How to Assemble and Manage Your Startup Advisory Board

An article we liked from Thought Leader Joe Dwyer of Manifold Group:

The complete guide to forming and managing an advisory board

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?

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

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.

One of the most important things a good advisor will do is force you to...