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Feb
28

Do Boards of Advisors Work?

I have never seen a board of advisors work after the initial few meetings. I’m sure there are cases where they are managed well and it works out, but for the most part, my experience is that any initial engagement and excitement wanes and the value diminishes fairly quickly.

I think that the reason this happens is that there’s no fundamental attachment between the members of the board of advisors and the company.  Sure, there might be a small financial one, created by offering the members of the group some equity or cash compensation, but it’s very difficult to establish any emotional link that would compel the outside members of the group to put in the long term effort to continue to add value, stay engaged and work to make the company successful.

The problem is that the people who are generally targeted as advisors have other jobs and responsibilities.  After the idea of equity participation and initial interest in what the company is doing wears off – which can happen quickly – the company that they are advising becomes a much lower priority than any of their other responsibilities.  Since they are not involved on a day-to-day basis, there is no other link to keep them thinking about what their advisee needs.  Ultimately, the relationship moves from a mutual one to one driven entirely by the company until it breaks down completely.

As it turns out, while the board of advisor setup doesn’t work that well, there are other ways of achieving the benefits desired in setting up the group in the first place.

  • Compensate company adviser(s) frequently – the value of any compensation dissipates quickly when the advisor isn’t thinking about the company.  More frequent grants of equity or cash payments will serve to keep their attention focused on the tasks at hand.
  • Put them on the Board of Directors – if they add enough global value, put them in a more responsible position with the company, like its board of directors.  The added responsibility will keep them focused on the company. Of course, you can only do this for a small number of people and only for those who are appropriate for such a role.
  • Hire them as a consultant – in this way, they have responsibility for delivering value to the company with an agreed upon income for doing it.  This arrangement has the added advantage that it’s easy to sever If and when the advisor no longer adds value.  The advisor can then be replaced by someone with different experience or knowledge.

Having outside advisors is always a good thing.  They can bring perspective to your efforts and direction.  They can also bring knowledge and wisdom into the company that may be missing in the current team.  Ultimately, the structure of such a group of advisors is critical to its success, though.  The classic board of advisors structure frequently fails because it does not establish an emotional or responsibility link between the company and the advisor.  There are other ways of accomplishing this though.  When these are used, a great relationship between an advisor and company can be established although, perhaps, not as a group.

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 February 28th, 2007  
 Will  
 Boards, General Business, Startups  
   
 15 Comments

15 Responses to Do Boards of Advisors Work?

  1. I agree that advisory boards often fail to deliver value, but you can mitigate the risk with individual advisors if you find out about how much experience they have as advisors.

    I advise a number of startups who are very happy with my help, but that’s because I’ve been an advisor for a number of years, I enjoy helping young entrepreneurs, and I am very careful to set the right expectations up front.

    Advisors can provide high level advice and make introductions.
    Sometimes they can provide feedback on messaging and pitches. But if you need someone to do real work, hire a consultant, or better yet, an employee.

  2. I agree that advisory boards often fail to deliver value, but you can mitigate the risk with individual advisors if you find out about how much experience they have as advisors.

    I advise a number of startups who are very happy with my help, but that’s because I’ve been an advisor for a number of years, I enjoy helping young entrepreneurs, and I am very careful to set the right expectations up front.

    Advisors can provide high level advice and make introductions.
    Sometimes they can provide feedback on messaging and pitches. But if you need someone to do real work, hire a consultant, or better yet, an employee.

  3. Well said, Chris. I totally agree. Especially the part about getting real work done.

    Thanks.

  4. Well said, Chris. I totally agree. Especially the part about getting real work done.

    Thanks.

  5. Seems like a common reason for a “board of advisors” is simply to have a list of impressive names that are associated with the company. This helps with credibility with investors, customers, partners, etc. Although there’s some element of BS in this, because they’re not really “advising” you, the reality is that the company does have access to the individuals and their expertise and contacts, and in any case there is an implicit endorsement through the adviisor’s endorsement.

    So – if you have this expectation, rather than one of “advisory” benefit, then it can be worthwhile. Of course, the stock grants should be commensurate with this expectation.

  6. Seems like a common reason for a “board of advisors” is simply to have a list of impressive names that are associated with the company. This helps with credibility with investors, customers, partners, etc. Although there’s some element of BS in this, because they’re not really “advising” you, the reality is that the company does have access to the individuals and their expertise and contacts, and in any case there is an implicit endorsement through the adviisor’s endorsement.

    So – if you have this expectation, rather than one of “advisory” benefit, then it can be worthwhile. Of course, the stock grants should be commensurate with this expectation.

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  8. Advisory board should consist of big names with no time, and no names with plenty of time.

    I think advisory boards can be effective, but the composition and function of the board must evolve with the company.

  9. Advisory board should consist of big names with no time, and no names with plenty of time.

    I think advisory boards can be effective, but the composition and function of the board must evolve with the company.

  10. Ben,

    I love the idea that “Advisory board[s] should consist of big names with no time, and no names with plenty of time.” I agree.

    My experience is that advisors work, but advisory boards rarely do. It’s in trying to create the group, as opposed to treating them as individuals that exposes the problem.

  11. Ben,

    I love the idea that “Advisory board[s] should consist of big names with no time, and no names with plenty of time.” I agree.

    My experience is that advisors work, but advisory boards rarely do. It’s in trying to create the group, as opposed to treating them as individuals that exposes the problem.

  12. Hi:)
    I would like to get an answer for question: Does any material generally describing the establishment, performing, form and generally the work of BoA exist? If it does, could you please give me some advice, where to find it?
    Thank you.
    Marek

  13. Hi:)
    I would like to get an answer for question: Does any material generally describing the establishment, performing, form and generally the work of BoA exist? If it does, could you please give me some advice, where to find it?
    Thank you.
    Marek

  14. Marek,

    A quick Google search yielded this brief, which seems reasonable (http://www.corp21.com/AdvisoryBoards030720.pdf). I don’t know the writer and I’m in no way affiliated with his organization.

    I would highly recommend that you don’t bother trying to build an advisory board. Instead, surround yourself with advisors who can help you with what you need in the near future. Then, change the group as your needs change.

    Good luck.

  15. Marek,

    A quick Google search yielded this brief, which seems reasonable (http://www.corp21.com/AdvisoryBoards030720.pdf). I don’t know the writer and I’m in no way affiliated with his organization.

    I would highly recommend that you don’t bother trying to build an advisory board. Instead, surround yourself with advisors who can help you with what you need in the near future. Then, change the group as your needs change.

    Good luck.

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