The right advisor: Key to startups’ success
Fall only to rise again; make mistakes and learn from them to become a more learned individual, the adages we have heeded since our childhood. But is it possible to not fall but keep rising and keep learning as well without committing many mistakes?
The answer to that is a definite yes, with the right mentor that is indeed possible. The right mentor can kickstart the goals that you set, and help you set the right goals in your life, you gain experience from his experiences.
The right advisors can do wonders for startups too. While founders’ conviction, hard work, and commitment aspects are critical, they cannot substitute the invaluable experience and the network advisors bring to the board.
Given that the majority of the startups are founded by first-time entrepreneurs, they may not have the understanding and the experience of every aspect of running a business and they require a considerable amount of support, especially during the initial years.
When a startup is incorporated, it is highly unlikely that the founder(s) have expertise in all the areas of operation (viz. Strategy, Finance, Marketing, Human Resources, Business Networking), thus it becomes critical to have advisors who can guide and mentor the founders in these areas. Let us look at some of the areas in detail where mentors can provide invaluable advice to the startups.
1. Company Foundation, Finance, Compliance and Funding -
Most Startups are not fully cognizant of the ground reality and are faced with numerous challenges of both strategic and operational nature, especially in the initial few years. Issues like company formation (LLP, Private Limited, one-person company), shareholding structure and agreements, compliances (GST, TDS, director’s appointment), business engagement process and agreements, funding structure, dilution plan, business review, MIS, and valuation process can be quite overwhelming.
These systems and processes are critical and a startup cannot afford to go wrong on any as it might affect the business’s growth prospects.
2. Go to Market Strategy, Marketing and Networking
The ability to build a product and market it effectively requires distinct skill sets. In the age of tech-based startups, founders can create a prototype and even generate initial traction. However, building a scalable and process-driven entity requires proven strategies and best practices, that is where the experience of advisors proves invaluable.
Advisors typically have a strong network that they can leverage to help the startup garner business. Additionally, their experience of having a holistic view of business and finance helps to create strategies that can help a startup work towards achieving strong performance metrics.
3. Human Resources
Startups have a demanding and intense work culture and thus they may experience high employee attrition rates. In such a scenario, the startup can benefit immensely from the expertise of advisors who by their past experiences indeed have HR experience. Their experience of handling various aspects of business and the ability to identify and attract key people can play a key role in building a compassionate yet performance-oriented culture at a startup.
One must understand that advisors are senior professionals who have significant corporate and business exposure and hence hiring them as per the market value may not be a feasible solution for the startups. Thus, it becomes imperative for the founders to come up with a compensation package that is a win-win deal for the startup and the advisor.
One means of compensation is pure equity wherein the startup founder parts with a fraction of the equity to the advisor. The equity model works well as there is complete alignment towards growing the company and hence the valuation of the company, thereby benefitting all the equity holders. Startups that generate positive cash flows can also consider paying a portion of compensation as fixed monthly or yearly components along with equity share. The advantage here could be a lower level of equity allocation to the advisors.
All said and done, trust remains the most critical ingredient for real magic. The way the cofounders must trust and respect each other, the relationship with advisors too needs to be built similarly. It is pivotal that startups and their advisors engage with each other constantly and consistently over time.
Research and intuition show that repeated interactions can help in building confidence and mutual self-respect over time. Such positive outcomes will help the startup experience growth over the long run.
While advisors will keep guiding, the onus of getting the best out of them lies with the founders/co-founders. The founding team must be organised, having its information and financials ready, and ensure regular communication on the status and any issues that have arisen along the way.
A responsive, forthright, and transparent approach will help the advisors to provide the best possible advice and direction to the startup to get a competitive advantage, it aspires to achieve.
The right advisors are indeed key to startups’ success!
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)