How to Develop a Successful Board of Advisors (...and Why You Should!)
In today's rapidly changing and highly competitive markets, many privately held companies are creating outside advisory boards to give owners and CEOs fresh, knowledgeable advice.
Analyze the strength and weaknesses of your current management team.
Look for critical areas of expertise and knowledge that your company could use help with such as marketing, legal, finance, eCommerce, and research and development or information technology. If your company is planning on going public within the next few years, seek out advisors who have successfully taken companies down that path.
Set clear, written goals and objectives for your board of advisors.
Getting maximum value from a board of advisors begins with clear objectives and goals. Board members must know why they have been asked to serve and what is expected of them.
Before establishing the board, the CEO and senior managers should sit down and ask some of the following questions:
1. What are the main areas we need advice and guidance in?
2. What specifically do we need the board members to do for us?
3. Who are a few potential candidates for board membership?
4. How do we avoid giving away too much control to outsiders?
5. What will be the powers and limitations of the board?
6. What will setting up the board cost initially? Annually? Will it be worth the cost?
Determine the size and structure of your board.
Advisory boards range in size from two members to over thirty. The right size depends on many factors, such as your company's size, complexity, stage of development and individual skills needed. My experience and research has found that for most small to mid-sized, growing companies or start-ups, a 5 to 7 member advisory board is an ideal size. Smaller firms can start with just one or two members and add new members as they grow.
Determining whom you invite to join your board is one of the most critical decisions in setting up a board of advisors. Often a business owner's first instinct is to ask friends, family members or professional advisors to sit on their board. This is usually a mistake. Unless your friend or family member is a recognized authority in an area of expertise lacking by your management team or a highly successful entrepreneur, they are probably not the wisest choice.
Another reason to avoid asking family or friends to join your board is lack of objectivity. Often advice from a friend, family member or management insider is sugar coated to protect relationships. An outside advisor can give you a much more objective and honest assessment of the situation.
Using professional advisors such as your lawyer, banker or accountant as board members has it's own pitfalls. These advisors are already working for you and may not be as objective as you need, due to having an interest in generating future business from your company.
Some critical action steps for recruiting a dynamite board of advisors are:
Board members expect and deserve to be compensated for their time, efforts and advice.
Typical advisory board compensation includes a stipend from $5,000 to $25,000 per member, per year. Some companies pay their board members per meeting, with payment ranging from $500 to $3,000 per meeting, with a monthly retainer of $500 to $2,500. Companies should also cover transportation, meals and lodging for members when attending meetings.
Most successful boards also give or require members to buy stock or some form of equity in the company. This gives the board members equity participation and a vested interest in the growth of the company.
Pitfalls to Avoid
Some potential problem areas to avoid when setting up or working with your advisory board are:
Periodically assessing the board's effectiveness is a critical factor in ensuring a good return on investment. Each year the board should set performance goals and define their criteria for success. At the end of the year the CEO and the board should assess it's performance, compared to its goals and criteria for success.
Over 80 percent of all private companies are operating without a board of advisors or board of directors. Odds are your competitors do not have one. Because of this, developing a board of advisors can give your company a distinct advantage over your competition. This is particularly true for start-ups and family run businesses.
There is tremendous value in receiving objective, knowledgeable advice from a board of advisors who share in the financial and equity growth of your business. I encourage you to begin recruiting your advisory board today!
Internationally recognized as a leading authority on eCommerce and website conversion, Eric Graham is the founder and CEO of several highly successful online and offline companies.
His services as a speaker, consultant and author are in high demand due to his knack for solving problems and significantly increasing the bottom line for his clients.
Eric may be available to serve on your Board of Advisors. For more details vist: web-site-evaluations.com/board-advisors.htm
Eric is also the publisher of the eCommerce Mastery newsletter. Visit web-site-evaluations.com/ecommerce-mastery.htm today to sign up for a free subscription.
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