Tapping the Wisdom of Advisory Committees

Starting a business is daunting and typically requires a significant amount of knowledge
in many areas including; technology, manufacturing, marketing, finance, sales and
management.

By Dan Mitchell, Executive Director of ACE-Net

(The high school and college students of today will be the largest consumers of your efforts in the future. If you can- find a compatible student to compliment your advisory board. You will all benefit- Russ)

Not only is it rare to find an individual who possesses all the skills, most often start-up
businesses are begun by one or two individuals. It can be a lonely experience.

A group of advisors is one of the most valuable assets an entrepreneur can have. They
bring experience, skills and contacts and also provide strength in those areas you may
feel uncomfortable in while assisting you in making stronger business decisions. As an
added benefit, members of advisory committees can become close friends.

Most people, of course, like the idea of an advisory committee, but don’t know how to
form one — who to ask, what to ask of them and how to reward them.

First, recognize the difference between an advisory committee and a board of directors.
A board of directors is a legal entity, with legal responsibilities and liabilities. You have to
be very careful about who you choose for board members because they control your
company. If you have investors, especially venture capitalists, they’ll expect to be on the
board as will private or institutional investors and want the ability to influence their
investment.

An advisory committee, on the other hand, is informal. Advisors have no legal authority
and assume no liability. Because it’s informal, there are no set rules, such as how often
they have to meet or many people must be on it. You can form the advisory committee
to meet your needs and their schedules.

In fact, your advisory committee can be so informal, you don’t even have to consider it a
committee. You can just have a few people who’ve agreed to let you turn to them for
advice. But by organizing an official entity, it forms a closer bond between you and your
advisors. If you’ve asked the right people, they’ll consider the request carefully before
accepting, and when they do, they’ll take their role seriously and be even more
committed to your success.

If you are a true start-up looking for your first round of outside funding, the advisory
committee becomes even more important to your success. The committee members
and their backgrounds should be an integral part of the management section of the
business plan. It shows you have consulted with experts to help you form the strategies
and direction of the company and that you are maximizing the resources available to
you.

Who should you ask? First of all, people you respect. The point of advisors is to give
advice. So look for people with good judgment, experience and wisdom. Ideally, of
course, you’ll find wise folks who also are seasoned entrepreneurs, from your industry or
with strong financial backgrounds. Be careful when choosing potential investors; they
can be terrific sources of advice and possibly money, but if they later choose not to
invest, it can send a negative message to other potential investors. Be very wary of
asking potential customers, employees or, naturally, competitors.

You don’t need many advisors – never more than five or six. Advisory committees need to
be responsive, action-oriented groups, quick to respond. You don’t have to ask
everybody at once; you can add advisors as you progress, but you do need two or three
to start to make the process workable.

How often should you meet? Perhaps never. If the committee is diverse and selected to
give guidance in many areas, a one-on-one discussion may yield better results in less
time than a meeting of the entire committee. It often works best to call on individual
members with specific concerns. One member can help build financial statements,
another help shape marketing efforts, others can introduce you to contacts or
suggested conferences to attend. All your advisors should read your business plan,
provide you with real-life insights.

Be careful not to call too often. Advisors aren’t signing up for a job. Routinely keep them
informed about what the company was up to, send them e-mails, announcements, invite
them to company events. Make an effort to schedule a lunch at least once a quarter. But
respect their time.

The advisory committee for new companies may meet more frequently, depending on the
stage of development of the company, but meet with individual members many times and
call some fairly frequently.

What do you pay them? Not cash. Most people you want as advisors aren’t motivated by
money; they’re motivated to help you succeed. Granting stock is the most appropriate
form of compensation, so they’ll share in your eventual success. And, of course, make
sure your Advisors get any company trinkets — T-shirts, coffee mugs or pens.

Building a company can be lonely work. You’ll find Advisory Committee members can be
a great source of help and comfort. They can give you guidance, contacts, friendship as
well as credibility with potential investors.

Advisory committees are critical to the success of a startup company today, not only
from the wisdom, knowledge and contacts they offer but also as a trusted resource when
things get tough.

To ask Dan Mitchell questions regarding startups and private investing, contact him at
[email protected].

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