A few years ago, I advised a company with thirty-million dollars in annual sales to create a “real” Board of Directors. As a closely-held corporation, they were going through the motions to fulfill the legal requirement. The owners didn’t want to be bothered with the administrative chore of a fully-functioning Board, but they especially didn’t want outsiders telling them what to do. BIG MISTAKE! They made some business decisions that put the company in financial peril. It has since lost millions of dollars. I’m sure a good Board of Directors would have talked them out of the unwise course they ultimately chose.
If your business structure does not require a Board or Directors (e.g., S-Corporation), I highly recommend you consider assembling a Board of Advisors. It may be one of the most important business systems your company can establish.
Why Have a Board of Advisors?
Consider these six reasons for putting together a committed advisory board for your company.
- Many entrepreneurs do not have all the necessary skills (e.g., marketing or finance) to run a successful business, especially if they are growing rapidly. Furthermore, they may not have the financial resources to hire people with those skills. If this describes you, a good Board of Advisors can fill the gaps with complementary skills and the industry expertise your team lacks.
- A Board of Advisors adds credibility to your company and makes you appear bigger than you really are. Relationships with investors, bankers, and other stakeholders are strengthened and confidence increased when they know you are surrounded with experienced and successful professionals who can assist you along the way.
- The collective wisdom, experience, skills, and resources of an effective Board can help you make and execute important business decisions. In Board Meetings, you will also have time to step back from the hectic day-to-day tactical operations and focus objectively on your business strategy.
- Good Advisors usually come with good contacts. In most instances, your Advisors will be able to introduce you to new customers, investors, partners, and other important people who can help your business grow and prosper.
- On occasion, every entrepreneur pushing for success does something really stupid. If you are wise, and take to heart the words of your expert sounding board, maybe, just maybe, you will avoid making a regrettable decision that could be ruinous.
- For the family business, a Board can be invaluable as outsiders speaking objectively on behalf of the well-being of the business. They can bring up delicate subjects in a supportive and patient way, and create a safe setting for sensitive conversations. Boards are particularly helpful with the topic of succession.
Choosing Your Board of Advisors
Look for Board Members with the experience your team is lacking—people with experience in what you are soon to experience, people with experience building and not just running a business, people that have gotten results with the kind of resources you have.
Your Board might include a trusted mentor or co-worker, local community or business leaders, or former business colleagues. Contact your Chamber of Commerce, Small Business Development Center, Women’s Business Center, or S.C.O.R.E. Chapter (retired business people) to network with potential candidates.
Avoid asking professional advisors or big company executives. Instead, select people who are intrigued by what you are doing, committed to you and your success, and have personalities that fit with your group. Your Board generally should not include friends, family, or anyone with an emotional interest in your business.
Create a two-page recruitment document that includes a brief description of your company and goals, what you expect to accomplish with the Board, member responsibilities, scheduled meetings and the time commitment involved, whether there is compensation or not, and length of service (e.g., one year). Limited terms allow you to renew those members you want to keep, and replace others when their term expires. Give this two-page document to potential candidates, asking for references when possible.
Getting Started with Your Board of Advisors
Bring on three to five Advisors depending upon the size and needs of your company. Meet formally as a Board at least quarterly. However, meet informally with individual Advisors as often as needed. Have a written agenda at formal meetings and invite your secretary to attend and take minutes or notes. Keep the meeting under two hours if possible. Discuss a few important topics, including follow-up of past topics, pressing current issues, and introduce future topics the group can be thinking about. It is best to get the meeting agenda and any reference documents to Board Members a week in advance. Between meetings, keep Advisors updated on any important developments.
For smaller companies, replace compensation by holding meetings over lunch or dinner. A token gift on occasion might be appropriate to acknowledge how much you value Board Members’ time (e.g., tickets to a local sporting event or concert). Larger companies may want to compensate Advisors with stock or a small amount of cash on a per-meeting-attended basis.
An Important Business System
A good Board of Advisors can do wonders to help you as a business owner. If you think it is “lonely at the top,” imagine having five experts guiding you at every important step along the way.
Warning: Be sure you are willing to execute on the advice of your Board. Do not disrespect them by taking their valuable time and then not following their collective counsel.
Let me repeat: A Board of Advisors can be one of your most important business systems. Like all business systems, if done right, you can expect a big payoff now and in the future.
Get started setting up your Board of Advisors today!