1. Smart founders want the support of high-profile advisors who can offer PR, connections, capital, and clout. However, the process of choosing the right advisor requires a strategic look at a mix of factors.
2. I’m fortunate to work with great founders who clearly knew what they needed from me and how our relationship would work. Perhaps more importantly, those founders took the time to do their homework on me and understand what I could bring to the table. Our conversations were productive as a result.
3. But I’ve also been approached by startups in verticals that are completely out of my area of expertise. On top of that, their verticals were those I had no interest in learning about. In these cases, I try to offer constructive feedback as best I can and make a targeted introduction if I feel the startup is at the right place for it.
4. Be sure that your prospective advisor cares about both the industry you’re in and the specific problem you’re attempting to solve.
5. In many cases, the advisors' questions come from a place of wanting to be ethical about accepting equity rather than wanting to scare you away.
6. Nothing spoils an otherwise good partnership faster than misaligned expectations.
7. While many advisors join startups because they genuinely want to help, many also have ulterior motives. The more intelligent questions you ask to assess this, the easier time you’ll have down the road.
8. Board advisors can be an essential asset for any budding startup
9. There are advisors who are recruited to provide the startup with technology guidance or product or solution input, and advisors who are recruited to provide the startup with market strategy or introductions to customers in a particular market segment of interest.
10. An advisor is typically expected to spend just a few hours per year with a startup (typically 20-40 hours per year).
11. Therefore, during the recruitment process you will need to determine how much time the advisor is able and willing to offer to your company and whether this time would be sufficient for what you are trying to achieve with the particular advisor.
12. In order to deal with the advisor’s time limitations and to benefit from different points of view, it is important to recruit several advisors of each type.
14. startups oftentimes recruit retired executives or individuals who are no longer in active executive roles as advisors.
15. Early stage technology-driven startups initially recruit technical advisors, followed by advisors from companies that are customers or can be customers of their solution.
16. A company can have more than one advisory board. Early stage technology-driven startups initially recruit technical advisors, followed by advisors from companies that are customers or can be customers of their solution. While such startups typically form a single advisory board, in most cases the company’s executives meet with each advisor individually. As the startup grows and more advisors of each type are recruited, one-on-one meetings are supplemented with group meetings where all advisors participate. The startup’s CEO typically leads the advisory board. In later stage companies, the advisory board often breaks up into function-specific advisory boards. Company executives lead these function-specific boards. For instance, the VP Products would lead the customer advisory board, the CTO would lead the technical advisory board, and so forth. Not every private company has more than one advisory board, but don’t think that you need to “fit” all the advisors into a single group.
17. Finally, startups compensate advisors through options.
18. The best kind of advisor is the type of advisor who is interested in becoming part of your dedicated team at some point.
19. You will never find more of a selfless person at your startup beyond your advisor.
20. After bringing these people on, you still aren't going to have additional dollars in your startup's pocket, but you'll be well-on-your-way to a solid team that's dedicated to gaining your product traction, which is about 80 percent of what most early-stage investors look for in the first place.
21. You can’t afford and don’t want to hire a full-time CTO or architect. But, advisors, coaches, and mentors can often fill the bill. Getting someone who’s fully employed somewhere else to work with you on a limited basis to help close the gap is hugely important for the non-technical founder.
22. In many cases, you can get a couple coffee or beer meetings with advisors without ever formally engaging them as an advisor. For me, if I can help you within a couple hours Free Startup CTO Consulting Sessions, I’m happy to do that and I don’t expect compensation or equity for that.
23. If you present a mentor with an interesting startup challenge in a space where they have experience or expertise, the mentors are quite willing to spend a few hours to help the founder. And it’s way more fun when you have other interesting people in the room trying to also help
24. Formal relationships make sense once you get beyond the informal stage, and it’s clear that there’s on-going need.
25. advisory boards are an expensive equity proposition for merely introductions.
26. Yes, you want connected individuals, but you often find that there are a few introductions that come easily and once those are exhausted, the value drops rather fast.
27. Functional Advisors come in with expertise in a particular area where you may need a second set of eyes. This might be technology, marketing, sales, operations, international expansion, etc.
28. Through this he defined aspects like “deep dives into our marketing strategy” and “product feedback and product strategy.”
29. Through this he defined aspects like “deep dives into our marketing strategy” and “product feedback and product strategy.”
30. The first 90% of a project takes 90% of the time. The last 10% takes the other 90%
31. What's funny is that once software has been built and you move from Seed to A or B round, I often get calls by investors about reviewing the existing product to see if it has reasonable quality and if the team is going to be able to continue to produce going forward. Why a Seed level investor doesn't insist on a technical advisor, I don't know.
32. Bottom line - if you are an early-stage startup with online or mobile technology as part of your solution, you ABSOLUTELY NEED a technical advisor.
33. There is so much value-add to being advised by an experienced, proven leader in the space you plan to disrupt with your new, innovative product or service. I have launched quite a few startups and have found that doing my homework and working with a combination of the right investors and advisors is a secret ingredient to startup success.
34. Institutional investors can provide high-value advisors along with investment in your company.
35. Have the potential for aligning with an advisor in mind as you interact with business associates and at places like industry summits, conferences and meetings.
36. Just like all of us, advisors will be strong at some things, and not so strong at others. And if you’re engaged with a VC firm, understand that while the firm may have expertise in your area, not every advisor at the firm will have the appropriate expertise aligned for all the stages you and your startup will go through. You must stay vigilant and constantly aware of when it’s time to bring in someone new, or simply cut ties with the old.
37. Any advisor has signed on because he or she wants to see you succeed – believing the world will be a better place with your company and products in it. Some may offer up an advisory role for free, and others may want some sort of compensation or an alignment of stock options to certain results.
38. A type of democratized IT that previously only large firms could afford to build was inspired by an advisor that previously was an executive from Salesforce.com CRM +2.92%, and has been key to our success.
39. Business Development and Public Relations strategy have also flourished with guidance from advisors.
40. And finally, the availability of advisors with expertise in, and enthusiasm for, what you want to do is a good litmus test. If you’re unable to find these industry experts, or if you can find them but they shy from an advisory role with you, you may have a failing proposition on your hands. Such a situation would certainly give me pause. But when you do your homework and find the right ones, advisors can be a golden ticket for you and your startup.
41. The earlier you accept funding, the more expensive it will be in terms of what you may need to surrender in equity and possibly in terms of company decision making
42. If you take money too early and/or work with the wrong people, you can have a really dysfunctional board. However if you time your funding correctly and work with the right people, investors can play a key role in guiding your company to success.
43. I’ve seen early investors govern so much power over a start-up that the company couldn’t hire someone above a certain salary level or sign a lease on office space without approval.
44. In my experience the longer you can go as a starving entrepreneur with a lean team to build out your product, the better. Why? Because if you can stay lean long enough, then you’ll have in place some of the critical things I’ve discussed in my earlier blogs – focusing on the right stuff, developing products to fit market need, building your own culture, assembling the right team, etc. With these fundamentals in place, you’re in a far better position to have a positive relationship with an eventual investor.
45. So the key becomes: How to get to business viability as soon as possible while taking the least amount VC dollars and not giving up unreasonable control.
46. Bootstrapping in business means starting a business without external help or capital.
47. Startups can grow by reinvesting profits in its own growth if bootstrapping costs are low and return on investment is high. This financing approach allows owners to maintain control of their business, enables them to focus on customers instead of investors, and forces them to spend with discipline.
48. The entrepreneur has an idea of what they want, but no ability to do it themselves, so they go somewhere offshore and build a team and build out their product without spending a single dollar. I know a New York-area entrepreneur who did this – he had friends and family in India to make it happen and they were willing to let him use their hardware, data center and head count for a certain period of time for a minority stake in the company.
49. The biggest strength of any board and investors is ensuring that you have people actively working on behalf of the company between board meetings.
50. In the early days of the rudimentary challenges of building your business, the people on your board should be readily accessible. As you grow, you’ll want to have board members located farther away, but in the early days there is so much interaction it’s very positive to have investors and board members down the block.
51. Here’s a test to see if you’re working with the right investors and board members: Think about a dark moment, a big challenge – how comfortable do you feel reaching out at any time for help and advice? Or if your phone rings at 11 pm and caller ID tells you it’s this person, what is your reaction? Is it panic? Does the hair on the back of your neck stand up? Not a good sign. If your reaction is ‘wow they’re working late – they must really need to talk about something important’ – that’s much better
52. But the ability to work well with the individual who will be on your board is more important than working with a big-name firm.
53. I’ve seen start-up founders frustrated with board member discussions because the VC is focused on retail/consumer and the start-up is a B-to-B. Fundamental and obvious, but I see it happen time and time again. As an entrepreneur you need to know these people very well and many entrepreneurs don’t think this through.
54. The foundation of your relationship with every board member should be ‘what can you do to help our company succeed? What can we do together to divide and conquer to make a difference?’ Instead of wielding weapons to ward off the management team, board members should be an extension of the company with expertise and insight to share the right information with the right people. And any hoops that the management team is jumping through should be for the good of everybody: To delight customers. To give employees a great place to work. To deliver a product that makes your customers’ lives easier and better which will be the best path to driving up all investors value.
55. No matter how ambitious or talented, we all have our blindspots – certain obstacles or hard realities that we fail to anticipate. Which is why we all need some sound advice from time to time. To get it, we must engage the right Advisors along the way.
56. It is extremely difficult to find the right advisers for your business. You need to make sure they have a strong work ethic, sufficient spare time to commit to the company and that they can provide solid advice and resources to your business.
57. Instead of giving advisers all of their shares at once, consider having their equity vest over time so you have a fair solution if these factors do not line up, which is often the case.
58. I would get a large board of advisers at low equity cuts (between a quarter and a tenth of a percent) so that you can really create a huge list of people that can help you with your initial launch. The more advisers you get the easier it will be to get more, and the more you have for your launch the bigger your splash will be.
59. Most people will informally advise you. Have as many of those kinds of advisors as you like. For your actual board of advisors you should be a lot more selective.
60. They get small portions of equity, so they should really know what they're talking about and really help you with the business. They should have experience in startups or your field. They should be somewhat noteworthy, have an exit, experience or strong personal brand. Plan on three to five people. The spots should be coveted.
61. Anyone can give you advice, but counsel is a very specific type of advice that comes from people who have vast knowledge or experience in the area of your business.
62. You should always try to surround yourself with people who have more experience or are more knowledgeable than you are. You do not have to be an expert in every area of your business, but you should put together a council of people who are the most knowledgeable about every critical area of your venture. It’s your job to know what those areas are.
63. I would advise an entrepreneur preparing to put his/her board of advisers or board of directors together for the first time that there is potentially no more important task than this in the early phase of starting a company. An advisory board lends credibility, industry expertise and a wide range of introductions and advice that can be crucial to one’s early days as an entrepreneur.
64. A dear friend of mine, venture capitalist Emily Melton, advised me early on that “if you want to build a Fortune 500 company, start with a Fortune 500 board.” I took that advice to heart and always went after dream advisers in the wine/ beverage/technology/media industries.
65. Your advisers should be people that you’re truly excited to listen to. Don’t put people on your list who you wouldn't be excited to chat with for 20 minutes.
66. That said, advisory boards are not as practical as you would think. While you will certainly benefit from your advisers' feedback, a board is also an important way to build and maintain your network. Think about who has helped you in the past, who will be there in the future and who you want to bet on.
67. I know many companies that have given away cash or stock options to advisers too quickly, often before getting to know them well or understanding their commitment to the company. Don’t rush into it. Most advisers worth their weight will happily spend time with you and prove their value long before they ask for an official role or any kind of compensation.
68. Don't fill the room with a bunch of people who will think the same way. It will generate a crippling form of groupthink. Bring different perspectives to the table, because they'll offer a more comprehensive and effective solution. Get a good money guy, operations guy, marketing guy, etc. You'll be able to gain better insights that consider all areas of your business.
69. Don’t chase a title or a company. Instead, look for board members that are excited about your business and vet them based on their skills, experience and availability. This will help you build a passionate board that is committed to your success.
70. Furthermore, make sure your board members have some skin in the game and have made an investment in the company. This will prove to you that they believe in the company and the leadership, and that they will be willing to work hard to associate themselves with a winning business.
71. When building our advisory team, we drew our dream team of advisers on the whiteboard. We included specific, sometimes famous and out-of-our-reach people.
72. Once we completed this exercise, we were left with specific features, experiences and connections we were looking for in each seat. The rest was easy. We networked to meet people with those specific sets of features. Once you know specifically who you're after, people will help you find them.
73. Anyone worthy of being on your board of advisors will be an extremely busy business professional. Be respectful of their time and do your homework in preparing and structuring every interaction.
74. If you get the wrong board structure early on with the wrong kind of make-up, you’re going to spend more time having to justify yourself to the board versus getting their time to advise on the next step the company should take.
75. I found ways to integrate them into my daily process. I didn’t want to just get somebody’s name on a slide deck that I get to call once a month and some email exchanges here and there or to make introductions here and there — that’s a transactional advisor. And, I’m not a big fan of transactional interactions. I’m a huge fan of spending more time with a fewer number of people to build relationships.
76. You should treat your advisors as such, folks that you can lean on in a material way, both in the professional and personal worlds. I say personal because a lot of decisions have to be made inside of a startup that are not in any way about the business per se but are about the culture of the company, personnel decisions and things you normally wouldn’t think to call an advisor on. You need to understand that they wouldn’t be advisors if they hadn’t done some great things and solved a lot of hard challenges.
77. My one big piece of advice to anybody who wants to find great advisors is to find the ones you can build real relationships with because you’ll get real value out of that. Don’t choose people you think will be good transactional introducers.
78. But if you position it properly and you gain the trust of those individuals, you’ll end up getting more value than you ever could personally find from just an advisor. Build real relationships. Don’t go find transactional advisors.
79. You don’t go to an advisor asking for anything. You go to the advisor and explain the current state of your company and ask where they think they can add the most value. And you have to be brutally honest.
80. Be brutally honest with everybody about everything. Be honest with your investors, even the people that aren’t yet investors but could be. It gives them the feeling that you’re going to work hard to do the right thing all the time, and if something comes up that you didn’t know about, you’re going to explain that to them and let them know sooner rather than later. What they don’t want to see is you constantly trying to hide the unsavory parts of the opportunity.
81. It’s also important to be honest with employees. Once a month we have a company meeting where we show the money in the bank account, show all the prospects that we have, show them our hiring plans, talk about the next 30-60-90-day strategy. That way, at least once a month, there is nobody in the company that doesn’t know exactly where we are. That lets everybody know we’re making the right decisions for the right reasons.
82. Being brutally honest gets you far in life. I think a lot of entrepreneurs try to do the hard sell for employees and potential investors and customers. And they negate to do the hard reality. People think that the hard reality will always stop a hard sell. But I’ve learned in my situation that doing the hard reality first and then the hard sell gets you twice as far.
83. Entrepreneurs should ask their advisors the question: “How can I better utilize you to help the business?” Likewise, great advisors always ask the question, “How can I be more helpful to you?”
84. Once you have engaged your Advisors, you will want to ensure a productive relationship. Advisors can become a burden – in both expense and time wasted – unless they are managed wisely.
85. If you don’t ask, you don’t get. The reason you signed up advisors is because they are successful, connected, and knowledgeable people. This means they aren’t idle. If you want their help, you’ve got to ask for it.
86. Basically, there are three kind of advisors: “Mom” for adult supervision, “Jerry McGuire” for connections, and “Barack” for high-visibility window dressing plus those with specific technical expertise.
87. Figure out what advice you need and who can help you in these areas before you even recruit advisors.
88. The best advisors give you the hard, honest advice – not just act as cheerleaders. Think Simon Colwell in American Idol, not Paula Abdul. Sometimes, you need be told you suck.
89. Although many senior advisors may have more experience and perspective than the entrepreneur, if you don’t feel like they’re treating you with the proper respect and deference, don’t waste your time. Some advisors get confused about their roles. They’re not chairman of the board or a majority shareholder. It’s your start-up. You can solicit input, but in the end, you make the final decisions and are accountable for the results.
90. The message is loud and clear: A great Advisorship, like any other relationship, requires energy, communication, and commitment. Pursue advice, but with a commitment to do what it takes to set up your advisors to succeed.
Most early-stage investors are looking for in a startup:
50 percent strong team
30 percent week-over-week traction
20 percent revenue
What advisors can do:
1. it’s a targeted introduction or advice on user acquisition
2.
Here are some types of advisors to focus on:
A solid product manager in your niche
Someone with lots of proven online marketing and user acquisition experience
A well-connected PR person -- especially old-school offline PR
A finance person with tons of corporate development experience
Here's why these types of people are super beneficial to you:
The product manager knows how to build things that solve the correct problem.
An online marketer knows how to bring people to your solution.
A PR person can create great synergy by connecting you to brands they work with that have way more traction than you. Osmosis.
Finance corporate development person -- a money person who knows investors
References:
http://www.socalcto.com/2014/05/what-startup-advisors-do-i-need.html
http://www.forbes.com/sites/davidroth/2012/08/22/the-abcs-of-vc-funding-and-building-your-board/
http://readwrite.com/2014/08/04/startup-tips-board-advisors-yec
http://99u.com/articles/7013/finding-and-keeping-the-right-advisors-for-your-business
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