The Complete Guide to Forming and Managing an Advisory Board

by Joe Dwyer

Advisors improve the speed and outcomes for the businesses they advise. Discover what they do, why they’re valuable, and how to best leverage them.

Building a successful business is really hard. So you should do everything you can to improve your likelihood of success. Startup advisors often play an important role in improving the speed and outcomes for the startups they advise. This article explores what advisors are, what they do, and how to get the most out of them.

• What is an advisor
• Do advisors invest in the company?
• Why you need advisors
• Real life examples
• Helpful mentors dramatically increase fundraising success
• Why you need REAL advisors
• What to look for in advisors
• Forming your advisory team
• Advisor Compensation
• Advisor contracts
• Maximizing advisor contributions

What is an advisor?

Startup advisors help management teams make better decisions, move faster, and improve outcomes. Examples of the sorts of things advisors often help with include:

• Advice on business model strategy and positioning
• Advice on key areas of the business (e.g., user acquisition, product architecture)
• Honing your pitch decks and presentations
• Introductions to potential investors
• Introductions to key customers
• Help identifying and recruiting talent
• Acting as a sounding board for organizational and people issues

The boardroom table is set for the Annual General Meeting

Advisors are almost always experienced business people or domain experts who know things or have relationships the startup management team doesn’t.

What advisors are not

Advisors are not mentors, at least in our lexicon. Mentors offer personal support and advice to entrepreneurs, not to the broader company. Advisors work on behalf of the company and all of its shareholders.

By definition, advisors are not employees. To the extent they formally engage (the relationship is often informal), they are independent contractors.

Legally and practically, advisors are not board directors. Directors also advise and support the company, but the context is quite different. Board directors have a legal status that comes with certain rights and duties that don’t accrue to advisors. Directors have the right to contribute to decisions about the strategy and operations of the company, and a right to be informed about the company. They also have a fiduciary duty to act on behalf of the interests of all the company’s shareholders, ensure they remain suitably informed about the company, and a duty of care in performing their duties. Advisors have no such duties or rights outside those expressed in a written advisory agreement.

Because advisors are not employees or directors, they often act more like mentors—meaning they emphasize the interests of the management team over the other shareholders. For that reason, in many cases entrepreneurs find they can be more open with advisors and more easily avoid conflict with them when dealing with high stress situations.

Do advisors invest in the company?

Advisors may invest in your company as well. Many of them are wealthy, and if they’re interested enough in what you’re doing and believe enough in you to actively help, it shouldn’t come as a surprise when they ask to invest.

But there are many reasons why advisors might not be able or willing to invest. Some simply don’t have the cash. Others might have external constraints that make it too difficult, for example corporate employer policies on equity holdings, or venture capitalists who have to avoid even the appearance of conflict for LPs and partners. Frankly when you’re early on, many advisors are waiting to see where you get before they decide to push any cash your way.

It’s trite to say (as some do) that entrepreneurs shouldn’t engage advisors who aren’t willing to put some money into the company. There’s almost always a point on a company’s path when it’s interesting enough for some advisor attention, but still too uncertain for them to risk cash on it. Cash is emotionally and practically different from time, particularly for non-entrepreneur advisors who may not have as much experience with risk capitalization.

Advisors who do invest are very often more engaged and attentive, so it’s almost always a good thing when they do. One potential downside is that advisors who invest sometimes begin to feel that you have an obligation to listen to their advice, or even an obligation to heed it.

My advice generally is to first focus on the value contributions and working relationship you have with advisors. Any conversations about investment should flow naturally, and should be viewed in the context of their advice more than their money—unless of course they are sophisticated investors with enough capital to really move the needle for you. And don’t exclude promising advisors just because they won’t invest. In the end, there are no hard and fast rules here, and you should constantly seek to optimize for a faster, better outcome.

Are advisors important?

In a word: yes. The right advisors engaged in the appropriate way can dramatically speed progress, reduce risks, and increase your likelihood of success. Changing the way things work (e.g., creating a new business model), inherently involves a level of complexity that requires diverse expertise and difficult problem solving. Advisors can offer operating experience and insights into areas of expertise that you’re very unlikely to have available on your early stage team. Those insights can have a fundamental impact on your company.

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The Value Of Maintaining Lifelong Alliances

In our fast-paced, ever-changing world, it’s more important than ever to have strong allies. But what exactly is an alliance? And why are they so valuable? In this blog post, we’re going to explore the concept of alliances and why they’re so important. We’ll also touch on the different types of alliances and how to create one. By the end of this post, you should have a good understanding of the value of alliances and why they’re worth maintaining.

Understanding The Value Of Alliances

Alliances are an important part of the business. They can help to strengthen relationships and create synergies between businesses, which can lead to increased profits. The role of allies in business is often misunderstood, but it is essential for success. Here are some tips on how to identify and maintain strong alliances:

1) Look for opportunities. Allies can be found anywhere, so it’s important to be open-minded and look for potential partnerships.

2) Be proactive. Make sure you are always looking for ways to collaborate and share resources. This will help ensure that your alliance is beneficial for both parties.

3) Keep communication open. It’s important to stay in touch with your allies, not just when things are going well, but also when there are challenges or disagreements arise. This will allow you to resolve any issues quickly and efficiently.

4) Remain flexible. Don’t be afraid to change your mind or adapt as the situation changes – this is what makes alliances successful over time!

Having a strategic alliance can benefit both parties immensely. By working together, businesses can achieve greater goals than they could individually – this is why it’s so important to make the right decisions when choosing an ally. By following these tips, you’ll be on the path toward building a successful alliance!

The Benefits Of Alliances

Alliances can be a powerful tool for businesses. They can help businesses expand their reach and grow. Alliances can also provide access to new markets and new customers. This can be a valuable asset as it allows businesses to tap into areas that they may not have been able to before. Additionally, alliances can help businesses save time and money by sharing resources and knowledge between businesses.

Alliances can also be beneficial in terms of branding. When businesses partner together, they are able to create a stronger presence for themselves within the market. This can lead to increased sales and increased visibility. It is also possible for alliance members to share best practices, which can help businesses improve their operations and grow even more quickly. Alliances can be a powerful tool for businesses of all sizes, and should be considered carefully if businesses are interested in expanding their reach or improving their performance.

How To Create An Alliance

When it comes to forming an alliance, it’s important to remember not to reinvent the wheel. Instead, look for potential partners with shared values and goals. By doing this, you’ll be able to create a stronger alliance that can last longer.

Once you’ve found these potential partners, define concrete goals and expectations for the alliance. This will help ensure that all stakeholders are on the same page and understand what they’re getting themselves into. Finally, secure buy-in from all stakeholders before proceeding with any alliance formation efforts. Doing so will ensure that everyone is committed to the alliance and future success is guaranteed.

The Types Of Alliances

There are four types of alliances: cooperative, competitive, complementary, and strategic.

Cooperative alliances are the simplest type of alliance. They involve two or more entities working together to achieve a common goal. This can be beneficial for both sides as it results in increased efficiency and effectiveness.

Competitive alliances are more complex than cooperative alliances. They involve two or more entities competing against each other to achieve a common goal. This can be beneficial for one side but may be harmful for the other side. For example, a company that enters into a competitive alliance with another company may find itself at a disadvantage due to the competition.

Complementary alliances are the most complex type of alliance. They involve two or more entities that work together to create something new and unique. This can be beneficial for all parties involved as it creates value for all parties involved. For example, technology companies often partner with fashion companies to create products that appeal to both markets simultaneously.

Strategic alliances are the most important type of alliance because they result in long-term benefits for both sides. These partnerships typically involve two or more powerful entities working together in order to achieve a common goal (usually economic gain). For example, Apple Inc.’s partnership with Samsung Electronics is an excellent example of this type of alliance.

Why Alliances Matter

Alliances are key to success. They give you a competitive advantage and help you scale faster. They also allow you to build deeper relationships with other businesses, which can provide access to new markets. Ultimately, alliances are essential for any business looking to grow and succeed.

There are a number of reasons why alliances are so important. For one, they allow businesses to share resources and learn from each other. This can help you to improve your process or product considerably faster than you would if you were working on your own. Additionally, alliances give businesses access to new markets and customers. By partnering with other businesses, you can create a larger customer base that is more likely to be interested in what you have to offer. Finally, alliances can act as a foundation for future business partnerships. By building strong relationships with other businesses, you create a platform from which future deals can be negotiated more easily.

Alliances are key to success in many ways. They allow businesses to share resources and learn from each other, which can speed up processes or products substantially. They also provide access to new markets and customers, which can help scale an enterprise much faster than if they were working on their own. Building relationships with others through alliances lay the groundwork for future deals that may be more easily negotiated.

When To Seek Out An Alliance

When you need to expand your team’s skills and knowledge, or when you want to enter a new market, an alliance can be a great way to do this. An alliance can also be helpful when you need to build or improve a product or service. For example, if you are developing a new software application, an alliance can help with the development process by providing resources and expertise that you may not have access to on your own.

When you are considering an alliance, it is important to consider the benefits and risks involved. The main benefits of alliances include increased skills and knowledge; access to new markets or products; and improved productivity. However, there are also risks associated with alliances, such as potential conflict of interests; loss of independence; and difficulties in merging two separate organizations. It is important to weigh these risks against the benefits before deciding whether an alliance is right for you.

The Power Of Alliances

Finding a strategic alliance partner can be beneficial for businesses in many ways. Here are some of the most important:

– It can help to increase your market share.

– It can provide you with new resources and capabilities that you may not be able to obtain on your own.

– It can expand your customer base.

– It can create synergies between your business and the other partner’s business, which can result in improved performance overall.

To identify potential alliance partners, businesses should first assess their current strengths and weaknesses. Next, they should consider what resources or capabilities they lack that the other company may be able to provide. After identifying these needs, it is then necessary to negotiate an agreement that meets both parties needs. In order to keep alliances strong over time, it is often beneficial for both companies to continue investing in them over time – even if there are occasional hiccups along the way!

The Future Of Alliances

Alliances are important for startup founders. They can provide access to important resources, such as funding, marketing expertise, and customer base. Additionally, alliances can offer a competitive edge in the marketplace, which can help to differentiate a startup from its competitors and give them an advantage in the market. Alliances also open up new opportunities for growth and development. For example, by working with other startups, a startup founder may be able to develop new products or services that would not have been possible on their own.

As alliances continue to grow in popularity, there are a number of questions that need to be answered. One question is how long will alliances last? Do they last for a specific period of time or do they continue until one party no longer wants to participate? Another question is how should alliances be structured. Should all members be equal or does one member have an advantage over the others? The answer to these questions is not straightforward and will vary from alliance to alliance. However, there are some general tendencies that can generally be observed.

First, most alliances tend to form between similar-sized companies. This is because it makes sense for each company to share resources and cooperate in order to achieve common goals. Second, most alliances typically last for a relatively short period of time. This is because it becomes increasingly difficult for each company to provide the same level of support and resources as they once did. Third, while all members may not have an equal say in decision-making, everyone usually has some input into decisions that affect their alliance. Finally, it is important for startup founders to understand the dynamics of their alliance before joining so that they know what expectations are placed on them. If joining an alliance seems like a good idea but you don’t fully understand the rules governing it then you might end up regretting your decision later on down the road.

All In All

Alliances are key to success in many ways. They allow businesses to share resources and learn from each other, which can speed up processes or products substantially. They also provide access to new markets and customers, which can help scale an enterprise much faster than if they were working on their own. Building relationships with others through alliances lay the groundwork for future deals that may be more easily negotiated.

If you’re looking to expand your business, build deeper relationships with other businesses, or simply improve your productivity, an alliance could be the answer. By following the tips in this blog post, you’ll be well on your way to reaping the benefits of a strong alliance!

Great Advice for Board Candidates (and Boards) By: Mark Rogers -BoardProspects

Sometimes we are not fortunate enough to realize great advice until it is too late.  Several months ago I met a seasoned board member (of public, private and non-profit boards) and we had a long discussion about board of directors’ qualifications.  He provided me with a piece of advice that I’m sure many corporate board members wish they had before joining their board.  The advice? “Never join a board of directors unless you would be willing to serve as chair of that board.”

Serving as chair of a board is not easy.  The title carries with it additional board member responsibilities that are often unrecognized by fellow board members.  So why would anyone be willing to ascend to this position?  For some it is the prestige of the title:  “she serves as Chair of the Board for XYZ Corporation.”  For those serving on non-profit board of directors, it is often a labor of love related to the mission.  In the public company space the title comes with additional compensation.  Whatever the reason may be, it is not a position for everyone who serves on a board of directors – which is why the advice from this esteemed board member seemed so odd to me.  He acknowledged that not everyone is meant to serve on a board of directors and not every board member is meant to serve as chair of the board.  But, when an individual agrees to serve on a board they should at least be willing to serve as chair of that board if they are ever asked.  Such willingness demonstrates both the individual’s commitment to the organization as well as their understanding of what may be expected of them.  It also ensures that the individual will ascend to the position of board member with the appropriate motivation to learn what would be necessary to eventually serve as chair.  The result is a board that is at all times working together to achieve the level of excellence which is expected of it by the organization and its stakeholders.

This advice is extremely useful for any organization as they engage in board member recruitment.  Although I do not believe the willingness to serve as chair of the board needs to be added to a list of board of directors’ responsibilities, it is a worthwhile question to pose to prospective candidates, providing tremendous insight into their commitment to the organization.  Whether the individual has the commensurate capabilities to serve as chair of the board can only be determined through their board service.

Source: Great Advice for Board Candidates (and Boards) By: Mark Rogers -BoardProspects

Network Marketing Stats That May Surprise You!

A friend and business associate of mine, Eric (E.J.) Dalius has made a consistently successful career in network marketing or multi-level marketing as many know it as. You know, the ones that hold informational meetings at the Ramada Inn out by the interstate your buddy from school keeps dragging you to with promises that you can retire if you only worked at it part-time at home? Yeah, those deals! Yuck right?No thanks, you say as I always have.

Only the top people in those make any money, everybody knows that right?

Well that used to be the case but network marketing as it’s called now has grown up and you may want to take another look at it before you get that pink slip in your mail slot at work. According to Dr. Josephine Gross, Editor in Chief of Networking Times: 

“Recent research from the U.S. Direct Selling Association reports unprecedented growth in network marketing, in terms of both retail sales and the number of people involved. This growth shows the vibrancy of the model as an unmatched opportunity for entrepreneurship. Customers gravitate towards the personal touch network marketing provides, Technological advancements have helped the channel to continuously evolve. This report presents some facts and reasons why network marketing has grown in a turbulent global economy and why the business model is poised for continued growth over the next several years.”

The number of people involved in the U.S. grew from 18 million to 20 million in 2015, an 11% increase from the previous year. While network marketing continues to attract predominantly women, the business model represents every generation and is generally reflective of America’s diverse population.

A Bidding War For Advisory Board Company

The post below is an excerpt from the recent Ensemble Capital Quarterly Conference Call. You can read the full transcript here.

I’d like to provide a brief update on Advisory Board Company (NASDAQ:ABCO), whose stock has doubled since March of this year. As we described in our blog post about the company written at that time, Advisory Board provides software and consulting services to help hospitals reduce the cost of healthcare while improving patient outcomes.

The US healthcare system is fundamentally inefficient to a degree far out of step with the rest of the world. While Americans pay 50% more per capita for healthcare than the best-in-class healthcare system provided in Switzerland, the life expectancy here is as low as that seen in Chile and the Czech Republic, who spend 75% less per capita than we do. As you can see in the chart we published in our post on the company, healthcare systems around the world fall on a curve that neatly describes the relationship between per capita spending and life expectancy. The US is the only country where this relationship between spending and outcomes is fundamentally broken.

Earlier this year, market participants sold Advisory Board stock down to its cheapest valuation in history outside of the 2008-2009 financial crisis. Investors were concerned by the slowdown in Advisory Board’s revenue growth and worried that the company’s significant push into providing services to higher education institutions was a mistake, despite education suffering from similar issues around weak student outcomes in relation to runaway costs.

As with all of our assessments of a company’s fair value, we focus on cash generation. Both of Advisory Board’s businesses generate outstanding levels of distributable cash flow even while offering long-term growth potential.

Earlier this year, the activist investment firm Elliot Associates, run by famed hedge fund manager Paul Singer, recognized the disconnect between Advisory Board’s public market price and the actual intrinsic value of the business. After taking an 8% position in the company, Elliot Associates pushed the company to sell itself, likely splitting up the education and healthcare business to two separate buyers. The stock has been rapidly appreciating ever since, rallying over 10% in early July as Bloomberg reported that United Health was emerging as the leading bidder for healthcare while private equity firm Vista was the most likely bidder for the education business. With earlier reports suggesting over 20 bids had been submitted for the company, it seems clear that no matter what price the company ends up selling for, or even if a deal falls through, Advisory Board is a company with significant intrinsic value that the market has underappreciated.

Source: A Bidding War For Advisory Board Company

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Houzz raising $400 million at $4 billion valuation

 

Home improvement platform Houzz continues to grow and is in the process of raising another huge round of funding. The company confirms that it is raising $400 million in new financing, at a valuation that multiple reports peg at around $4 billion.

Founded in 2009, Houzz provides a platform to help users renovate and remodel their homes, as well as providing tools for finding furniture and fixtures they might want to purchase. The company has users all over the world, in markets that include the U.S., U.K., Australia, France, Germany, Russia, Japan, Italy, Spain, Sweden, and Denmark.

It makes money mostly through paid listings for local home professionals and service providers, but has been delving more deeply into direct commerce through the introduction of deep learning and AR products it’s added to its website and mobile apps.

Last fall it introduced a deep learning tool that analyzes home photos added to the site and enables users to search for and purchase comparable products directly from the page. It also added an AR feature to its mobile app that enables users to preview what new pieces of furniture might look like in a certain place in their home.

The newest funding round, which Recode reported is being led by Iconiq, comes on top of more than $200 million that Houzz had raised from investors that include Sequoia, New Enterprise Associates, GGV Capital and others.

Source: Houzz raising $400 million at $4 billion valuation

Cryptocurrency ICO Education – The Basics

Over the past few months, there has been an increased focus on cryptocurrency ICOs. These initial coin offerings are a great way for investors to buy into a project at an affordable price. At the same time, the project developers try to raise as much money as possible to finish their creation as soon as possible. It is a well-balanced ecosystem, but a lot of people are still confused about certain ICO aspects. In this series, we will try to address some concerns people still have.

THE BASICS OF ANY CRYPTOCURRENCY ICO

As most people should be familiar with by now, buying into a cryptocurrency ICO is the same as backing a project on Kickstarter or IndieGala. Investors receive a reward for pledging money to the cause, even though not all of these projects may succeed in the end. Unlike traditional crowdfunding campaigns, cryptocurrency ICOs do not accept credit cards or other traditional payment methods. Most projects only accept investments in either Ether or Bitcoin, albeit some projects accept additional currencies and tokens as well.

There is another similarity to cryptocurrency ICOs and crowdfunding projects. It is always of the utmost importance to invest as early as possible. In the case of a cryptocurrency ICO, early investors often received a specific percentage of tokens on top of the regular amount. These bonuses can either be time-based or based on the amount of tokens sold already. As we have seen with a lot of recent ICOs, time to buy in is incredibly limited, though.

Even though these similarities between cryptocurrency ICOs and crowdfunding projects should not be overlooked, that is far as both concepts can be compared. With a crowdfunding project, backers can often get a refund of their money if the project fails to deliver. That is not necessarily the case with a cryptocurrency ICO, although most projects lock funds in a smart contract. By using this technology, it is a lot easier to refund investors if needed, albeit that happens very rarely these days.

Moreover, it is always a good idea to check how many tokens will be generated during a particular cryptocurrency ICO. A lot of projects issue a billion tokens or more, which theoretically makes it impossible for them to gain any major value. That is a common misconception, though, as cryptocurrency ICOs often increase their value a tenfold or more in the first few months. Most of these tokens are quickly listed on exchanges, which means there will be plenty of liquidity as well.

Speaking of the number of tokens being issued, there are two creation models projects can make use of. First of all, there is the static supply option with a predetermined value. This means a fixed number of tokens will be issued which will always be sold at the exact same price. This levels the playing field for both early and “late” investors alike. It is possible this method will be considered less attractive by speculators, since there is no option to buy cheaper coins. Then again, these tokens often see their value appreciate over time just as well as other projects.

Source: Cryptocurrency ICO Education – The Basics

How does one mentor young people online?

Stephen G. Barr, I have mentored dozens c-level executives over my 40-year career.

Answered 4h ago

I generally connect with them through either online or in-person through incubator programs or Angel networks or Meetup groups.

• If I don’t have an opportunity to meet them I generally evaluate them through a series of about 4–5 one hour telephone conversations where I gauge their personality, intelligence, drive and level of commitment. If I’m going to devote sizeable amounts of my ever short time to mentoring them then so are they. I never mentor “in name” only. I give my mentees a minimum of 10–15 hours of undivided attention per week and am very hands-on. Given that time commitment I can only mentor one to two at a time. I get asked to mentor people probably 4–5 times a month minimum and I simply can’t take them all on so those that I feel are up to it I pass down to some of my former mentees who are now C-Level executives and able to be mentors themselves now. (I’ve got a few mentees who are now retired I’m so old..LOL)
• For the one or two that I do take on personally they get sort of “boot camp” type of indoctrination from me where I drill into their pointy little heads what I consider to be “Business 101 Basics” such as:
  • Don’t put all your eggs in one basket.
  • Never sleep where you eat.
  • If you don’t want it done to you, don’t do it to anyone else.
  • If someone attempts to go behind your back on a deal and cut you out once drop them like a hot rock and never deal with them again.
  • Walk into any room like you own it and you will.

Stuff like that. Seems too basic but these things must be drilled and drilled into their brains if not souls in my opinion as they will never let you down.

I generally talk via text message on my cell, Skype, Whatsapp or FB Messenger to my mentees twice a day….first one up text the otherand we go over their schedule for the day and I give them advice on how to handle what they have to do that day then again at the end of the day to see how things went.

Besides the morning and evening phone or text chats we have weekly “classes” of about 1.5 hrs in length at least once a week (twice in the beginning) where I teach them particular skills such as writing business plans, creating short and long pitches, fundraising techniques, discuss areas where they are weaker than others, whatever.

Sometimes my mentorship extends beyond the business rhealm and I advise them on anything and everything from dating/marriage advice, wardrobe, where to go to network, what and how to get a car, even how to clean their credit and or invest their profit once they get some.

I am a long term, hands on intensive mentor and generally have my mentees for years if not for life.

Young or old it makes no real difference with the exception that the younger ones have fewer bad habits to correct that the older ones.

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Stephen

Stephen G. Barr

Mentor, Advisor, Strategist, Angel Investor, Publisher, CEO

Author & Group Publisher SGB Media Group, Startup America Partnership Member, Microsoft BizSpark Graduate, Member Microsoft Partner Network, Startup Weekend Winning Team Member, Ignite Speaker, Syndicate Lead & Top 4% Ranking on AngelList (company), Accredited Investor Crowdfunder, Fellow Center For Progressive Leadership, Senior Advisor to CEO at Pingtank.com, Council Member Gerson Lehrman Group, Inc., Reputation Management Advisor Saivian International, Ltd., Venture Partner CrunchBase, Accredited Investor & Champion StartEngine (Funding Portal), Charter Member Crowdfunding Best Practices…

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Asked on Quora

Where do I look for mentors if I am developing a gym mobile application?

Stephen G. Barr, lives in Phoenix, AZ (2001-present)

Answered just now

I’d say try looking for someone who is successful in the fitness industry who may buy or license your app and not worry about a mentor. A mentor is a general career coach that will be with you through many startups/exits. What you need is an advisor with high-level contacts in the fitness industry. Just my opinion.

1 View · Answer requested by Mark Savchuk