Startups founders grapple with a plethora of challenges – be it attracting early adopters, filling key gaps in the management team or adequately capitalizing the company. Given the extreme diversity of these issues, it becomes impossible for a founding team to single-handedly tackle all these aspects. In this scenario, entrepreneurs typically resort to approaching ‘mentors’ floating in the venture eco-system, targeting angel investors who can provide both capital and guidance on these issues, and informally connecting with peer founders, venture funded entrepreneurs and investors. The lack of a formal structure in these approaches results in interactions being ad-hoc and outcomes being unclear and arbitrary.
Instituting a formal Advisory Board is an effective way of creating an active, results-driven and outcome-oriented expert panel for the venture. A holistic Advisory Board will ideally have representation from each of the following buckets:
- Business – can give customer introductions, advice on pricing models and strategies, help in identifying go-to-market etc.
- Technology/ Product – help in building product roadmap, vetting technology architecture, structuring development timelines etc.
- Academia – provide inputs from cutting edge academic research, increasing the academic visibility and credibility of the venture via case studies, conference talks etc.
- Personal – a friend, guide and sounding board to the founders both at a professional and personal level, help in resolving personal dilemmas, founder deadlocks, team issues etc.
Creating Advisory Boards has been a highly unutilized strategy by most Indian startups. Even in cases where these Boards exist on paper, they tend to be passive, indifferent and distant from the on-ground challenges of the company. Here are a few pointers towards structuring an effective Advisory Board:
- Differentiate between ‘Mentors’ and ‘Advisory Board’ – ‘mentoring’ is a relatively softer and unstructured concept that is rarely outcome and time driven. A past colleague or boss could be your mentor; successful entrepreneurs and angel/ VC investors act as temporary mentors for accelerators and startup events; even peer founders can sometimes act as great mentors.
On the other hand, Advisory Boards should be formal, institutionalized panels consisting of individuals that can actively create value for the startup through a combination of tangible (customer introductions, industry references, attracting talent) and intangible (general business advice, strategy building, experience-sharing) contributions. The Board should function within a mutually agreed framework of time commitments (weekly/ monthly), expected deliverables, incentives and accountabilities.
- Attract luminaries and domain/ functional experts – startups need game changing inputs from the Advisory Board – introduction to a reputed early adopter that could cause massive network effects, critical inputs on the product roadmap, getting a coveted speaker slot in a prestigious international conference for visibility, introductions to select investors who will best fit and appreciate the business etc.
To get these kind of results, founders need luminaries and experts on the Advisory Board; individuals who have spent decades building their careers in a particular sector/ function/ domain. In addition to significant experience, skills and expertise, these individuals also carry the necessary weight and reputation that could open crucial doors for the company.
A common question – I don’t know these guys, how do I get to them in the first place? And why will they want to help me? The short answer is – do whatever it takes to hunt them down and convince them. Similar to how you will have to convince billion dollar companies to buy your software product, or convince that rock star product manager from Google or Microsoft to join your team, or convince global venture funds to write you a $5mn cheque. The driving attribute is same – ability to create conviction among stakeholders around yourself, your team and your venture.
- Incentivize Advisory Board members appropriately – it’s hard to expect active contributions from the Advisory Board without adequate incentives; after all, emotional connect and belief in the venture will only take you so far! Ideally, Advisory Board members should be allocated stock options (with a vesting period) to align them with creating long term equity value (they benefit only when the company grows and does well). There is a great article by TechCrunch on rules-of-thumb for amount of equity allocation for Advisors (Article Link).
Cash remunerations are not recommended, especially at an early stage, as the company should be utilizing every dollar towards building and growing the business rather than cashing out Advisors. However, covering out-of-pocket expenses (basic travel, meals etc. in line with company policies) is acceptable.
- Don’t forget the emotional quotient – it’s unlikely that highly accomplished individuals are willing to devote significant time and effort to your startup just for building their personal brand or gaining from a potential equity upside down the road. These individuals are driven by their own emotional connect with the problem you are trying to solve, and belief in the founding team that is putting a lot at stake to build a business around it. The gating factor for Advisory Board members NEEDS to be people who are emotionally invested in the venture. Founders need to put this criterion much above tangibles such as credentials and business fit, while evaluating potential Advisors.
- Advisory Boards should be dynamic and evolve along with the startup – The Board composition should evolve and change as the startup grows through various phases of its lifecycle. In seed stage, the first set of Advisors might be individuals who can contribute more on the product and early adopter side; while at the growth stage, experts in scaling global businesses might be more relevant. Founders need to consciously ensure and preserve the dynamic nature of their Advisory Boards.
- Reward them for their effort and contributions – Founders should be cognizant of rewarding Advisors at key positive milestones of the company. A good way would be to provide them with some liquidity for their vested options when the company raises a fresh round of capital. The amount may not be much but would represent gratitude and recognition of their efforts and value-add.
Finally, it’s important to realize that the responsibility of extracting value out of the Advisory Board rests solely with the founders. This would involve covering both broad issues such as constructing a Board with holistic skillsets, diverse experiences and adequate emotional involvement; and tactical points like holding meetings with a healthy frequency, providing long term incentives, clearly setting deliverables and managing expectations.
A strong and vibrant Advisory Board is an excellent signal to customers, potential employees and investors about the quality of the venture and ability of the founders to build a great business going forward. Entrepreneurs must take full advantage of this under-rated, yet valuable and strategic asset.