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Putting together a board of directors or advisors is an opportunity. It shouldn’t be considered a hassle. It’s a rare chance to build a qualified pool of loyal mentors and colleagues who care that you succeed, in part because they will benefit from your success—either financially or in pride from their impact.
What differences are there among those who sit on boards of advisors and those who sit on boards of directors? Significant differences—because the purposes of each are different. A board of directors, for example, will help guide your company in a broad, strategic way, drawing from the combined experience of many backgrounds. Advisors, on the other hand, need to be experts on specific issues that you anticipate facing as your company grows. Last year, my equity crowdfunding platform raised Series A funding, and when we did, our board of directors expanded, adding a new Director and an Observer. Our board expanded again when we raised our Series B funding. It’s been great for our company, and a lesson I think many other founders will appreciate.
In my career I’ve seen thousands of companies that have created boards of directors and groups of advisors. I’ve seen some that have worked well and a lot that have been disasters. When assembling boards, whether directors or advisors, I recommend following some of these general guidelines.
Onboarding Your Directors
On a board, you want a collection of talented individuals with wide-ranging perspectives. Typically, these are also some of your key investors, who have a vested interest in your success. But your board should also be made up of other professionals with specific focus and experience—ideally operating experience.
Early boards are well equipped (and typically intended) to handle conversations about strategic opportunities and challenges in a startup or early-stage company, such as hiring and short- and long-term business strategy. Think about how you’d like to address some concerns about these topics when you start soliciting potential board members. Do you want a board that gives tough love or one that is more subtle in their direction? Do you actually want feedback or just want the board to stay out of your way? How important is it to you to have a diversity of opinion on the board?
Some experts will tell you never to pay a board fee. But there are the occasional independent board members who ask for a fee and deserve it. Still, if your business is young, the financial outlay may not add up. The compensation should ideally be in stock, not a cash outlay (until the business is cash flow positive). Equity tends to align incentives nicely—just make sure the options are on an appropriate vesting schedule.
Advisors With Advice
Before forming your advisory board, try and identify the biggest challenges and opportunities that will face your company in the next few years. An advisory board should be made of people who can address specific concerns you’ve laid out in advance. Do you eventually plan to expand internationally? Find an advisor with experience growing a business in the global market. Think that your supply chain is a critical, but little understood, part of your business? Find relevant experts and ask them to help you lay the groundwork.
You’ll also want to plan ahead and make sure you’re on the same page with your advisors. Ask for a specific time commitment up front (in writing). That way, if it isn’t a good match, both you and the advisor have agreed to part ways at some point in the near future. One year is not unreasonable. Like your director-level compensation, advisors who receive equity should be put on a vesting schedule (typically 2-4 years). Also, if an advisor is receiving equity, be sure to ask them to invest. If they really believe in the business, why wouldn’t they invest?
One group you should never consider as potential advisors? Friends and family. While they surely have your best interests in mind, they may be too emotionally attached to the company—and to your success and happiness.
Selecting board members and advisors doesn’t have to be a hurdle or a hassle if you know what to look for. At the end of the day, it boils down to a pretty simple rule: Find people who want to invest in your company—in more ways than one.
