Building the Right Board of Advisors

One of the easiest ways to extend your team and build your credibility in the early stages of your company is to build a Board of Advisors.  What is a Board of Advisors you might ask?  A Board of Advisors is a group of people who are loosely connected to your company that can help you with connections, operations and credibility.  Personally, look for three main characteristics in my board members:

• Workers: For working members of the board, I look for people who are going to spend time helping me get through operational hurdles.  Examples of operational issues could be employment decisions, financial challenges, deal structures (partnerships, licensing or sales), or simply moral support.  Board members of this type will take the time to meet with you for a couple of hours and hammer out the details on these issues.  These people will often give you more time than your other board members (although you should always keep the time you use of board members to a minimum).
• Connectors: These board members either have great connections or know how to get to people you want to connect with.  They will help introduce you to clients, investors and/or strategic partners.  They may help you find talent as well.  They are very well connected in the markets you are pursuing.  An example of a connector in the medical device market might be a VP level person or higher at Medtronics.  Most of your interactions with connectors may be as simple as email request for introductions or short phone calls of a similar nature.  If you are looking for financing, you may want to include a board member who is prominent in that community.
• Centerfolds: These members are people that may not be able to do much for you directly, but will look very good on your website and literature.  They may not be available to attend many meetings.  They may not even connect you to too many people.  However, the fact that they are showing an interest in your company by joining your board means something to either investors or customers.

Board members may fall into one of these categories or all three of these categories.  I have found it important, however, to make sure they fit at least one of the above categories.

In order to attract people to be on your Board of Advisors, you need to think about how you will incentivize them.  A stipend is always a nice way to keep them motivated, but in the early stages this may not be possible or practical.  Other ways to incentivize them can include stock grants or stock options.  Over the years, I have been told by potential board members that one half of a percent of the company is a common compensation for a board of advisor member.  Again, this can be provided as stock or as options for stock at some future date.  Stock incentives can be a great way to compensate these members of your team.  First, it reduces the amount of cash you have to spend.  Second, it properly incentivizes your board to make your company worth a lot of money.  However, in some cases it may be simpler and more practical to pay them for their time.

Beyond monetary compensation such as stock or stipends, it is important to understand why potential board members might be interested in working with you and your company.  Sometimes a prospective board member may simply be interested in helping.  Maybe they like you and want to see you succeed.  They have a genuine interest in your technology, product or service.  They may see opportunities to connect with your other board members.  Being on the board may simply look good on their resume.  In any case, be aware of the non-monetary reasons these people are interested in helping you.

To be clear, Board of Advisors members have no fiduciary responsibility to the company.  Members of the Board of Directors, however, do.  In the early stages of your company, it can be important to keep your Board of Directors quite small.  Membership of the Board of Directors is typically reserved for people who either invest a significant amount of money in your company or who are founding members of your company.  In this blog, I am specifically talking about Board of Advisors.

Although Board of Advisors members have no fiduciary responsibility, it is still important to make very sound decisions about who joins this group.

Realistically, you should keep your Board of Advisors to a reasonable size.  I like to target about five or six board members at most.  It is unlikely that you will have the time to leverage more than five or six board members.  And, getting more than five or six successful, busy people to come together for a meeting can be quite challenging.

When building a Board of Advisors, think big!  You want to pull in the best people you possibly can, even if you are starting with nothing.  If you truly have an innovative company, this is a very low risk way for smart people to get engaged.  Think very big when pursuing board members.  If you are respectful and polite when you ask, your worst case outcome is that someone tells you no.  However, even if the say no, they now know who you are.  When I started with my most recent venture our team thought Mark Cuban would be a good candidate for our board.  After sending emails on several different email accounts I found using Google, I finally got a very polite no.  Even though he said no, I did manage to get an answer from one of the most famous and successful entrepreneurs of our time.  I have to say that I was very impressed by not only his willingness to respond, but the courtesy of his response.

In pursuing board members you do not know, do your best to connect with them at their level.  Read anything you can about them.   Come up with a title that catches their interest.  Mark Cuban’s was promoting people pay a lot of taxes as part of becoming very wealthy in one of his blogs.  In my subject line I put “My Attempt to Pay Lots of Taxes”.

Be sure to leverage any board members you currently have to help you pursue new board members.  These people may have better luck connecting to very high level people that could put your company into overdrive.

Once you have gathered together members of your board, be sure to promote them on your website and in your other company literature.  Include them in your executive summary.  You may even consider including them in a press release.

Now for the important part: how you use your board.  At a minimum, you should keep in touch with board members every month or two.  If possible, you can organize a regular formal meeting where everyone comes together either in person or on a conference call.  During these formal meetings you want to have a structured agenda.  A portion of the agenda should be focused on updating your board on key activities in your company that have happened since the last meeting.  The rest of the agenda should be focused on getting their advice on key issues, opportunities and challenges.  Keeps these meetings focused.  Take no more than an hour for these meetings.

Informally, I like to reach out to individual board members as I have a reason to contact them.  Sometimes I may simply send an email about needing a connection.  Other times, I may ask for a meeting to discuss a deal or address an issue.  In some situations, it may be necessary to work intensively with a board member on a critical issue for days or weeks.  With other board members, you may not connect with them for months.  Be sure to keep in mind that these people will have many other demands on their time.  Be as efficient as possible with their time.

Realize that your board may be interested in interacting with each other.  Offer or invite opportunities for them to connect with other board members with or without you.  This can only help your cause.

Finally, it is OK to rotate the members of your Board of Advisors as your company grows.  The board members you need early on may not be as useful as your company grows.  Members of your board should respect your need to grow and change.

In the early stages of your company, you are typically cash strapped and resource poor.  Building a Board of Advisors can be a way to create a virtual executive team while minimizing your cash requirements.  If approached in a positive and respectful manner, people are willing to help.  Challenge yourself to think big and bring together a team that will help you achieve your goals!