Don't Go It Alone: Create an Advisory Board

An inexpensive, effective way to propel your business forward is with the help of a board of advisers. Here's how to set one up

by Christine Comaford

Editor's note: This is the second of a new, ongoing series of columns on financing and nurturing a small business.

We can all benefit from advisers—they're the friends from the trenches who have been on the business battlefield longer than we have. Or they're friends from a different industry or field who provide a unique perspective. Or they're seasoned or high-profile executives who lend you credibility, thus helping you secure customers, financing, or a crucial introduction. You need advisers to bounce ideas off, to provide a reality check, to tell you when you're about to mess up, to confide in when you're alone at the top.

A board of directors has a fiduciary responsibility to the company. They can be liable for mistakes (accounting and otherwise) that a company makes. So it's tough and expensive to secure board directors, especially since Sarbanes-Oxley. But advisory board members don't have fiduciary responsibility, and thus cannot be held liable. Hence their compensation is a fraction of what a board director receives.

Further, board directors have an obligation to the company first, and the CEO second. It's the opposite with advisers—the CEO/"advisee" comes first. Don't get me wrong—a good adviser is still looking out for the company, but their aim is to steer the advisee in the right direction to best care for the company.

Here's a process for getting and keeping advisers on your team. Remember: Life equals the people that you meet plus what you create with them. Let's start meeting and creating.

1. Define your advisory board member profiles. This is a list of skills and connections you want advisors to have. For instance, I recently mentored a startup in the fashion world. They had two strategic goals: to get a deal with Target (TGT) and to secure more celebrity endorsements (see BusinessWeek.com, 12/1/06, "Star Search"). So, some of the advisers they would need would have experience/connections in the following areas:

a. Cutting favorable and binding deals with mass-market retailers

b. Selecting, managing, assuring quality of outsourced manufacturers, shipping, lines of credit, all aspects of back-end retail infrastructure and operations

c. Securing celebrity endorsements in the music, film, TV worlds

d. Building and motivating a field sales force to ensure that hot boutiques carry their wares and that their merchandise is included in high-profile displays

e. Marketing expertise in building buzz and perception for an exclusive hot brand, and carefully crafting a separate brand for the mass-market retailers that wouldn't cannibalize their own high-end brand (see BusinessWeek.com, 8/28/06, "Small Company, Big Brand")

You get the idea. You want advisers who will help you build your business as well as mentor you as an executive. The best size for an advisory board is eight to 10 people. With a group of this size you've got plenty of room for diverse skills and contacts.

2. Determine your expectations of each adviser. For some advisers, you will be happy just to have their name on your Web site. For others, you will want to interact with them on a regular basis. For the latter, start out by asking for 15 minutes per quarter. This doesn't sound like much, whereas one hour per year might scare busy potential advisers away.

You want to develop a mentor/sounding-board relationship with your advisers, so be willing to communicate via the method most convenient for them. Let them invite you to meet in person. Don't immediately ask for favors—ask their opinion, ask for advice. Don't be greedy. Do be grateful. Over time, they will gain trust and introduce you to their contacts.