business strategies. Open and transparent communication is vital to maintain a strong relationship between the advisory board and the management team.
• What are the benefits of having a Virtual Advisory Board?
• Virtual advisory boards provide startups with access to a broader pool of talent without geographical limitations. They offer flexibility in scheduling, reduce costs associated with travel and accommodation, and foster a collaborative environment using digital communication tools.

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Why your business needs an advisory board and how to start one

• Strategy and innovation
• Governance and risk

If you were to ask me to list the best practice management tools that are most useful to both startup companies and decades-old businesses, it would be a pretty short list. After all, their money needs are far different, and their tools and capabilities for serving customers and managing their businesses are very different as well. Even a coronavirus outbreak affects them very differently. But if we talked about the most valuable tools that are typically ignored by both entrepreneurial and enduring businesses, my list would drop to a single entry — the advisory board.

An advisory board is a group of experienced and influential business leaders who are willing to help the CEO become more successful by providing access to experience and resources that the CEO typically would never have the time, money, or network to develop alone. Yet they come at a fraction of the cost of accessing those resources in the open market.

A good advisory board can combine the benefits of a team of consultants, a focus group of your customers, and the leading knowledge experts in your industry, all in one room at the same time. All you need to do is assemble them, get them familiar with your business, ask the right questions, and be prepared to implement the best of their ideas.

Reasons for an advisory board

If your company has a formal board of directors chosen from outside the company and/or family, you may already have much of the benefit of an advisory board. And yours would also be a rarity among privately owned companies. Nonpublic companies, especially family-owned companies, often rely on the family or the management team to sort of “guide themselves”. The result is often a “can’t see the forest for the trees” management style that can have serious flaws.

An advisory board can give a company and its management team a priceless opportunity to gain valuable insight, knowledge, and advice without having to learn the hard way, set aside time for outside training, or risk making costly mistakes that could have been avoided if the team had more relevant experience. Introducing the CFO to the best source for debt refinancing is just one example that can bring dollars to a company’s bottom line.

Advisory boards help management scout the marketplace, gauge future trends, and seek new strategic positions, as well as provide a catalyst in the company’s efforts to build repeat, quality customers. American Express, Molson Coors Brewing, and Toyota are among those large companies that have assembled committees of key customers and valued experts to introduce profitable connections and possible partnerships and, in some cases, to help benchmark. And they have very active boards of directors as you can imagine.

Unlike a board of directors, your advisory board has no authority over the CEO or the management of your company. Your organisational filings have no requirements to have or listen to advisory boards. Thus, there is no risk in ignoring their advice, except losing the benefit that might come from taking it. Similarly, your advisory board members have no legal exposure or fiduciary responsibility to your company, which can make it easier to attract the people you want to hear from.

Drawbacks: Reasons not to have one

There are also reasons why you might not want an advisory board.

For one, it takes time and effort to launch one, to select the right people to invite, and to manage the entire relationship. While not so demanding once the board is in place, it still takes time away from the thousand other things your business demands of you. And time is precious.

To have an effective board, you may need to share privileged information about your company, expose its strengths and weaknesses, and answer questions that may delve far more deeply into issues you’ve only shared previously with trusted employees and family members.

There is a cost in dollars. It’s not a large one, but there will be some cost in maintaining an advisory board, eg, travel costs for out-of-town members, meeting attendance compensation, meals during meetings, etc. Of course, if you hold these meetings online only, many of those costs disappear. However, some payment is important both as recognition of their time spent preparing for and attending meetings and as a demonstration that the company places value on their participation.

Case study: A tool for succession planning

Here’s an actual example of an advisory board at work, and the benefits one company gained from this practice. The scenario: A 35-year-old company run by its founder, who grew it into a profitable, multi-location, $100 million business, and who was approaching his desired retirement age. He wanted to turn the company over to his son, who had been involved in the company in roles that did not adequately prepare him for the CEO role. The company grew thanks to the daily attention of a magnanimous founder who earned strong loyalty from nearly everyone in the company who knew him. The challenge for his son was to learn how to run a successful company and keep it growing, all the while preserving as much as possible the loyalty his father’s personal charisma had created.

Having been a management coach to the company’s CFO for several years, I saw first-hand the need for the company to get ideas from outside the small management team, many of whom had grown with the company for years, with little outside experience to rely on. Along with other advisers to the company, we convinced the CEO to form an advisory board to guide the company in creating management practices that could help smooth the management transition. The board consisted of the top management team — including the heir apparent — and three outside advisers, including me. Changes made during the first year included:

• Appointment of an interim CEO, at the time the second-ranking executive in the company, to assist the founder in stepping back from daily responsibilities, while still enabling him to be as involved as he wanted to be;
• A strategic plan and financial forecast for the next five years, outlining the goals the company wanted to achieve over that time period, estimated to equal or exceed the timeframe needed for the management transition;
• Performance metrics that combined the intimate knowledge of company operations that the management team possessed with the best practice methods of monitoring progress that the outside advisers brought to the board;
• The first-ever performance evaluation system for all levels of the management team, helping the company to grow new leaders and strengthen those already in place; and
• Revived growth that could see net income nearly triple within the timeframe of the strategic plan.

How to get started

If you can see the value for your company, here are some thoughts to consider in getting one formed and up and running:

1.   How large should your board be? Many experts recommend boards as small as three members and as large as ten to 12 members. Advisory boards in large companies often function effectively with as many as 15 members. However, I believe a beginning effort should limit the total board size to four or five members. The company can always add more seats later, if desired, once the concept has been proven in use.

2. How do you choose members to invite? Look at what your company needs most that outside expertise could provide. Then look at your industry and your marketplace. That will help you define the kinds of leaders you want on your board. Notice the word expertise and not just experience. You have experience. You want to invite people who can add new knowledge, new connections, and new insights that your experience alone doesn’t provide. What are some areas of expertise from which you might choose potential members? Here are a few ideas:

• Your most important customers, to find out first-hand how they feel and what they want, and will want, and to let them know — and mean it — that you value their opinions;
• Management icons in your industry to help you open doors you can’t open alone;
• A senior finance executive to advise on financial issues and open their contact list of financial resources that might benefit the company;
• Leading researchers in your industry to assist your product development efforts;
• An intellectual property attorney to guide you through protecting your technology advances;
• A senior business consultant to help your decision-making and your internal processes to evolve as your business grows; or
• A key executive in your industry’s professional or trade association, who may know people and have access to resources just because that’s their day job in supporting your industry.

3. How do you approach them?

• Call each candidate personally. If they don’t know you by name, tell them what your company does and how you think it’s having an impact on the industry. Tell them your idea — gathering a small group of very successful executives (it’s OK to use a bit of puffery here) to help your company get better. (Key: This is not the time to tout your company’s image but rather your belief about how they could help you.)
• Explain the kind of value you think they could bring, such as the opportunity to interact with other key industry leaders in a mutually cooperative environment and the chance to make a real difference and be able to tell others their expertise was valued enough that they serve on an advisory board. That kind of appreciation is often highly valued by business leaders who have always focused exclusively on their company and now have time to be appreciated by others in their industry but have never been asked.
• The objective is to reduce the list to four or five individuals who are available and whose backgrounds satisfy the organisation’s most critical needs, and who want to help. Offer them a one-year term, so there is no long-term commitment unless it works for both.

4. How often to meet and how to prepare them for each meeting? Membership would include the advisory board members and the key officers in the company. Meetings would normally be scheduled three or four times a year. Additional meetings and/or time with individual board members could be scheduled as needs and availability dictate. Individual contact by online meetings, phone, or email can be used as needed.

In preparation for each meeting, brief materials describing the status of the organisation should be distributed in advance, preferably accompanied by a proposed agenda. At the meeting, which could be a half-day in the afternoon or an evening, the CEO would make a presentation regarding the status, progress, and needs of the organisation with discussion following. Ideally, some good suggestions or ideas will be raised, or perhaps even an offer to make a key phone call or set up a meeting afterwards. Then it’s time to sort out the discussion takeaways and choose a course of action.

Is it time for your company to think about the value of an advisory board?

— Gene Siciliano is a former CFO, COO, controller, and treasurer with over 30 years of experience in private practice, consulting, and corporate management. He is based in the US. To comment on this article or to suggest an idea for another article, contact Alexis See Tho, an FM magazine associate editor, at  [email protected] .

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How to Build an Advisory Board That Drives Startup Success Here's what startup founders must consider when crafting an advisory board.

By Will Fan Edited by Chelsea Brown Dec 5, 2023

Key Takeaways

• How to build a diverse and effective advisory board
• How to navigate the ongoing management and shaping of your advisory board

Opinions expressed by Entrepreneur contributors are their own.

As a startup founder, the composition of your advisory board can significantly impact the trajectory of your company. The recent news of Sam Altman being pushed out by his board serves as a pivotal reminder of this reality. This incident underscores the crucial need to carefully consider the structure of your advisory board from the early stages of your startup. It's a scenario that extends beyond mere corporate governance; it embodies the very essence of how a startup's future can be influenced, and potentially redirected, by its board.

Altman's situation is more than a cautionary tale; it's a lesson in aligning your board with your startup's long-term vision and goals. The composition of your board can profoundly impact not only the decision-making processes but also the overall direction of your company. It highlights the importance of creating a board that understands and champions your vision, rather than one that could steer your startup away from its intended path.

For startup founders, this means placing a premium on not just the professional qualifications of board members, but also their personal alignment with the startup's ethos and aspirations. The lesson here is clear: Carefully select board members who resonate with your company's vision and are committed to driving it forward.

Related: Why Your Startup Needs an Advisory Board (and How to Choose the Right People)

Building a diverse and effective advisory board

When it comes to crafting your startup's advisory board, diversity in expertise and background is key. This isn't just about filling seats; it's about creating a team that brings a wealth of knowledge, experience and perspectives to your startup.

Your board should ideally include industry experts who understand the nuances of your market, financial advisors to navigate fiscal complexities, legal experts for compliance and governance, and, if applicable, tech experts to steer product development. Marketing and sales specialists can offer insights on scaling your customer base, and HR professionals can guide you on organizational development as your startup grows.

This diverse mix of expertise ensures that your startup benefits from a wide range of perspectives, fostering innovative problem-solving and strategic planning . Each member should complement the others, creating a board that's not just a governing body, but a powerhouse of advice, guidance and industry knowledge.

Shaping and managing your advisory board

Identifying and inviting the right individuals to join your board is just the beginning. The ongoing management and shaping of the board is where the real work lies.

It's essential to ensure that every member of your board, from industry veterans to financial gurus, is aligned with your startup's goals and vision. This alignment ensures that decisions made at the board level support the overall direction and ethos of the company.

Having clear advisory agreements in place is crucial. These agreements should detail the roles, expectations, and, if applicable, compensation for each board member. Beyond the formalities, fostering a collaborative environment where board members can openly share ideas and feedback is vital for a dynamic and effective board. How do you identify the right individuals for your board and shape it to best serve your startup's needs? Here are some tips:

Align with your vision: Ensure that every board member, regardless of their role, shares your vision for the company. They should understand where you want to take the company and be committed to helping you get there.

Diversity of thought : Look for advisors who bring different perspectives and experiences. This diversity can lead to more innovative solutions and strategies.

Track record of success : Advisors with a proven track record in their respective fields can bring credibility and valuable insights.

Networking value: Consider the network and connections potential advisors can bring to your startup. These networks can be instrumental in opening doors for partnerships , funding and growth opportunities.

Compatibility: It's essential that you can work well with your board members. Look for individuals who not only have the expertise but also the interpersonal skills to collaborate effectively .

The formation and management of your startup's advisory board are not tasks to be taken lightly. Inspired by lessons from scenarios like Sam Altman's, founders should strategically select and manage their boards. By doing so, they can ensure that their advisory board is not just a formal requirement but a strategic asset that actively contributes to the success and growth of their startup.

Related: How To Create An Effective Advisory Board

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How to Craft a Winning Advisory Board

Leverage expert insights to elevate your business vision.

In the entrepreneurial journey, the tunnel vision of managing day-to-day operations can often obscure broader perspectives and innovative thinking. Seeking external counsel becomes not just beneficial, but necessary to transcend the company's current limitations. A board of advisors offers a structured way to harness this wisdom, helping you propel your business toward its aspirational goals. When thoughtfully assembled, this advisory board becomes instrumental in helping you confidently navigate your company through uncharted territories.

Your advisory board composition should be approached with discernment, favoring quality over familiarity. In today's competitive landscape, assembling these boards strategically is so pivotal that it has spurred new services that match businesses with the right advisors. While your board's composition might evolve with your business, selecting the initial members with specific skillsets is crucial for catalyzing growth.

The art of assembling diverse expertise

When curating your advisory board, prioritize diversity in skills and experience. Imagine the edge that a board seasoned in global crisis management could have provided at the onset of the Covid-19 pandemic. Such expertise could mitigate stress and guide strategic decision-making under pressure. Consider a scenario in which overwhelming demand follows a successful marketing initiative. An advisor with logistical prowess could transform potential chaos into a well-orchestrated operation, underscoring the value of preemptive planning and specialized knowledge.

Defined roles and goals

Your advisors' effectiveness partly hinges on the clarity of your business objectives. Pinpointing your needs allows you to seek out individuals with the expertise to move your company forward. Whether your strategy involves traditional marketing avenues or digital platforms, identifying advisors with the right connections and digital savvy can significantly broaden your reach. Digital transformation, accelerated by the pandemic, has expanded networking opportunities beyond local confines, offering access to a global pool of potential advisors.

Setting the board's foundation

Before extending an invitation to join your board, ensure potential advisors have the capacity to commit. Time and dedication are critical; a misalignment here can render your efforts futile. Here are some key considerations.

Diversity and inclusion : Embrace a board composition that reflects diverse perspectives. Traditional networking venues often limit the diversity of your pool. However, digital networks and professional events now facilitate access to a wide array of talents, enriching your board's collective insight.

Harmonious collaboration : The interpersonal dynamics between you, your C-suite, and the advisory board are paramount. Harmony fosters effective collaboration and minimizes friction, enhancing the board's productivity.

Value alignment : It's crucial that advisors resonate with your company's ethos. The vast talent pool accessible today allows for precise matching based on shared values and vision.

Embrace collective wisdom

Acknowledge the limits of solo endeavors and leverage the collective expertise of your advisory board. The synergy of shared skills and experiences not only alleviates personal stress but also enriches your business strategy. Dream boldly, and let your board be the catalyst that transforms those dreams into reality, continuously setting new benchmarks for success.

The formation of an advisory board is a strategic endeavor that demands thoughtful consideration of expertise, diversity, and alignment with company values. By doing so, entrepreneurs can ensure their business not only navigates current challenges with agility, but also positions itself for sustainable growth and innovation.

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How to Build and Utilize a High-impact Advisory Board

Advisory boards are undoubtedly controversial. While many articles sing their praises, others condemn them as mere headshots in pitch decks. The truth is that advisory boards are usually not silver bullets. Still, they can be powerful tools and yield strong ROI—if executed properly.

This article includes an overview of advisory boards, their economics, when they can and should be used, and a step-by-step guide to building one.

By Patrick E. Donohue

Patrick is a five-time serial entrepreneur across finance, healthcare, and energy. He specializes in capital raising and client networks/partnerships.

Executive Summary

• At its simplest, advisory boards are groups of subject matter experts providing a company's leadership team with guidance on company vision, innovation, risk management, and profitability.
• Though they provide management with advice, they do not possess the authority to vote on corporate matters.
• A 2014 Canadian study by the Business Development Bank of Canada polled over 1,000 small and medium-sized enterprises (SMEs) to reveal that only 6% of SMEs have access to an advisory board, yet 80% indicated that they'd set up an advisory board again.
• The research also found that annual sales at businesses with advisory boards were 24% higher than those at the control group. Productivity was also 18% higher for those with advisory boards.
• According to a Wall Street Journal article , 50 of the Fortune 500, including General Electric, American Express, and Target, have set up digital advisory boards, typically comprised of six experts under the age of 50.
• Compensation. Per advisory board best practices, the company should always provide something —whether it be paying for meals, travels, an honorarium, or even offering equity at some juncture. Startups should pay $100 to $500 per meeting, host a meal, and cover any incidental costs.
• In large corporations, the annual compensation paid to advisory board members is normally between a third and half of what's paid to regular board directors.
• A global survey conducted by the Advisory Board Architects found that 15% of private company boards paid no compensation, 25% paid only cash, 43% only equity, and 17% paid cash and equity.
• There is anecdotal evidence of ROI for advisory boards (returns of over $100 million for large companies to higher evaluations for startups), but it's difficult to pin down representative statistics.
• There's a specific objective and internal resources are not equipped to execute. A company with specific needs such as making an acquisition, selling the company, entering a new market, or raising capital can benefit from an advisory board.
• The company would benefit from positive association. Advisors typically have impressive track records that corporations want to affiliate with. When a company showcases its advisors, it demonstrates that it's surrounding itself with key opinion leaders and that these leaders are invested in their success.
• The leadership team has skill gaps. If the company cannot justify hiring full-time employees, advisory boards can provide perspective it's not getting internally. The most common needs are in accounting or finance .
• The company plateaued or is in a rut. If a company feels too entrenched in a given set of processes and product offerings, it could benefit from an advisory board's fresh insights. This is especially impactful for companies that have hyper-political and entrenched cultures.
• Identify your needs. Identify what the company needs to achieve with an advisory board. The more specific, the better—a measurable strategic outcome is ideal. Figure out how these goals are tied to mission, vision, strategy, and milestones.
• Draft job descriptions. The company needs to draft written profiles of ideal candidates. Once the profiles are written, then an advisory board job description can be drafted for recruiting and informing candidates on roles and expectations. Prospective board members should not have a pre-existing relationship with the company or its management team.
• Source and recruit. Don't hesitate to do cold outreach with candidates unfamiliar with the company. And, don't be overly concerned about waiting for the right moment. Only after engaging with multiple candidates should a decision be made. Make sure to thank the candidates who were not selected and let them know that you would like to stay in touch.
• Finalize contractually. When candidates agree to join as advisors, it is important to have them sign a job description or a memorandum of understanding . While advisory boards can be fairly informal, utilize formal documents to set the tone and demonstrate the seriousness of the board.
• Set key performance indicators. It is important to work towards milestones, measure outcomes against KPIs, and swap out members when they are no longer a fit. Don't be shy in executing evaluations—good advisors will want goals and to be held accountable.

Introduction

Advisory boards are undoubtedly controversial. While many articles sing their praises (see here and here ), others condemn them as mere headshots in pitch decks. The truth is that advisory boards are usually not silver bullets. Still, they can be powerful tools and yield strong returns on investment (ROI). However, they must be properly utilized with an analysis of the cost against the rewards of achieving strategic objectives. Otherwise, they can be a substantial waste of time and resources.

As a former medtech analyst and investment banker, I’ve seen many healthcare companies utilize scientific advisory boards to understand their clients, often medical doctors. Since then, I’ve witnessed the broadening of advisor usage, especially by early-stage businesses with acute needs they can’t otherwise afford. Having personally served on three advisory boards, organized advisory boards for two of my businesses, and assisted more than one corporation in building an advisory board, I’ve seen firsthand both how advisory boards can achieve substantial ROI and where miserable mistakes have occurred. This article includes an overview of advisory boards, their economics, when they can and should be used, and a step-by-step guide to best pracices for building one.

Advisory Board Overview

What is an advisory board.

At its simplest, advisory boards are groups of subject matter experts. The role of an advisory board is to provide a company’s leadership team with guidance on company vision, innovation, risk management, and profitability. Though they provide management with advice, they do not possess the authority to vote on corporate matters.

A 2014 Canadian study by the Business Development Bank of Canada (BDC) polled over 1,000 small and medium-sized enterprises (SMEs) to reveal that only 6% of SMEs have access to an advisory board, yet 80% indicated that they’d set up an advisory board again. BDC research also found that annual sales at businesses with advisory boards (307 observations) were 24% higher than those of the control group (300 observations). Productivity was also 18% higher for those with advisory boards. BDC now encourages its 49,000 clients to utilize advisory boards, with about 10% of their clients utilizing them.

![chart of average annual growth (sales or revenue) in companies with or without advisory boards](https://uploads.toptal.io/blog/image/125421/toptal-blog-image-1518535736265-e18afd981d8998f3afc8ab83b0c297b1.png

According to a Wall Street Journal article , 50 of the Fortune 500, including General Electric, American Express, and Target, have set up digital advisory boards, typically comprised of six experts under the age of 50. These groups coach management on everything from new marketing tools to emerging digital trends. Since 2011 , GE’s digital advisory group has met quarterly, rotating members annually, pulling experts from areas such as gaming and data visualization. Borne out of these meetings was the GE Sound Pack , a popular app that helps electronic musicians produce tracks, when a then-26-year-old advisory board member suggested it. GE’s digital advisory board also proved valuable on the 45th anniversary of the moon landing, when it helped GE promote its role in the event, which had been to produce the silicon rubber in the astronauts’ moon boots. With guidance from the board, GE produced “moon boot” sneakers , which cost $200 a pop and sold out within minutes.

Advisory Board vs. Board of Directors

Advisory boards and boards of directors (BOD) are often confused with one another. The crucial distinction lies in fiduciary duty , the legal responsibility to act in the stakeholders’ best interest via a construct of specific duties . While the BOD has the responsibility to influence corporate governance , advisory boards do not . Fiduciary duties are light on requirements to provide strategic insights around business growth. Without this burden of legal liability , high-profile individuals are typically more willing to accept the role of an advisory board member over a directorship.

Another key difference is lifecycle: while a BOD exists in perpetuity , an advisory board is episodic. Advisory boards can be ongoing, but they typically have a defined lifespan. According to Owen Jonathan , an executive board director at PwC UK, which has an advisory board, “The phrase ‘board’ is somewhat misleading. They don’t assume a level of formality that a board of directors would… The board of directors and the advisory board sit as separate but parallel bodies.”

Economics of an Advisory Board

Compensation for advisory board members.

One of the fiercest debates around advisory boards is around compensation. While professional advisors suggest stipends in thousands per meeting and/or decent equity upside, entrepreneurs and retirees looking to “pay it forward” often insist a cup of coffee is adequate. Like most things in life, the truth lies somewhere in the middle.

I believe the company should always provide something —whether it be paying for meals, travels, an honorarium, or even offering equity at some juncture. I encourage startups to pay $100 to $500 per meeting, host a meal, and cover any incidental costs. In large corporations, the annual compensation paid to advisory board members is normally between a third and half of what’s paid to regular board directors.

A global survey conducted by the Advisory Board Architects (ABA) found that 15% of private company boards paid no compensation, 25% paid only cash, 43% only equity, and 17% paid cash and equity. Though the survey includes data from both fiduciary and non-fiduciary boards, the CEO of ABA indicated that most respondents were from advisory boards and that the compensation breakdown is in line with what they have seen for advisory boards. Interestingly, their surveys have found that boards paying only equity have the lowest impact. This is counterintuitive to the widely-held belief that equity participation provides the strongest alignment with achieving key corporate objectives. The survey also found that the boards with the most impact were paid cash and equity.

Interestingly, in the BDC survey of only advisory boards, a whopping 57% of advisory board members were uncompensated. When I interviewed Pierre Cléroux, VP of Research and Chief Economist at BDC, he noted that most advisors in Canada simply want to help small business owners succeed and don’t view it as an avenue for personal enrichment. We also discussed the striking difference between US and Canadian startups in their willingness to provide equity to advisors. Cléroux stated, “We have found that it is very unpopular with Canadian entrepreneurs to share equity. They save it for financings and want to control the business.” Canadian founders typically reserve equity for the BOD.

Another cost consideration is the size of the board. While there aren’t definite size requirements, a University of Pennsylvania study concluded that collaboration falls off after six people. In line with this research, the BDC Study found that advisory boards were an average size of five.

A Quick Word on Equity

Matters become more complicated when it comes to offering equity, something that’s debated extensively . For an established company, equity makes little sense since they can pay in cash. However, a startup may be tempted to offer a few percentage points in exchange for access to big-name advisors. Founders should tread lightly here. It could be a red flag if an advisor insists upon a large stipend or a decent chunk of equity immediately. Equity incentives can be very expensive and could reflect poorly on the founder’s judgment should the advisor eventually yield little to no value . In situations involving equity, I recommend that advisor relationships start out in a honeymoon phase, with equity available only after the advisor has provided tangible value and vested upon specific milestones.

Once, a tech founder hastily drafted an email to a potential advisor, offering what seemed like 20% equity. Given these supposedly generous terms, the advisor quickly agreed. However, issues arose when it was time to formalize the deal. The founder was actually offering 20% of the option pool (20% of a 10% option pool would equal 2% of total shares). Meanwhile, the advisor was expecting 20% of the entire company! Fortunately, I facilitated a solution by demonstrating that 20% of the company was far above benchmark terms and that offering this amount would adversely affect the company’s ability to raise capital.

Framework for Return on Investment (“ROI”)

It’s worth noting that an advisory board is not necessarily the most effective (cost and otherwise) method of attaining advice. Alternatively, current employees, new hires, or third-party services could potentially get the job done better and faster. Therefore, advisory board members should possess an x-factor, such as an exceptionally valuable network or experience.

While there is anecdotal evidence of ROI for advisory boards (indicating returns of over $100 million for large companies to higher evaluations for startups), it’s difficult to pin down representative statistics. However, we can borrow from ROI frameworks used by companies considering customer advisory boards to engage with current and prospective customers. As such, analyzing ROI for advisory boards should be treated as analyzing any other project in corporate finance. You must consider the cost, potential return scenarios, and the weighting of the risk/return vs. other investment opportunities.

Here’s a simple example of a sample company and its advisory board ROI:

Let’s assume a young technology company is assembling a five-person board to aid their new product launch, scheduled in 18 months. The new product has taken $5 million to develop and the annual revenue opportunity is in the nine figures. From the advisory board, the company hopes to receive: 1) three new distribution leads from the advisory board, 2) connections into influencers in the space, including social media influencers or simply those known in the industry, and 3) positive PR around the advisory board to drive website visits and social media engagement. The board is set to meet five times in the next 18 months.

In this advisory board example, the company would yield a significant ROI if the board lives up to its expectations. The product launch has already been a $5 million investment, and the advisory board could be considered an insurance policy. Costs are fixed and in the control of the company, whereas the upside can be exponential. Still, the only thing guaranteed is costs, so it’s important to weigh the likelihood of the outputs. If the company is hiring people for the new product line and is unsure about how to engage distribution channels, then an advisory board could prove valuable in ways not understood at the outset. These can include introductions to highly qualified potential employees, insights on go-to-market strategy, and pricing and scalability recommendations.

Signs You Need an Advisory Board

The timing around assembling an advisory board is dependent on the company’s needs and capacity. The following include situations where a company might benefit from an advisory board:

• There’s a specific objective and internal resources are not equipped to execute it. A company with specific needs such as making an acquisition, selling the company, entering a new market, or raising capital can benefit from an advisory board. According to Bob Arciniaga, Founder of Advisory Board Architects , advisory boards working on a strategic outcome are the most successful. Transformational events are challenging for leadership teams because they add stress and risk distracting management from core responsibilities. An advisory board can help. For example, if a company seeking capital assembles a board to complete the round of financing, the advisors would be tasked with identifying sources of capital and guiding management through the fundraising process. The project would be measurable and specific.
• The company would benefit from positive association. Advisors typically have impressive track records that corporations want to affiliate with. The opportunity for a company to showcase its advisors can demonstrate that it’s surrounding itself with key opinion leaders and that these leaders are invested in their success.
• The leadership team has skill gaps. If the company cannot justify hiring full-time employees, advisory boards can provide perspective it’s not getting internally. This could be a member who provides feedback on inclusion and community relations. Or, it could be an advisor with knowledge about emerging trends tangential to the corporation’s core business. For example, a corporation with entrenched products may benefit from learning about millennial consumer trends. Advisory boards are an elegant way for executive teams to learn from individuals different from them. The most common needs are in accounting or finance (see below).

• The company plateaued or is in a rut. If a company feels too entrenched in a given set of processes and product offerings, it could benefit from an advisory board’s fresh insights. This is especially impactful for companies that have hyper-political and entrenched cultures since an advisory board can provide a safe environment for new ideas to percolate.

How to Build and Utilize an Effective Advisory Board

After performing the ROI analysis and deciding to move forward, this is how to set up an advisory board.

Step 1: Identify Your Needs

The first step in the plan needs to identify what the company needs to achieve with an advisory board. The more specific, the better—a measurable strategic outcome is ideal when you’re setting up an advisory board. Figure out how these goals are tied to mission, vision, strategy, and milestones. You will also need to determine if the time and expense of organizing an advisory board can provide a substantial positive ROI.

Step 2: Draft Job Descriptions

Next, the company needs to draft written profiles of ideal candidates. It’s important that each of the profiles are unique, with a high bar of qualifications. A highly functioning advisory board will have a diverse set of views where the advisors can learn from one another. Once the profiles are written, then an advisory board job description can be drafted for recruiting and informing candidates on roles and expectations. This step is important since it lays the groundwork for finding who is needed versus already knowing a qualified candidate and reverse-engineering a profile to fit their background.

Step 3: Source and Recruit

With these documents prepared, it is time to identify candidates to fill the roles. As mentioned previously, prospective board members should not have a pre-existing relationship with the company or its management team—these people are essentially already informal advisors! Thus, don’t hesitate to do cold outreach with candidates unfamiliar with the company. In my experience, there’s usually a high response rate. And, don’t be overly concerned about seeking introductions or waiting for the right moment. Like all good sales processes, the time is now. Utilize your candidate profile and job description to reach out to candidates and strike up a dialogue.

Only after engaging with multiple candidates should a decision be made. For one, it allows the company to absorb some knowledge during the recruitment process. Second, it ensures the right fit personality-wise. Make sure to thank the other candidates who were not selected and let them know that you would like to stay in touch. These budding relationships may prove valuable someday.

Step 4: Finalize Contractually

When candidates agree to join as advisors, it is important to have them sign a job description or a memorandum of understanding . While advisory boards can be informal, it is important to utilize formal documents to set the tone and demonstrate the seriousness of the board. The agreement can be a simple one-page document outlining compensation and a set of expectations around time commitment and participation. It is crucial to have people sign this document prior to the first meeting. I’ve included an example that you can use to re-purpose for your own company here .

Step 5: Set Key Performance Indicators

Finally, it is critical to set objectives and key performance indicators (KPIs). It is important to work towards milestones, measure outcomes against KPIs, and swap out members when they are no longer a fit. In my interview with Bob Arciniaga, he noted his distaste for the term “ sounding board ,” stating, “There are much cheaper and easier ways to get feedback than trying to get a group of advisors together. The primary purpose of an advisory board should be to drive outcomes.” Finalize your KPIs and communicate them clearly. Don’t be shy in executing evaluations—good advisors will want goals and be held accountable.

Mistakes to Avoid

A haphazardly-assembled advisory board can become a liability. A prime example is one I’ve seen play out many times. A few years ago, I met with tech company co-founders who were seeking advice on their fundraising process, showcasing an executive summary page with their “advisors.” As it turns out, they had met with an investor who knew one of their “advisors” personally. When the investor reached out to the “advisor,” he was surprised since he’d only met the company once and had never committed to the position. He wasn’t thrilled that his name was already on pitch materials. Needless to say, the investor lost interest and the company had some reputation clean-up. Perhaps worst of all, the tech company never secured funding and eventually shut down. With this cautionary tale, let’s dive into some mistakes to avoid:

• Don’t list the member on materials without approvals. Under no circumstances should an advisory board member be listed on promotional materials without the advisor formally accepting the position. This can be particularly true with overzealous startup founders eager to showcase the networks they’ve built. If the company overstates the relationship or makes comments on behalf of the advisor (i.e., “They think we’re going to be the next billion-dollar company!”), it can prove detrimental.
• Don’t under-communicate. I have witnessed companies fall out of sync with advisors, leading to advisors publicly speaking out of line about the company’s progress. I’ve seen this happen with a tech company who pivoted their target market but failed to share the updates with its advisors. Thus, when people in the industry asked an advisor about the technology’s total addressable market, he answered with a dated viewpoint, which negatively affected the company’s standing with prospective investors. It doesn’t take much for an advisor’s uninformed or outdated comments to reflect poorly on the company. Always err on the side of overcommunication early in the relationship and when there are shifts in strategy.
• Don’t ruin the relationship by letting tasks fall to the wayside. If you tell an advisory board member that you’re going to do something, make a priority to get it done. Advisory board members are likely to be very influential in their spheres of influence. Therefore, it is critical that the advisory board members have nothing but positive experiences with the company. As Henry Ford put it, “You can’t build a reputation on what you’re going to do.”
• Don’t let the relationship fester. Advisory boards should have a stated lifecycle tied to a key outcome. Otherwise, advisory boards can become directionless and a time sink. If an advisory board is set up to achieve a milestone, it should naturally end upon the realization of that milestone. In the rare case that an advisory board is set up with ongoing objectives, be sure to rotate advisors periodically. And, if an advisory board is not working for the parties, proactively shut it down immediately and move on. I’ve personally stumbled before by allowing a board I created for a company I have ownership in to never formally conclude. It was embarrassing when I later saw an advisor at an event and was asked, “So, whatever happened to meeting on a regular basis?” In retrospect, we should have had a nice dinner to signify the formal conclusion of the advisory board, and that we’d keep them updated on our progress.

Parting Thoughts

The most valuable asset of every founder is their time. While the cost of an advisory board can be a significant budget item, it often also requires a substantial time commitment. If you are going to take one thing away from this article, it is simply this: If you are going to put together an advisory board, it has to be done right. Perhaps the best reminder of why advisory boards can be very impactful is, as Cléroux puts it, “We see the greatest impact advisory boards have is on the impact on the vision of the company. Business owners are working in the business and advisory boards forces owners to work on the business—the big picture vision—which can lead to new revenue opportunities.”

Understanding the basics

Are members of an advisory board paid.

While professional advisors suggest stipends in thousands per meeting and equity upside, others looking to “pay it forward” often insist a cup of coffee is adequate. The truth lies somewhere in the middle. The company should pay $100 to $500 per meeting, pay for meals, travels, an honorarium, or even offer equity.

What is the role of the advisory committee?

At its simplest, advisory boards are groups of subject matter experts that provide a company’s leadership team with guidance on company vision, innovation, risk management, and profitability. Though they provide management with advice, they do not possess the authority to vote on corporate matters.

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Patrick E. Donohue

Eden Prairie, MN, United States

Member since July 11, 2017

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Sample Agenda for Your First Advisory Board Meeting

How to Create an Agenda, Stay Organized, and More

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Susan Ward has run an IT consulting firm and designed and presented courses on how to promote small businesses.

After finding people to serve on your advisory board, sending out invitation letters , and booking a venue, it's time to start planning the agenda for your first advisory board meeting. The key to getting your advisory board off to the right start is to structure the initial meeting for maximum productivity.

You've already given a lot of thought to what you hope to gain from having an advisory board and are looking forward to the advice and expertise that your board members can provide on various aspects of your business, including management, marketing, accounting, staffing, customer service , technology, and so on.

Thus you want to be sure that your first meeting stays on course and provides plenty of opportunities for board members to contribute.

Plan the Agenda Around a Problem or Discussion Topic

Your first meeting, like all future advisory board meetings, should be planned around a question or problem. You might find it easiest to ​state the problem as a goal. For instance, "We want to increase our sales by 25 percent this next quarter. How can we do this?" Or you might frame the topic for discussion more generally: "How can we cut our business costs?" or "How can we increase productivity ?" or "How can we  improve customer service ?"

Gather the Relevant Background Materials

Once you've decided on the discussion topic, it's time to gather the materials that your advisory board members will need.

Because this is the first meeting, include a business plan and any other pertinent documents, such as charts, graphs and fact sheets that illuminate the background of the discussion topic. If possible, send a copy of these documents to all advisory board members at least two weeks in advance, along with a copy of the meeting agenda.

Create the Meeting Agenda

A meeting agenda is nothing more than an outline that lists, in order, the items to be discussed at the meeting and the amount of time that's expected to be allocated to each. Building a time schedule into your agenda and sticking to it ensures that your meeting doesn't get bogged down and stimulates on-topic discussion.

Plan for Recording the Meeting Minutes

You'll also want to make arrangements for recording the minutes of the meeting. Don't try to do this yourself as you need to be able to participate fully by listening and contributing. If you don't have someone who can attend and serve as a secretary, ask your advisory board members for permission to record the meeting.

Make Refreshments Available

Providing refreshments is a good idea. Coffee, tea, water, juices, and healthy snacks, such as fruit and muffins, are a nice touch that's always welcome at meetings. After your first meeting, you will have a sense of attendees' preferences for beverages and snacks and can plan accordingly for the next meeting.

Try to Relax

Above all, don't fret about your presentation. You're there to share your vision and hopes for your company and to seek advice, not to impress anyone with multimedia presentation effects and the like.

Your long-range goal is to establish a working relationship of trust with your advisory board members, so focus on ensuring that they walk away from the meeting feeling that they've been heard and have contributed meaningfully to the management of your company—and that they're looking forward to the next board meeting.

Sample Agenda

Review the sample agenda, which includes suggested activities with notes to help you run the meeting efficiently. Then print it out and adapt it to your needs. You can copy it directly into a Word, Excel, or similar document by selecting, copying, and pasting the text.

[Your Company Name]

[Location] 

[Date of next meeting]

If you plan a morning meeting, immediately following adjournment is the perfect time to take your advisory board members out to lunch (especially if snacks weren't served during the meeting). Remember, though, that the meeting is over and lunch should primarily be a social occasion.

Keep the Meetings Short

You should never schedule a board meeting to run longer than two hours, which is long enough for most people to give their undivided attention to the task at hand.

Review the Previous Topic of Discussion

In future meetings, start with a review of what you've done about the topic that was discussed at the last meeting, and invite your advisory board members' comments about your company's actions.

Because the meet and greet is out of the way, you may want to have two discussion topics at future meetings. You can even have three if you think they'll fit comfortably into the two-hour format, but you should never try to squeeze in more than three.

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In this article, we explore 1) what an advisory board is , 2) types of advisory boards , 3) functions of an advisory board , 4) how to create an effective advisory board , and 5) the conclusion .

WHAT IS AN ADVISORY BOARD?

An advisory board is a group of select people who are retained for the sole purpose of providing strategic advice to a business entity. The role of an advisory board is non-binding and informal in nature. In most cases, the advisory board may consist of people drawn from various walks of life, with diverse capabilities and expertise in various areas of a business. Businesses may wish to have advisory boards so they can utilize the expertise of the advisors and enhance their business capability. Advisory boards provide valuable inputs to business structuring and management, and may also provide the latest industry news. They offer guidance and advice on operations, legal matters, finance, manufacturing, organization and the competition to benefit the business.

Advantages and disadvantages of having an advisory board

An advisory board is beneficial to a business, especially a startup, when the business owners do not have much experience in running a business or wish to have a better understanding of a process. They can benefit by aligning themselves with experts in the field and learning through their advice. Since the board consists of people from various professions with expertise in diverse fields, their combined advice and help can make a marked difference to a business.

It can help a fledgling business by identifying business opportunities and strategic partnerships with other businesses, which can be a great boost to any business. It also helps in developing a business strategy for the business by providing direction.

One of the biggest advantages of an advisory board is that it provides a fresh perspective by looking at the business from an unbiased point of view and identifying strengths and shortcomings of business policies that the owners/management of a company cannot often spot.

The advisory board often complements the board of directors by filling in any knowledge gaps. Sometimes, it may be constituted even before the board of directors itself. The advisory board can work as a springboard for the induction of a board of directors, providing the business owners an opportunity to observe the advisors and assess their chemistry and capabilities before inviting them to the main board. The advisory board is also more efficient as the number of people on the board can be contained and changed without much hassle. It helps the executives to test out their ideas without fear, as the board is there to advise and not to govern. This means less stress and tension for the executives. Having a stalwart of the industry as an advisor for a company provides great leverage for a startup. It builds up the credibility of the company as the reputation of the expert helps the business he/she is advising.

Even though the advantages far outweigh the disadvantages, an advisory board has its own drawbacks. The most important one is that it has no fiduciary responsibility or legal liability and can sometimes provide advice that may not be totally safe for the business. The other disadvantage is that a member of the advisory board is not an employee of the company and may work for little or no compensation. This can often lead to a lack of commitment. It is common for a person to be on many advisory boards of different companies, and this can create a conflict of interest, especially if it is an industry expert who is well sought after by other businesses in the same line of work.

Finally, the success of an advisory board depends a lot on the people that constitute it. Thus, it is incumbent upon the owner of the business to choose the members carefully.

Does your business need an advisory board?

If you are wondering about the usefulness of an advisory board, then you should stop worrying . They are essential, and more so in the initial stages when there are gaps in a business’s knowledge bank. It is difficult to find people for all the key positions and also the companies may not be able to afford such personnel initially. Hence, it is better to look for an advisor who would provide guidance to the team without getting full-time pay. Establishing a strong advisory board and utilizing it well may often mean the difference between failure and success. Naturally, the decision for whether or not a business requires an advisory board is based upon different criteria for each enterprise. Virtually any company or business may benefit from the perspective and wisdom of an experienced collective of outside advisors. Such a group enables a CEO to have mentors, a sounding board, and the space to share the successes and the problems of business operation with objective individuals, thus making the top a less lonely responsibility. As cited in research, the predominant reason in creating a board of advisors is to induct external expertise into the company. Other key reasons are as follows:

• Every CEO or entrepreneur needs help to refine a business plan or a product idea .
• Advisory boards supplement the core competencies of an enterprise, thus avoiding any dilution.
• Experienced advisors help you to avoid mistakes, or make negative business decisions.
• Your advisory board may concentrate on a specific task, thus it becomes a simplification asset.
• Interested advisors become advocates for the business, which translates to access to capital.
• Competitive insight means advisors increase knowledge regarding potential competitors.
• Advisory boards help in making key decisions when researching and launching products or services as well as refining business plans.

TYPES OF ADVISORY BOARDS

There can be many different types of advisory boards based on the expertise of the members or the purpose for which they have been created. Some advisory boards include:

Science Advisory Board (SAB)

A Science Advisory Board is comprised of people who are experts in any field of science. You will generally find scientists, doctors, technologists and researchers on SABs. Their duties are to advise the organization about the scientific impact of an action. Such boards are often associated with environmental agencies, the United Nations, etc. Almost every biotech enterprise has an SAB, and they can be extremely valuable in helping to shape a portfolio or program, even to raise the visibility of a startup.

Medical Advisory Board (MAB)

Generally, the members of an MAB are prominent scientists and luminaries in bio-medical research institutions, who constitute the principal advisory group for the scientific programs of an institute, pharmaceutical or medical research organization. Other MABs may be populated by physicians and medical experts, though this naturally depends on the nature of the entity being advised. Typical roles of an MAB may include advising on the long-term strategy of an institution for achieving its goal of promoting biomedical research and science education or overseeing proposals for future research and grant programs.

Technical Advisory Board (TAB)

The TAB is normally established when there is need for technical advice. Technologists, innovators, and field leaders in technology normally populate this board. The purpose of the board is to provide guidance regarding implementation of technology policies of an entity, which could be a government agency or a technology firm, in order to develop cutting edge technological products and services.

The contact network of technical and technology advisors is very different from that of business advisors, and therefore may or may not match with the introduction the entity seeks. Before engaging a TAB member for the purpose of accessing their network, ensure it is the right network.

Content Advisory Board (CAB)

A CAB may be required, for example, in a publication, a magazine, an online portal, blog or broadcast outlet. The board is comprised of industry figures who contribute expertise, guidance, and knowledge to the print magazine, digital publication, or broadcaster’s editorial staff. Drawn from the relevant industry, these individuals can ensure that an outlet meets the requirements of its readership or viewership by authoring articles, producing webinars, critiquing current content or advancing story ideas and topics for future coverage.

Startup Advisory Board

The two most likely reasons a startup would create an SAB are firstly, for ‘advisory value’, i.e., the individual being invited has experience and knowledge and therefore may act as an advisor to your startup. Secondly, SABs are helpful for ‘brand value’. The target individual has ‘brand’ and thus credibility. By inviting that person to an advisory board, one logically hopes that some of their credibility will rub off on the startup.

If the startup has a high degree of technical complexity, then it may well require a brain trust to help to get a product out the door and also turn around technology issues. In this case, individuals with great expertise but perhaps less brand value, may be the order of the day.

Fundraising Advisory Board (for non-profit companies)

Fundraising advisory boards are often a positive way to rejuvenate the energies of a non-profit organization’s advancement and leadership experience. They can help to give clarity and focus regarding where the organization is heading and how it will actually arrive there. Opportunities are expanded for attracting new talent, perspective, and participation with members who are honored by the invitation and eager to contribute. Such advisory boards may consist of socialites, wealthy individuals with a bend towards philanthropy, social and charity workers of good standing within the community, events managers, finance experts, etc.

Programmatic Advisory Board (for non-profit companies)

Programmatic advisory boards can be formed if a non-profit has perhaps mostly wealthy members who view their role as primarily fundraising, yet have scant experience of those issues in which the non-profit is involved. Most of those board members are neither well-connected to the low-income client population, nor are they experts in the primary work of the non-profit. The programmatic board is composed of low-income clients, social workers and others who are experienced in the programs and are qualified to collate information and feedback on the non-profit programs.

FUNCTIONS OF AN ADVISORY BOARD

There is no empirical rule as to how an advisory board must operate. It may meet irregularly, provide high-level and long-term strategic insight; or its function may be like that of a business development consultant, seeking to create introductions, to open doors and to generate new leads .

Successful advisory boards are sure about their duty. Clearly establishing and communicating the roles and expectations of the advisors and articulating their mandate and purpose is crucial. Some features of a typical mandate may be:

• Advising on a specific aspect of business such as product direction, marketing, contact network expansion or customer service.
• A board may consist of customers and prospective customers who contribute insights into product development and marketing issues.
• Developing an understanding of the specific business and marketplace, and gauging future trends while providing timely knowledge about competitors, upcoming political, regulatory and legislative developments that could have an impact of the company.
• The owners, directors or management may raise issues and seek objective advice and creative thinking from the board, regarding a new strategic position.
• Offering the directors and management insights and practices which may only be possible to observe at a distance from the daily operations, thus helping to see the operations afresh with an open mind.
• The board may be general in scope or focused upon a specific industry, market, or issue, thereby supporting and encouraging the adoption of current business ideas such as the inculcation of cutting edge technology, or the decision to go global.
• Acting as a resource for executives who can present their ideas and strategies to the board for their advice and feedback.
• Encouraging, without stifling the vision or spirit of the founders, the development of a framework of governance that facilitates continued growth.
• Actively monitoring the performance of the business to improve business and subsequently challenge the management and directors to consider options for the same.
• Helping the executives think outside the box . Advisors who are familiar with different geographies and hail from different intellectual disciplines regularly provide keen insights into key economic and geopolitical challenges.

HOW TO CREATE AN EFFECTIVE ADVISORY BOARD

Creating an advisory board is not very difficult once you have decided that you need a board of advisors. Here is a step-by-step process for creating an effective advisory board.

Step 1: Define the purpose and the goals of your advisory board.

The first thing to do before forming an advisory board is to critically assess one’s own area of knowledge to discover where knowledge augmentation is required. Once that has been identified, then the entrepreneur should start looking for people who will fill the gaps and provide valuable inputs. Having advisors at the startup stage is very useful as you can forgo hiring executives whom you have to pay a salary in favor of advisors, who needn’t be paid up front, but work for an honorarium or share in the company.

Step 2: Look for doubters (and leverage your network to find the right members).

While looking for the right experts to advise you, look for people who know their work and have the gumption to tell you to your face what they feel about a particular matter. Outspoken and bold people will give you sound advice and will not be afraid to stand by it. Such impassioned advisors are your company’s best friend. While you may be tempted to avoid people who give harsh feedback, you need to understand that these are the advisors who are likely to be the most honest. So instead of avoiding them, you should recruit the doubters.

Finding the right members may seem like an uphill task, but if you look in the right places you will find them. Take advantage of your own network to find the right people to populate your board. Since such people are familiar with you, they may be more willing to fill the spot. In case, you cannot find a person with the desired qualifications, ask your personal and professional network to give you references for people who might fit the bill. It is essential that any potential advisor be genuinely willing to help an entrepreneur and there should be a positive relationship between the two of you.

Step 3: Select the right people for your advisory board.

Selecting the right people is the key to an effective advisory board. The composition of the board will depend on an organization’s priorities and goals. One may not be able to create a comprehensive advisory board in one broad stroke.

Although it is prudent to establish diversity on the advisory board, it is equally important to have dedicated and committed advisors who will ensure the stability of the business. When considering the composition of an advisory board, the company should decide what skills and experience rightly belong there as foundational, and what type of minds could add their input as creative catalysts.

It is recommended by experts that you not ask professional advisors, such as accountants, lawyers, and bankers, to participate, unless your strategy is dominated by their fields of expertise. Alternatively, consider finding advisors who are in full-time jobs and yet are intrigued by the approach. It is preferable to have an advisor who is not earning a living from your business. It is also preferable to induct a board that does not include family, friends, or anybody with an emotional stake in the enterprise.

Make sure that the advisors you choose are sharp and experienced while also keen to share. Moreover, they should dovetail with the personalities in the room, including your own. The key features to look for in an advisor are:

• A strong personality and not afraid to give honest feedback.
• The skills that they have and how they will be utilized for the benefit of the enterprise.
• A commitment to the development of the enterprise.
• A degree of mutual trust and respect.
• Someone who knows their subject and commands respect not only for their knowledge but also their personality.

Step 4: Structure your advisory board (forget the size and focus on the expertise).

While creating your advisory board, it is essential to pay attention to quality not the quantity. You don’t need many advisors; you need advisors who are experts in their fields. Naturally it is vital to articulate a clearly defined purpose for an advisory board or group. If there is no clear-cut vision behind the structure of the board, it may lead to confusion and ineffectiveness. At the beginning, when developing it, you must answer some basic and pertinent questions:

• Who would you like to see on your board?
• What would be the size of the board?
• What will be your focused objectives?
• How can you construct an agenda that supports your objectives?
• What expected outcomes are envisaged?
• How will success be measured?
• How will the board meet: when and for what duration?
• How will you compensate the board?

Not everything will be clear at the outset, however after an initial meeting or two with the advisory members, the goals will be clearer and the roles of each member defined. It is essential to have a free-ranging discussion of possibilities, evaluation of ideas and prioritization of objectives to determine the ways to utilize the available resources of the advisors. It is incumbent upon the enterprise to design an experience for the advisors that is stimulating and well-organized; this will help ensure that members feel that their advice is valued and applied.

Step 5: Communicate your expectations to the members of the advisory board.

The entrepreneur is obliged to communicate the value that he wishes to derive from the advisory board. You will do well to communicate to the members what it is that you expect from them as advisors and what value you are seeking from their inputs. It is about expectation and context. The value that members can add is commensurate with what the advisory board needs and aspires toward. Ultimately, it is a question of where their specialty lies and the particular skills they bring with regard to that expertise. For some advisors, one may be happy to simply have their name on the web site, like a patron, while for others, you may wish to consult with them regularly.

Step 6: Appreciate and compensate the work of your advisory board.

Members need to be compensated for their time and advice. This needs to be done in a manner that is neither a big burden on the company nor too little for the board members to feel underpaid. You need to consider the value an advisor brings to the table when determining compensation. Some advisors may be honorary members and may not demand compensation beyond having their name prominently associated with the company, but these are few and far between. Others like to be paid for their time and expertise. So, if your business is up and running, then show respect to your advisors and compensate them. If you are paying your advisory board, you will be more likely to take the advice proffered more seriously and prepare better for the meetings.

It is highly likely that any person you induct onto your board as an advisor is a busy and sought after person. So you need to provide some value in return for time spent counseling and finding solutions to your problems. This is not an easy task as advisors are paid for results. They are not paid for their inputs; they are remunerated for their outputs.

Some companies prefer to give a percentage of the equity , if they find the advisor invaluable to them. This ensures that the advisor is duly compensated, and his/her interest in the company is stoked as the profitability of the company is of personal benefit to them. This is better than paying in cash as, if one pays in cash and wants that service repeated, then a repeat payment will need to be made to the advisor. If however, the advisor’s service is remunerated via equity, then the payment is one time only, but the business keeps getting the service ad infinitum. Equity can be a reward for service that keeps on paying the business dividends. The shareholders may own the company, yet the company also owns them.

Step 7: Ask for honest and direct advice and maximize the valuable advice from your advisory board.

There has to be a degree of honesty and openness in the board. Frank and honest opinions matter a lot, and you should be able to handle opinions if you wish to improve your performance. Ask them to identify the problems and then give you an honest evaluation and solutions to the problems. Encourage the advisors to share the mistakes they made in getting to their positions as experts, so you can avoid those mistakes and learn from their experience. In order to get valuable advice from your advisors, you have to know what you want from them. You have to put forth questions for them to answer, find scenarios for them to offer solutions, involve and inform them in your business. The more they see of your business the more they will be able to offer by way of useful advice.

Step 8: Meet or communicate regularly with your advisory board (using a traditional set up of meeting in person, conference call, or other methods).

Once your advisors are on board and ready to be of service, the board members should be prominently featured in all your corporate profiles. You need to communicate with them regularly, and follow through on the stated commitments. They should have information regarding the latest developments in your business. This can be facilitated by emailing all relevant reports to the advisors. Sometimes, you may need to communicate with a certain member of the advisory board for a specific reason; you can facilitate this by inviting the member to a meeting, either in person or through phone calls, or video conferencing . This can take place anytime that you need the services of the advisor.

Experts say that an advisory board should meet at least once every quarter. There are some companies who like to convene their meetings more often. There is no set rule for the scheduling of meetings, each business should examine their own needs and decide upon the timing and the venue, and give advance notice to the board members so they can ensure attendance.

The board meeting must aim to be result-oriented. The meeting minutes must be collated and circulated to the company’s top management and should preferably include the recommendations of the panel regarding key issues.

Step 9: Keep your advisory board up to date.

Keep your advisory board members informed of the company’s activities in between the meetings. It would be wise to send copies of the monthly financial and operational reports to the advisors, so that they are kept up to speed on how the enterprise is progressing. This also helps the advisors in spotting any problem areas that they can discuss during the next meeting. The fact that the members have agreed to be on the board implies strongly that they do care about the welfare of the company. If they are consistently updated on the goings-on of your enterprise, they will be of greater value to you.

Step 10: Respect the input and advice from your advisory board, but fire the members who bring no value.

It is essential to respect the time that the advisory board spends on addressing your problems. If you are not willing to execute the advice of a board of directors or an advisory board, then it is better not to establish one. In giving a commitment of their time, the greatest disrespect to any board is to take that time and do nothing with it. Not only will one’s credibility dissolve with that board but also with any future board members too. You are not obligated to accept all the advice given by the advisory board, as it is not a statutory body, but you are obligated to give due thought to the advice and then accept or reject it.

But also, you cannot squander company equity with unproductive advisors. Waste no time on advisors who will not return your telephone calls, attend meetings or put forth any worthwhile suggestions. An advisory board has no place for bad advisors. It is best to find a way to let them go without too much fuss. To this effect, you may even consider creating short-term agreements with advisors regarding specific deliverables, akin to a typical consultant contract. If the advisor performs, then renew the contract. If no performance has been delivered, then let it fizzle out.

ADVISORY BOARD VS. BOARD OF DIRECTORS

The board of directors is a statutory body that has a legal obligation and acts as a fiduciary for the shareholders. They simultaneously monitor the organization and its management to impart their duties as fiduciaries toward the shareholders. If required, company directors can, and often do, replace a CEO.

Conversely, advisory boards, as a consultative group, may be created, sustained or dissolved at the discretion of the company CEO. Advisors do not have any power to wield, let alone to instruct executives or direct an organization.

Advisors are usually a useful asset for the main board to challenge its own assumptions or policies, particularly regarding a specialist skill or technical matter. Members can focus upon and occasionally challenge research and intelligence work carried out by the enterprise.

Proper structuring of a board of company directors or advisors is an important element to determine the success of an enterprise. The members of both the boards are people upon whom the business relies to vote on key decisions, or for inspiring strategic direction. It is essential that the role of each board is understood, and thus correctly established.

You may consider having a board of directors if you can abide by the requirements that are legally entailed with a statutory board. When there is a legal imperative, directors have a deeper and broader sense of responsibility to the stakeholders, and to the health of the company or institution, especially in an emergency.

Advisory boards provide slightly less benefit than a board of directors. Many long-time small-business advisors constitute a board of directors. An advisory board can give its best advice without worrying if that advice is going to come back and bite them. This certainly does change an individual’s perspective.

The advisory board is a mechanism that offers long-term guidance. The main point of an advisory board is to garner expertise from outside. Advisors should provide knowledge, understanding and strategic thinking to an industry or the management of a company. Whatever their role, advisory board members must also be utilized for the value of their network.

‘Advisory service’ differs from an advisory board, as this offers short-term guidance, by payment. Startups regularly require advisory services to guide them in establishing a business. Guidance is usually required at the outset. Hence, short-term help that provides services relating to the development of a business plan and financial projections can be invaluable. The goal of advisory services can be to assist the startup entrepreneur with the materials and requisite knowledge to raise funding while also ensuring that the business simultaneously grows its product and clientele.

Subsequent to the initial phase, some advisory services help startups to induct advisory board members by utilizing their existing contacts with professionals. As a startup, you may want to begin with an advisory service rather than a full-fledged board.

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Brain Trust: How to Make an Incredible Advisory Board

Strategically add expertise to your business with an independent advisory board.

April 28, 2022

Is it time to consider an advisory board? And if so, why? What skills do you need? And how do you find the right people who are willing to help? Aashish Agarwaal, founder and chairman of the Enerji Group, and Alexey Volynets of the International Finance Corporation share entrepreneurial perspectives and corporate governance advice to help you figure out what’s right for your company.

Rare is the entrepreneur who is an expert at everything. Turning to others outside your company for advice can be essential for success. Formalizing that process with an advisory board is helping Agarwaal strategically transform Enerji Group , the digital publishing enterprise he founded in India. But it took awhile to figure out exactly what he needed, who could help, and how to run the board effectively.

Volynets understands what Agarwaal had to go through to create the ideal advisory board. As an expert in corporate governance at the International Finance Corporation, he has been teaching companies about corporate governance for years.

The most common manifestation of corporate governance is a board — fiduciary or advisory. Whereas fiduciary boards have financial liabilities, advisory boards are simply there to provide expertise that you may be lacking.

“As you are growing, and when you are on the top of the world, it’s important to have a check,” Volynets explains. “External advisers, especially very independent voices, will ask you the right questions and will challenge your assumptions.”

Agarwaal figured out who he needed by first identifying the skill gaps in his company and what strategic initiatives he needed help with and how often. He suggests, “I would say, first, what are the gaps, and second, do you need that help on a consistent basis or intermittent basis? Because, again, you have to decide how much investment you’re going to make in it.”

Finding the right people isn’t easy, either. Volynets suggests the best place to look is your own networks to find the business people you trust with the criteria you need. But Volynets cautions entrepreneurs to avoid adding friends, suppliers, contractors, etc. to an advisory board, even if they have the requisite skills. He says, “The most important characteristic is emotional independence.”

Listen to Agarwaal’s firsthand experience on creating an advisory board and Volynets’ insights on how to do it strategically and successfully when it’s time to tap into the experience and expertise of other business leaders.

Listen & Subscribe

Grit & Growth is a podcast produced by Stanford Seed , an institute at Stanford Graduate School of Business which partners with entrepreneurs in emerging markets to build thriving enterprises that transform lives.

Hear these entrepreneurs’ stories of trial and triumph, and gain insights and guidance from Stanford University faculty and global business experts on how to transform today’s challenges into tomorrow’s opportunities.

Full Transcript

Alexey Volynets: It’s really hard to fire people, especially the friends. So you think you are doing yourself a favor by inviting friends, you actually are not. You’re creating problems down the road.

Darius Teter: There’s no shortage of advice out there. And plenty of it is bad, but there’s a secret weapon to get smart guidance without all the baggage.

Alexey Volynets: You need that independence because sometimes you cannot test your ideas in the same way with your management group, for example. Because obviously they are dependent and that will color the discussion. You want strong, independent people.

Darius Teter: Welcome to the second season of Grit & Growth from Stanford Seed, the show where Africa and South Asia’s intrepid entrepreneurs share their trials and triumphs with insights from Stanford faculty on how to tackle challenges and grow your business.

Imagine you’ve got a problem that you don’t know how to solve. It’s not an impossible problem. Other companies seem to have figured it out, but you’re not sure how it applies to the specifics of your business in your industry and at your particular stage of growth. So what are your options? You could ignore the problem and just hope it goes away. You could wing it or make an educated guess. You could drop everything and learn all there is to know about the subject. Or you could just ask someone who knows — knows the subject and knows the industry. Someone who may have piloted a business through a very similar problem. Doesn’t that sound better?

Well, congratulations. You just got yourself an adviser. Advisory boards can be an amazing resource, your secret weapon to access expertise on critical topics. But I’ve seen so many businesses forgo advisory boards because they’re not sure about the value or the logistics or the amount of effort it’s going to take. Or maybe, subconsciously, they fear some loss of control. So we’re here to set the record straight on what advisory boards are, what they should and shouldn’t be used for, and how to construct a great one of your own — one that will pay dividends as your company grows and becomes more complex. But we’re not the only advisory board evangelists. Meet Aashish Agarwaal.

Aashish Agarwaal: So I’m Aashish. I’m the founder and chairman of The Energy Group. And the group is comprised of different companies, largely in the data, design, and content ecosystems

Darius Teter: Aashish’s companies have expanded from Chennai, India, to international markets across the globe. And they knit together complex systems, connecting content, data, production, and design.

Aashish Agarwaal: Think about a book. So right from the manuscript to the final print and digital file, we work with publishers, enabling them through the entire cycle. Editorial layout, indexing, proofing, all of that. And the design side, we work extensively on creative production services. So, essentially, ad agencies, OTT [over-the-top] platforms, helping them with video post-production, working with large brands on their packaging pre-media side. So all of those production-related activities, we help them with. So as a group, we are about 1,500 people across the U.S., U.K., and in India across multiple operational centers. We’ve completely been self-funded. The companies have reached a point where we could speak to external investors, but currently all are self-funded.

Darius Teter: What drove you to decide you wanted to be an entrepreneur and start your own business?

Aashish Agarwaal: I would say joblessness. Meaning I finished my master’s [degree] in the U.S. I came back to India, worked for my father for a couple of years. And he was having a manufacturing setup, something that really wasn’t appealing to me. So I remember I did stock trading for maybe six months. I dealt in trading of writing instruments, so Singapore, Dubai. That didn’t go well. And so I was kind of really frustrated.

And then I remember seeing an article in a magazine at that time in India called Business World. And the article headline was “The Rise of Teleworking.” And teleworking basically meant through telecommunication lines. A lot of work is being done offshore, especially Indian. I knew there’s work to be done in terms of the data side. And so I moved to Chennai. I’m from Calcutta, actually. I moved to Chennai and I had a very close cousin of mine who was running a large software business. So he said, “Look, I’ve got a large team.” And so they connected me to some of their network and the guy I hired, he said, “Okay, you know what, since we are a startup where we don’t know what we are going to do, there’s something called XML coming in publishing. So maybe we should explore that.” So that kind of started Amnet and its service lines.

Darius Teter: In the spirit of the topic. It’s only right that we bring in an adviser to advise us on advisory boards.

Alexey Volynets: My name is Alexey Volynets. I lead the SME practice area in the environmental, social, and governance knowledge and learning team of the International Finance Corporation.

Darius Teter: Alexey is an expert in corporate governance and has been teaching companies about it for years.

Alexey Volynets: In as simple as possible terms, we provide various forms of financing to the private sector and also various kinds of advice, including, for example, on corporate governance, environmental, and social issues. So it’s a very long introduction, but the short of it is that we are developing various knowledge products and learning programs and then delivering it to IFC clients and partner institutions worldwide.

Darius Teter: Can you give me just a working definition of corporate governance? That term is used so broadly. How does the IFC define it?

Alexey Volynets: Well, there are multiple definitions. There are two that I personally like the most. One, the simplest, is: Corporate governance is about how companies are directed and controlled. And I like it because it focuses on functions, not on specific institutions like a lot of definitions include, for example, a board of directors as a key player in it. Whereas in the context of small and medium enterprises, that is not often a relevant institution, a board of directors. Or at least not up to a point in their growth. So a definition that focuses on functions, I think, is much more important. It makes it easier to communicate with entrepreneurs.

And the second definition we got: Governance is when the company can run itself. I really like that for, again, in context of SMEs. That just means that you’re creating certain structured policies and practices that you can take vacation for three weeks and not be afraid that your business will fall apart while you’re away. Companies with better governance show better long- term performance. Starting with three to five years, you see better performance. It has been done in multiple markets, including emerging markets. That is the case, especially in crisis. So they would look at, for example, corporate governance rankings in Brazil before crisis and then after. Three, four years after crisis. And they see those companies that had higher rankings actually did much better in crisis than those that did not.

Darius Teter: Alexey would be the first to tell you that corporate governance can look very different for different companies. But the most common manifestation of corporate governance is a board. There are two main types of boards: fiduciary and advisory. Understanding the difference is key to finding the utility of each.

Alexey Volynets: Well, the key difference is: The fiduciary board actually has liabilities. It has responsibilities for shareholders, for the company. And, actually, if you fail at those responsibilities, you can and increasingly will be taken to court. Advisory board is what you want it to be, it’s that simple.

Aashish Agarwaal: The first time I really explored the idea of an advisory board was when one of my cohort members, Karthik, and a big shout-out to him, we were talking. And just like you asked some questions, he was talking about, “Who do you answer to? How do you hold yourself accountable?” And frankly, I didn’t really have an answer where he said, “Look, I’ve used something called an advisory board” And he beautifully explained how the advisory board helped him. He gives some great stories, anecdotes. And so that was the first time when I really kind of started exploring what an advisory board can do.

Darius Teter: The first question you need to ask when considering an advisory board is a simple one.

Alexey Volynets: Why do you need that board? For example, you might want to have just the sounding board to test new ideas. But you fully understand why you need it long term and then you actually think why you need it in the short term. Because when you bring people in, they need to understand what they are there for. So, for example, if your company is thinking about expansion into new markets, that has to be explicit to the people you are bringing in to their working on that problem.

And then once you know what the purpose of the board is, long term and short term, then you can start thinking of the skills, these skill gaps that are inside your company. That’s a very easy way for us, we find, to explain to entrepreneurs why they need advisory boards. All of them can think of some skills that are currently missing. So that idea is to start with that skills metrics, specifically identify what the companies need.

Darius Teter: It sounds like you actually need to have a pretty good sense of what your strategy is before you should start thinking about populating an advisory board. It’s not just, “I’m going to get a bunch of smart people and they’re going to help me think through my strategy.” It’s, “This is my strategy. These are my gaps and this is where I might need a subject matter expert. This is where I might need some mentoring, specific types of experience.” So unless you have a map, you’re not going to get the right people.

Alexey Volynets: Exactly.

Darius Teter: Aashish also suggests assessing your blind spots and simply being honest about the time you have to dedicate to your board.

Aashish Agarwaal: I would say the first is to identify the gaps. And second is, do you need that help on a consistent basis or intermittent basis? Because again, you have to decide how much investment you’re going to make in it. And based on that, I would say certain “dos” that I try to practice would be “know your ask.” What specifically can they help you with?

Darius Teter: This point is key. Strategy is a guide to finding the right people. I asked Aashish what do you hope to accomplish with his board.

Aashish Agarwaal: For us, I knew the starting point, I don’t know the ending point. We have also identified certain other areas where we believe we need to really make progress. So an example of that is strategic HR. A lot of the HR, as you know, is very transactional. And so we kind of said, you know what, like we were discussing, with so many different types of services, there are many different types of skill sets that we have, different types of people. For example, in the design side, the mindset of people, members, are very different than, let’s say, data processing. The skill sets, the experience, the education, a lot of that is very different.

So we said strategic HR is a must where HR is really not human resources, it’s human relationships. So one of the first people we wanted to bring on to the advisory board was someone who comes with that background of having had multiple years of HR experience, not just transactional, but strategic as well.

Darius Teter: Aashish was also looking for board members with expertise in marketing, machine learning, and product integration. But before we get into the weeds of how to build an advisory board, let’s zoom out and discuss why. What are they useful for? What can they do? What can’t they do? Well, as we’ve mentioned, boards are great for filling knowledge gaps in your business. But there’s a whole host of other benefits that you can get from having a group of seasoned professionals in your corner.

Aashish Agarwaal: I think it’s a must in terms of the ability of a company to be held accountable. Now, in our case, as I shared, since we were largely self-funded, we didn’t have kind of an oversight committee. So there wasn’t anyone saying, “Hey, you embarked on this plan, nothing happened. You embarked on this strategic initiative, we haven’t heard anything from you.” So I absolutely think the larger the company becomes, I believe very strongly that there needs to be some form of check in terms of the growth part, obviously the financial management, and so on.

Because I realize with all these companies, what often happens is you do a lot of planning and then you may not be really very hands-on with the execution. And then, because you’re running around with different initiatives, it’s very easy to drop the ball. So we kind of, as a team, identify that, “You know what, we must have an advisory board.” So that’s kind of how it really started.

Darius Teter: Advisers can also help you navigate those tricky situations that might be outside of your personal experience as an entrepreneur.

Aashish Agarwaal: In August 2020, we were acquiring a company in New York in the creative production business. And I remember distinctly I had a good number of questions with regards to the integration, with regards to the existing customers of this company that we were acquiring. How would we or how should we or how should I in this case approach the existing customers so that they don’t feel that a big company has come, acquired, there’s going to be integration.

And he gave me such a wonderful piece of advice. He said, “Look, write to every customer and you ask them specifically, as a result of this acquisition, what are your concerns?” Honestly, I hadn’t thought about asking that question very specifically. And I really talked to him about it. I said, “Look, if they don’t respond, if they feel threatened,” and so on and so forth.

He said, “No, I think you should definitely do that because it shows willingness. It shows openness on your part.” I did. So we wrote to about 21 or 22 of these different customers and it was very interesting. Twenty-one of them responded out of the 22. Almost all of them said, “We love working with this company. We love the relationships and we don’t want a big company coming and suddenly changing the management, changing how we do things, etc.” And that feedback, I kid you not, it was amazing because we said, “You know what, we are not going to do anything different other than try to obviously bring in certain efficiencies, etc” But from a customer interface perspective, we kept all of the relationships as is.

Darius Teter: Right. So if you hadn’t written that letter, you might have walked in there and just tripped over yourself and broken a lot of relationships with these customers.

Aashish Agarwaal: I think so. Because, again, we think very production-oriented processes and ideas, right? Because a lot of the work that we do is built on efficiencies of processes. This is an onshore company working directly with very large brands. And obviously we needed to kind of learn how to kind of direct the ship, so to speak.

Darius Teter: Alexey sees advisory boards as a mechanism to keep entrepreneurs from just getting carried away.

Alexey Volynets: There is quite a bit of literature that says that humans have optimism bias. Most people are overoptimistic. They overestimate good outcomes and chances of the good outcomes. And they overestimate the impact of those good outcomes. There is also literature that says that entrepreneurs are much more subject to that bias. So there is a lot of risk and it’s really good for society that those people are overestimating their chances of success. We are all beneficiaries of their sweat and blood and troubles and all of it.

But as your business starts to grow, it’s very important to not become overconfident. If you are successful, it’s just basic human psychology. We don’t assign it to chance. We assign it to our great skills and foresight and all of that. So as you are growing, and when you are on the top of the world, that’s important to have that check. So external advisers, especially very independent voices, will ask you the right questions, will challenge your assumptions. It’s really, really useful to keep your touch with reality.

Darius Teter: I think it’s also worth noting what advisory boards can’t do, something that got me pretty fired up while I was talking to Aashish. I’ve talked to a lot of business leaders for this podcast and some of them talk about an advisory board as someone who helps you actually make a strategy. That somehow they’re going to come in and save your bacon, which is a very American slang. But they’re going to come and help you do your strategy. And in my professional career, I’ve worked for organizations that hire outside facilitators to help the leadership team make a strategy and it always sucked.

To be totally honest with you, if the leadership can’t lead on strategy formulation, no one else can do it for you. Now, when we left off, Aashish had found some areas where he felt he could use more guidance. But that raises another question. Once you identify a gap, how do you find the right adviser to fill it? Now, I’m going back to playing the role of the entrepreneur. My business has grown to the point where I’m ready. I need more advice. And I’ve identified the key attributes I’m looking for. How do I go about finding these people?

Alexey Volynets: That’s a very hard question. We actually asked it all the time. And unfortunately it’s really country-by-country because it is dependent on what the environment is. In some countries, for example, increasingly in emerging markets, we will have institutes of directors that often they would have databases of directors. So you can actually tap into ready ones. And some of them will be even quite sophisticated where you can have even, say, I need more women on my board, for example. But in other countries you don’t have that. So it’s just your networks. Look at the business people you trust, see if they fit the criteria. Simple as that.

Darius Teter: So I’m curious. So you’ve got strategic HR, technology, visioning, product integration, and marketing. And one of these people had been road-tested as a consultant. How did you find the other three?

Aashish Agarwaal: So with the leadership team, when we identified these areas where we need board members, the HR individual was actually recommended by our COO. He had worked with him. So we met a couple of times. We kind of discussed the scope of work and he was very willing as well. The other two actually was thanks to LinkedIn. So I actually identified from different profiles which of the profiles might be closest to our needs.

Darius Teter: So you searched for specific individuals based on their business profile.

Aashish Agarwaal: I did, absolutely.

Darius Teter: It wasn’t sort of like a call for proposals, “We are looking for advisory board members?”

Aashish Agarwaal: Not at all, not at all. I was very clear in my mind, at least I had a pretty good idea as to what kind of profile we are looking for. And then I just reached out to them, explaining what we are looking for, who we are, and what the goals are.

Darius Teter: According to Alexey it can be just as helpful to know what to avoid.

Alexey Volynets: It’s important to think not only in positive terms, but in negative terms, whom you don’t want to see at the board. You don’t want to see any people with conflict of interest. It’s really hard to fire people, especially the friends. So you think you are doing yourself a favor by inviting friends, you actually are not. You are creating problems down the road. So no suppliers, no contractors, nobody who cannot provide independent advice. You need that independence because sometimes you cannot test your ideas in the same way with your management group, for example, because obviously they are dependent and that will color the discussion.

You want strong, independent people. The most important characteristic is that person is, actually, there is emotional independence. They’re not dependent on your salary. They are not dependent on you psychologically, don’t have connections with you in the same way as they would want to tell you something. Even if you pay them, you normally don’t pay them what they can get otherwise spending the same amount of time. So for them, it’s often these people can be altruistic. They really want to see different businesses succeed, and they also want intellectual challenge. That’s an interesting thing to do.

Darius Teter: And maybe that’s actually another key criteria for selecting advisory board members, is that they need to be passionate about what you’re trying to do.

Alexey Volynets: That’s an interesting criteria because it’s hard to fake passion like that. It’s important that you also think of kind of this reciprocity in that way that you make their life interesting in a good way.

Darius Teter: And just like any team you want it to be more than the sum of its parts.

Alexey Volynets: For the board member, I think, it’s important to see, not only an individual skill set, but also how they fit together. It’s always good to have at least one person who is comfortable challenging the consensus, right? Who is comfortable being contrarian and so forth, but you don’t want to have all the three, five people contrarians because it is not going to be very productive. It’s useful then if you have a strong contrarian to have somebody who is more capable to bring people together and so forth.

Darius Teter: So I’m curious: When you first reach out to the CTO of a Fortune 500 company, what’s your pitch?

Aashish Agarwaal: Honestly, it was a very short message that “we are looking to transform.” And as a part of the imperatives that we have, let’s say, strategic HR, or in this case, cognitive science and analytics is top of mind. So I’d love to have a chat. And if you are willing to be a member on the advisory board, welcome a conversation. He replied, I think within 24 hours, said, that “look, happy to talk to you.”

Darius Teter: I’m curious. What did they ask you? When you approached these four about being on your board, what did they ask you?

Aashish Agarwaal: In the kind of introduction, we specifically mentioned that we’ve created a transformation plan and extremely critical to the execution of the plan are these pillars where an advisory board is imperative. So the ask was not very specific, but nevertheless, we were relatively clear about the direction.

Darius Teter: So I think this is a super-important point — that because you had a strategy, a growth strategy, and you had specific things you wanted to achieve over the next however many years, that was actually the hook, right? The people could look at you and say, “This person means business. They have a plan. They are trying to get somewhere. They have a pretty clear strategy and I can see where I fit in that strategy.”

Aashish Agarwaal: Absolutely.

Darius Teter: The fact that you had a strategy for growth, I think, seems to be what made even total strangers take you seriously.

Aashish Agarwaal: Couldn’t agree more. Absolutely. In fact, in each of the first meetings, we showcased the Transformation Plan in terms of where we started, what we did and where we are going. So that was definitely something we shared, we talked about.

Darius Teter: At the risk of sounding redundant, I want to point out the importance of an existing strategy. The T-plan that Aashish mentioned is their multiyear strategy to transform their business. It’s key to identifying the right people and, perhaps more importantly, convincing them to spend their valuable time on your business. Once you have your all-star team of advisers, you have to figure out: How will your board operate? What should advisory board members expect of you and vice versa? Do you just sit in a room and chat? How often do you meet? How deep in the weeds should they go? The good news is you actually have a lot of options. As Alexey mentioned earlier, one of the major attractions of an advisory board is its flexibility.

Alexey Volynets: Advisory board is what you want it to be. It’s that simple.

Darius Teter: Aashish has gone through several iterations to find the structure that works best for him. So tell me, let’s talk a little bit about how this advisory board functions. I think most listeners will imagine that they get together on some periodic schedule, sit around a conference table with a set agenda, and have a structured conversation. Is that how yours works?

Aashish Agarwaal: I would classify it as version one and version two. So version one was exactly what you said. It was a very generalized approach. So, for example, we would sit in the beginning of the financial year, for us it’s 1st of April. And I would take them through the broad map of what these strategic initiatives are, what topline are we looking at, what’s the margin, etc. And then they would obviously challenge, question certain things, that certain numbers seem very ambitious or the time for the strategic initiative seems to be very short. They would challenge you on the current people and if they are already stretched with the various projects that they’re running. And then I would give them an update every quarter. So we did that for a year. The challenge I found with that approach was it became a very general conversation.

Darius Teter: It almost sounds like the agenda of a fiduciary board.

Aashish Agarwaal: Exactly. So it became very general and they came up with some amazing valid points. So we were jotting all of those points. And then after we would finish the meeting the COO and I would kind of discuss, and we would find there is no way we can implement so many points. So, for example, even if you’re in marketing because of your experience, you can add massive value, let’s say, in an HR challenge. And you want to take that onboard, but you just can’t take so many things onboard. It’s doomed to fail.

This year, I actually reached out and I said, “Look, can we change the format?” And this is my version two, which became very specific. So, for example, at the beginning of the financial year, we sit down and I take them through the plan. And then over the course of the year, I basically fixed up an hour or half an hour every month with each of them.

Darius Teter: Separately.

Aashish Agarwaal: Absolutely. And the idea was I would make a note of all the various points where I need some guidance, some tips, or some suggestions. And we would cover that in that call. And frankly, I find this to be a lot more compelling because, one, I’m able to actually report back on what I did, specifically, on the inputs that they gave. So, for example, if something didn’t work, I would say, “Hey, I tried it with this and it didn’t work.” So they would kind of take you through, “Okay, have you tried something else” For example, when we hired the head of people, strategy, and culture, we first thought we will have this person lead the entire HR.

So we said, “You know what, great. All of the HR team members, even the administration and transactional side, would report into her.” Now when she and I do our weekly meetings or the OKR [objectives and key results] framework that we follow, she’s got strategic initiatives there. But in some cases we found that she wasn’t able to make progress. So when we would discuss, it would be, there’s a lot of time I’m spending on the transactional side, even if it’s guidance.

Darius Teter: She was in the weeds.

Aashish Agarwaal: Absolutely. So I spoke to the board member and I said, “Look, I’m having a sense that maybe we separate her from this entire transactional side, from the administration side. And maybe she can just focus on the strategic side.” And it was amazing for me to bounce that idea off with him because he’s seen the various facets of how these things work. So he said, “You know what, it probably was better off if you started her on the strategic side as well, because the organization and all of the people in the organization would know you seriously mean culture and you’re really putting effort behind it.” So this transition has just happened now. So, that was an example of how it was extremely helpful to get guidance there.

Darius Teter: It’s also important to consider what financial obligations you have to an advisory board. So are your advisory board members, do they get compensation?

Aashish Agarwaal: Yeah, there is a fixed fee every quarter.

Darius Teter: Okay. Some presumably modest compared to their other revenue streams, right? So they’re not really doing it for the money, they’re doing it because they believe in the business.

Alexey Volynets: By and large, it’s a good idea to pay for your board. And it’s really hard to say how much because if you even look at a corporate governance board, there is a huge difference between countries, how much board members are getting paid. There are even huge differences within the same countries and different industries. But there is one rule of thumb that I find really overall good — that you should value time of your board member as much as you value your top executives. We are talking about specific time. So if you know your board member will probably work five days a year, advisory board member, that you pay him what you would have paid for your top executive for a week. Something like that.

And a general idea, it’s good to schedule payment in a way that you pay per meeting, so it incentivizes them to attend those. But you also pay a retainer, essentially so you can call people, your executives can call them for advice, and so forth. If you can pay, if you can afford it, do it.

Darius Teter: Then there’s the question of how much reach advisers have into your business. To what extent does the advisory board have access to your senior managers and vice versa?

Aashish Agarwaal: I would say as of now, the interactions have been limited to me and my COO. And the reason for that is because these initiatives or these challenges are very specific, from my perspective, it’s just been us who have been interacting with the board. I believe they know a lot of the senior leadership team or some of them. There have been some calls, for example, the data labeling side that I talked about. There have been calls where the technology head, the operations head have been involved.

Darius Teter: So you might call in for a specific conversation with a specific advisory board member. You might call in the relevant managers. Although it varies business to business and problem to problem. Alexey has a good rule of thumb for how to handle the question of board access.

Alexey Volynets: The advice that we usually give that kind of helps to — it sounds very general, but actually, people intuitively will understand what we are talking about — is, should the board of directors have their nose in operations? And then we say, no. Here is the way you understand the role of the board. Nose in, but hands out. You need to really understand what’s happening, but you cannot run it. You can tell what needs to be fixed, you can provide the direction to the management and so forth, but your hands are out. And people cannot get it. Okay, nose in, hands out. They get the idea.

It’s normally good practice for board members and advisory board members to have access to executives for needed information. The issue here is that that process has to be clear and transparent because it often creates conflict. It’s one of the typical reasons for conflicts on both types of boards, where board members would go and start soliciting information from the company from different executives. And then the owners or other board members are like, “What are you doing? Why are you doing it? What are you trying to accomplish?” Make sure you actually, whatever you decide, that it’s fully transparent, how the process works. Who you go through to get access for what information. How you disclose your purpose and so forth. Just that transparency will help to avoid a lot of problems.

Darius Teter: Just like any part of your business, there’s a chance an advisory board can go wrong if it’s not done in the right way and for the right reasons. I guess the most common is that it just becomes a tick-the-box exercise and it’s not really doing anything and everybody ends up being dissatisfied. But I’m just curious, what are the common mistakes? How does this all go wrong?

Alexey Volynets: I think what you describe is one of the typical problems and what happens when people push to create a board, either by law or by requirements of some investors or something. Then they go ahead and they think, “Okay, at least I will invite people I trust.” So they go with a trust issue and they create a board that is essentially fully controlled by the shareholder. Most people there will be dependent. And then what they discover is that board doesn’t really add any value. So I would say, if you want to do board of directors, do it right or don’t do it. Just stick to advisory board or some sort of arrangement that gives you much more flexibility. And at least you realize that this is not “corporate governance” that you’re doing something. At least it will keep you from disappointment and leaves you flexibility to change actions down the road.

Darius Teter: And while board members can give companies access to valuable networks, just having a board member for their fame or their reputation can also backfire.

Aashish Agarwaal: I understand sometimes, in these conversations, with some of the cohort members, I got a sense that often or sometimes the advisory board is more for creating a profile of the company. They could be doing a funding round, etc., versus something that’s really instrumental to filling those gaps. For us it was the latter.

Darius Teter: So in other words, they’re picking advisory board members because they think it reflects well on them. It makes them look connected and on a winning track?

Aashish Agarwaal: And I’m sure they’re adding value in some way, but I think knowing your “why” is important because that’s the substance you would draw from them.

Darius Teter: The best way to ensure that your advisory board is a success is to commit to it. After all, an advisory board gives advice. And if you’re not ready to accept that advice, why have a board at all?

Aashish Agarwaal: The only thing I don’t know, and I’ll have to calibrate, is how much will the leaders connect to the idea? Because I do, I really do. I invest time and energy in that, but I think each leader, each individual has a leadership style and some are consultative, some may not be consultative. So I think that’s a calibration I have to do. If the leaders are going to take up a lot of the interaction, a lot of the value-seeking, then I’ll have to figure out whether they buy into it or not. Because I cannot just create an advisory board and then not have interactions happen. that would be rather unfair. So that’s the only thing. If an individual is looking at their business leaders to interact, to be the point of contact with an advisory board, that buy-in has to be there, otherwise it’s doomed to fail.

Darius Teter: It’s worth noting that Aashish has found such value in his advisory board that he’s now thinking of implementing them for all the separate companies within The Energy Group.

Aashish Agarwaal: I would say, having experienced an advisory board, one of the things that I’m very clear about is they add tremendous value. So I definitely see the companies having a board of their own. I don’t know at what point in time, but I definitely see each of these companies benefiting and therefore having an advisory board. I think with the reorganization of the group, one of the things that’s definitely, it’s a strategic initiative for myself, is to assess whether we need to have advisory boards for each of these companies now. Because the creative production side, it’s very high on direct relationships with brands, large multinationals. And there’s a lot happening in the marketplace, technology-wise, data-wise. So the idea, one of the ideas I’m toying with, is, one, having an advisory board for each of these companies. The ecosystems are very different, the technology requirements are relatively different. So I think it would be more prudent to have members for each company.

Darius Teter: Governance can sound intimidating for an entrepreneur who’s used to the freedom and agility and control that come with a startup. But advisory boards are an incredible way to tap into the experience and expertise of other business leaders. They’re also extremely useful in bridging the gap to more elaborate and rigid governance structures that are typically required as you grow and take on investors. So the more you can experiment with them on your own terms, the better position you’ll be in to capitalize on them down the road. Ultimately, advisory boards are just what they say on the box: advisory. The decisions are still yours, but if you use them well, you’ll be able to make more confident and informed decisions with their guidance helping to light the path.

And I’d like to thank Alexey Volynets and Aashish Agarwaal for their time and contributions to shine a light on this topic. This has been Grit & Growth with Stanford Graduate School of Business. And I’m your host, Darius Teter. If you like this episode, leave us a review on your podcast app. It really helps us to share the stories of these incredible entrepreneurs with as many people as possible. To learn how Stanford Graduate School of Business is partnering with entrepreneurs in Africa and Asia, head over to the Stanford Seed website at seed.stanford.edu/podcast.

Grit & Growth is a podcast by Stanford Seed. Laurie Fuller and Erika Amoako-Agyei researched and developed content for this episode. Kendra Gladych is our production coordinator and our executive producer is Tiffany Steeves, with writing and production from Andrew Ganem and sound design and mixing by Alex Bennett at Lower Street Media. Thanks for joining us. We’ll see you next time.

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Site-of-care shifts: healthcare’s $50b opportunity.

Understand the current state of outpatient shift, how it's likely to change your market, and how to use it for growth.

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Prepare an executive summary.

Effective executive summaries should “sell” the proposed idea by providing a concise (less than two pages) assessment of key plan components.

Conduct a market analysis

The first projection made when developing a business plan is an analysis of potential market volume. Volume forecasting estimates the total market size and the hospital’s likely share, given its position within the competitive landscape.

Develop a marketing plan

Program champions should solicit ideas and input from marketing staff during the plan development process to outline likely market response upon plan implementation develop the marketing campaign.

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Posted on March 25, 2014

Updated on March 17, 2023

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Unlocking Strategic Advantage: A Guide to Effective Board Advisory Services

• Daniel Henry
• September 11, 2024

The complexities of modern business require a multifaceted approach to leadership. Board advisory services have emerged as a powerful tool for organizations seeking to leverage the expertise and experience of seasoned professionals beyond the traditional boardroom. Boardsi.com, a leading platform for board management solutions, recognizes the growing importance of board advisory services. This article delves into the core benefits of board advisory services , explores different types of advisory engagements, and highlights how Boardsi.com connects organizations with the right advisors to achieve strategic objectives.

Beyond the Boardroom Walls: The Value Proposition of Board Advisory Services

Board advisory services offer a comprehensive solution for organizations seeking to augment their strategic decision-making capabilities. Here’s how these services can empower your organization:

• Specialized Expertise: Access advisors with deep knowledge in specific areas like finance, technology, or legal matters, providing tailored guidance for complex challenges.
• Enhanced Innovation & Problem-Solving: Benefit from fresh perspectives and proven strategies to tackle business hurdles and identify new opportunities.
• Improved Board Performance: Advisors can work alongside the board to enhance effectiveness, governance practices, and overall boardroom dynamics.
• Strategic Decision-Making: Leverage the combined knowledge of advisors and board members to make informed and well-rounded business decisions.

Types of Board Advisory Engagements

The nature of board advisory services can be tailored to a organization’s specific needs:

• Board Advisors: Provide high-level strategic counsel to the board and management team on broader corporate strategies and industry trends.
• Subject Matter Experts (SMEs): Offer in-depth expertise in a particular industry or field, addressing specific technical challenges or market opportunities.
• Executive Coaches: Provide confidential coaching to individual board members or the CEO, focusing on leadership development and performance improvement.

Boardsi.com : Your Gateway to Expert Board Advisors

Boardsi.com empowers organizations to leverage the power of board advisory services by:

• Extensive Advisor Network: Connect with a vast pool of qualified individuals with diverse expertise actively seeking advisory opportunities.
• Targeted Matching Tools: Refine your search based on specific skillsets, industry experience, and desired advisory role.
• Secure Communication Channels: Facilitate confidential communication between organizations and potential advisors.
• Board Development Resources: Gain access to guides on effectively utilizing board advisors, building strong advisory relationships, and maximizing the value of their expertise.

Investing in Strategic Expertise

By incorporating board advisory services , organizations can gain a significant competitive edge. Boardsi.com connects you with the right advisors to navigate complex challenges, identify new opportunities, and propel your organization towards long-term success.

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Building Your Braintrust: How to Find the Right Advisory Board Members

Explore the benefits of having an advisory board and discover effective strategies for finding the perfect members. Learn how Boardsi.com can empower you to build a strong advisory board and invest in the future of your leadership team.

Finding the Perfect Fit: A Guide to Effective Board Member Matching

Explore the importance of board member matching and how it can significantly impact your organization’s success. Learn about the challenges of traditional recruitment and how Boardsi.com empowers you to find the perfect candidates for your board.

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Why advisory boards are important for business corporations.

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Founder & CEO  of Sesame Associates | Management Consultant specializing in Corporate Innovation & Corporate Strategy

The advisory board is one area that is overlooked by many businesses but can be a game changer. According to BDC, 86% of businesses with an advisory board say it has a significant impact on their businesses. In companies with advisory boards, this same study saw sales up 24% and a productivity increase of 18%. With such positives, companies should be thinking about implementing advisory boards, but many are not, perhaps because they are unaware of their benefits or think they are time-consuming. 

What is an advisory board?

An advisory board is a group of experts who provide the board of directors and senior management expert advice. Advisory boards have no formal authority and responsibility, and their members are not company directors. Advisory boards do not take part in corporate governance but only provide advice. 

There can be a general perception that advisory boards are only needed for startups and young entrepreneurs needing advice. But this is far from the truth. Even some of the largest companies in the world have advisory boards in addition to their highly experienced and high-profile board of directors.

Toyota is a good example of a large corporation setting up an advisory board. In 1996 , Toyota established an international advisory board of 10 members. Even though Toyota had an incredible board of directors, it still saw the value an advisory board could add. The members of the advisory board of Toyota in 1996 consisted of prominent figures like Dr. Manmohan Singh ( former Prime Minister of India ) and Dr. Paul Volcker ( former chairman of the U.S. Federal Reserve Board) who did not necessarily have experience in the automobile industry. 

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Why should companies have advisory boards?

1. They provide new perspectives. As experts in fields other than that of the particular company, advisory board members can bring in new perspectives. As the board of directors and senior management spend years in that particular company, their thinking can become institutionalized, and they can get out of touch with what is going on outside. An advisory board can throw in fresh ideas. In 2005, Gucci created a shadow board of millennials who met with the senior executives on a regular basis. The CEO of Gucci at the time admitted that the insights from the shadow advisory board provided a wake-up call for the senior management and that after the advisory board was appointed, sales at Gucci went up.

2. They bring in credibility. An advisory board consisting of high-profile personalities and experts can greatly boost the brand of the company. In 1996, Toyota appointed then former finance minister Dr. Manmohan Singh to its advisory board, and later he became the Prime Minister of India. Strategically, this turned out to be a great move, as India is a huge market and Toyota can claim its prime minister was its advisor. Members of the advisory board can also bring in a lot of connections to the company by introducing important players, which can bring in other important stakeholders. 

3. They allow for frank opinions. As advisory board members are not responsible for corporate governance, they can give non-binding advice, which can be very helpful. Even though the board of directors may have more experience and expertise than the advisory board, the board of directors often makes decisions under pressure to please shareholders and other stakeholders. This is not the case with the advisory board, as its members are under no pressure and their main purpose is to tell the truth as it is. A CEO can ask the advisory board for a second opinion before making a major decision, and the advisory board may give a better idea or prevent a fatal mistake. An advisory board can also help companies make tough decisions that members of the board of directors may not be willing to speak about or push through.

4. They can be very cost-effective. Advisory boards are smaller, and the members are usually paid between a third and a half of what the members of the board of directors are paid. It is cost-effective to invite experts into the advisory board rather than to the main board of directors. Advisory boards can also be less costly to have than hiring consultants.

5. They are flexible. Advisory boards are easy to set up as well. Members of the advisory board are usually appointed for a specific time period as compared with members of the board of directors who generally stay on for much longer periods. As advice from the advisory board is non-binding, there is less pressure to be very selective when picking the members.

Advisory boards have a lot of benefits for corporations, and many global corporations have them. They bring in a group of experts and influential people — at a low cost — who can give frank advice, predict future trends and help keep the company in line with its vision and long-term goals. Having an advisory board can be a game changer.

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