Common Questions about Advisory Boards

Here are our answers to some frequently asked questions about advisory boards, our focus is more on bootstrapping startups so the answers are from that perspective.

Common Questions about Advisory Boards

Here are five common questions people we get from entrepreneurs about advisory boards:

1. What is an advisory board?
2. How can they help me?
3. What do I give them?
4. How do I use them?
5. What do I ask of them?

What is an advisory board?

An advisory board is a formal or informal group of advisers who give advise, contacts, and feedback. Unlike the board of directors they do not have a fiduciary responsibility but are critical for start-ups. Also see Forming an advisory board.

How can they help me?

There are four basic ways that an advisory board can help you. The first is domain or technology knowledge. Second is industry knowledge: effective advisors will understand how your market works and what the market needs. Third, they may also be able to introduce you to partners, suppliers, and prospects. All these conversations can help prevent strategic misfires as you enter the market. Fourth, they can help plan for and manage growth if they have worked in a startup before. If you are fortunate and start to grow rapidly, it’s very helpful to understand what to look out for and how to scale.

What do I give them?

Normally advisors will add credibility to your firm in a variety of ways, will trade expertise or services for equity.You typically are going to give them founders’ equity stock which is coming out of your pocket. It is frankly a negotiation, how much time they give you or how much equity they get, and that brings anywhere from 0.1% or 1%, in some very rare cases perhaps 2%, that’s the negotiation. Usually there is some kind of vesting schedule maybe on a 2-year or 3-year schedule with a 3 month or 6 month cliff. Because you want to make sure that things are working out, you don’t have a values’ conflict or getting value, you normally have a 3 or 6 month cliff. If things do not work out, then they walk away and they don’t get anything. You can consider those early few months a probationary period that allows you to make a final mutual assessment.

How do I use them?

Bring them together at least a quarterly in a phone call, face to face meeting or a shared meal.  This time you can brief them on your business, dry run your demo, and get feedback on your plans.  you would like to be able to get some introductions. They are a great source for contacts for employees, partners, prospects, or investment partners.

What do I ask of them?

• You are looking typically for 2 hours a month, 4 hours a quarter. Schedule either monthly, or twice a quarter, once a quarter formal meeting where you present a briefing for them.  These become a proxy for your real board meetings until you have a real board of directors, this is a board of advisors.
• You want to be able to call them when urgent things come up. They are busy people, so you only want call for urgent things, but when urgent things come up, you want to be able to reach out to them.
• You want to negotiate use their name. You would like to announce in a press release that they have joined you, would like to be able to use their name on your website, you would like to be able to have folks call them to get their opinion of you, it might be investors or it might be a major prospect you are talking to.

Normally about two-thirds of that value is the advice they give you and one-third is the doors they open and the value that their reputation sheds on your company.

Related Blog Posts

• “Unfamiliar Pain”
  If you don’t have a kitchen cabinet or board of advisers that you are accountable to, I would encourage you to create some mechanism for independent outside advice from folks with relevant experience. I have several other independent consultants that I compare notes with, we also take turns kicking each other in the ass encouraging each other to make hard decisions and do the things we know we need to do that are getting neglected. We having a meeting with all of our partners together for the first time in early December. I hope to use this as both a joint planning and joint accountability mechanism.
• Making Effective Use Of Your Advisory Board
• Forming An Advisory Board
• George Grellas on “Insightful vs. Window Dressing Advisory Boards”

VentureHacks has three relevant posts that are more focused on VC related issues than bootstrapping but still worth reviewing:

• Lawyers are referees, not coaches
• Everything you wanted to know about advisors, Part 1
• Everything you wanted to know about advisors, Part 2