Building a strategic advisory board can be an effective way to speed up your sales cycle, gain credibility and be introduced to key stakeholders at your prospect customers in the US.
Yext is not alone. Savvy enterprise start-ups understand the power of relationships. When it comes to entering new markets, gaining the support and endorsement of well-connected, local industry players can make all the difference.
What is the difference between an advisory board and the board of directors?
An advisory board is not the same as a Board of Directors: advisory board members have no fiduciary duty or authority over the company. Instead, they can fill knowledge and network gaps within your company or your own background. Many companies engage advisory boards to help with product development or sales strategy or to introduce them to valuable clients, suppliers and investors. Since advisory boards are not engaged with the business of governance, you can focus the work and input of those advisors much more narrowly to their expertise, there is more flexibility on the time and level of engagement the advisor can offer (and remuneration should reflect their level of engagement) and you can successfully engage a larger group of advisors within this mandate – for example, Yext’s 12-person advisory board. Most companies don’t engage their advisory board in meetings as a group; instead they reach out to specific advisors as needed, and set different frequency for those interactions.
While the Board of Directors and the advisory board are two distinct groups that support your work, engaging advisory board members can be a great way to “test drive” working with potential independent Board members (non-executive directors), you’d like to invite to your Board of Directors, before a full commitment.
Building an effective advisory board
Have a clear objective
An advisory board can be a bounty when you find the people who are experts at solving a set of problems you have, engage them with clear expectations and rewards, and turn to them whenever you have issues related to that problem. To find the right people, you have to be clear on what problems you want them to help you solve.
For example, Steve Blank suggests there are five primary types of advisory board members:
- Technical advisor: for product development advice
- Business advisor: for business strategy and guidance
- Customer advisor: for value proposition and positioning advice
- Industry advisor: for domain expertise
- Sales advisor: for market tactics and demand creation
Beyond these, it’s important that you identify the crucial challenges in your scaling up roadmap, to determine what kinds of advisors will be strategic to you, and which will complement your team’s skillset.
Recruit star advisors
When it comes to engaging advisors, think of it as the same recruiting challenge you have for roles in your company: you want expertise and you want results, and therefore finding the right advisors is key. Once you’ve identified the clear objective for your advisor, it is easier to have targeted conversations, since you can be specific in your wish list. For example, if your goal is to grow a base of customers in a particular vertical – as was the case with Yext – try the following:
- Ask your customers or prospect customers who they respect
- Ask your Board of Directors and industry connections for referrals
- Have a point-of-view related to the industry, and build a profile and relationships based on your expertise
Advisory member relationships can work particularly well if the candidates you are courting are well-connected leaders in their space, have ambitions to be on a public board and have not yet done so (such that they can leverage the startup advisory board experience in that context) and are excited about being at the forefront of their industry.
If you are a first-time entrepreneur or an early-stage entrepreneur, it is worth noting that there are many people in the market branding themselves as “startup advisors,” or who seem successful in their industry, but who won’t be valuable advisors for your business. This is one of the reasons why asking for referrals within the industry is so important, as is spending time getting to know the advisor.
Before formalizing any advisor relationship, ask for their input on a few demonstrative issues – how would they approach them? Who might they reach out to? What strategies have they seen in the past? What were the outcomes? Which risks do they anticipate? Getting to know the advisors well through informal advice at first can increase the likelihood of productive and long-lasting relationships.
Compensate advisory members appropriately
It is a good idea to compensate your advisors, either with cash stipends or stock awards. In addition to aligning incentives and recognizing that expert time is valuable, compensation will make you more disciplined about the calibre of advice and support you are seeking and getting. Additionally, compensation formalizes the professional relationship you expect from advisors, and your commitment to receiving their open and honest expert feedback, rather than having them tell you what you want to hear.
Equity grants are a a very cash-effective way for ventures to gain credibility within the market by enlisting decision-makers to support their efforts. In the United States, grants usually range from 0.10% to 1% depending on company stage and the level of involvement of the advisors. For example, the Founder Institute suggests in their advisor template that compensation be set at:
Standard Performance Level
Attend quarterly meetings to provide feedback on Company’s strategy for at least one hour.
Provide reasonable response to email requests by Company.
Promotion: On top of the regular advice and insights, Advisor agrees to actively promote and make introductions on behalf of the Company through Advisor’s overall network of business contacts, including forwarding the Company’s business plan and other materials as requested by the Company.
|Idea Stage is 0.25%|
|Startup Stage is 0.20%|
|Growth Stage is 0.15%|
Strategic Performance Level
Standard Performance plus:
Attend monthly meetings to provide feedback on Company’s strategy for at least one hour.
Attend one additional monthly meeting for up to one hour with a potential customer, investor, strategic partner, vendor or employee.
Standard Performance plus:
Recruiting: Advisor agrees to assist Company in finding additional, potential founding team members and employees through the Advisor’s overall network of business contacts.
Idea Stage is 0.50%
|Startup Stage is 0.40%|
|Growth Stage is 0.30%|
Expert Performance Level
Standard Performance plus:
Twice monthly meetings to provide feedback on Company’s strategy for at least two hours each.
Strategic Performance plus:
Contacts: Advisor agrees to make introductions to and assist in the acquisition of marquee customers, strategic partners and key industry contacts and attend meetings with such potential customers, partners and key contacts.
Projects: Advisor agrees to assist the Company on at least one strategic project as requested by the Company during the term of this Agreement.
Idea Stage is 1.00%
|Startup Stage is 0.80%|
|Growth Stage is 0.60%|
If you choose to compensate advisors with stock, consult professional advice to create vesting schedules. For example, one common approach is straight-line with 3-month cliff, 2-year vesting with single-trigger full acceleration upon a liquidity event. Plan for a proper stock transfer and have an exit plan should your advisors want to sell their shares. Seek professional advice on potential conflicts-of-interest that might arise if your advisors work for other companies.
Have it in writing
Speak to your lawyer before establishing and engaging an advisory board; by and large, it is wise to have members sign non-disclosure agreements, draft a charter outlining advisory board responsibilities and compensation, and provide advisory board members with written indemnification. Also consider incorporating an annual review process into the agreement, such that there are ongoing occasions to review and discuss whether the relationship is productive and should continue.
How will you engage your advisory board?
Be prepared for meetings and show results
Strong advisors are busy people. Since you likely will only have a limited amount of their time each week or month, be rigorous about setting agendas for each meeting or call, be explicit about actionable items between conversations (your action items and theirs), and send follow-up summary emails after every meeting. Some entrepreneurs find it helpful to use a running Google Doc shared with the advisor to keep track of ongoing notes together.
Have regular feedback sessions to see how the relationship is going
Ongoing feedback is another helpful tactic to successful advisor relationships. Mention to the advisor up front that you will want to spend 15-20 minutes in your third or fourth meeting talking through how the relationship is going to-date, and how you can improve your collaboration. Advisors are professionals, and should be receptive to feedback. Some relationships will work better with a set schedule of interactions; others might require more flexibility and unfold in “bursts” of support. Work with the advisor to find the style and cadence that works best for your partnership.
Advisory boards can be a powerful asset, accelerating your access to people and solutions that are key to your company’s success. Advisors can make strategic introductions, help you secure contracts or fundraise, help you recruit other members of the advisory board or your team, attend strategic meetings with you, help you secure press coverage for your company or serve as a reference for your product or your work.
This blog and those in this series are aimed at helping entrepreneurs learn about the US market, what it takes to start here, and ultimately what it takes to succeed here. Many of the topics (if not all) are complex and it is best to view these blogs as a basic introduction from which you the entrepreneur must triangulate to your own specific set of circumstances – and invariably it will be sensible and appropriate to seek third party professional advice.