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Getting Good Advice Counts for Start Ups is essential- The value of advisory boards

The last article on Advisors stimulated a significant amount of discussion to warrant at least one more shot at the
topic.

The feedback was mainly, “that’s great but how do you effectively make an advisory committee work?” So lets
see if we can explain that.

By Dan Mitchell, Executive Director of ACE-Net

First of all as I began to research this topic, I went to the Internet and found 160,000 references to Small Business
Advisory Committees. By far the majority of these were for governmental agencies concerned with the public
sector that have no funds to pay for good advice. Chambers of Commerce were most frequently mentioned, but
none explained what the committees did and how they work effectively.

I decided to profile a working advisory committee that has had some good success and try to show why it has
worked and what leadership was provided to the group.

Our company, VentureMedia, is a start-up in the broadcast software sector. The two partners currently own 100%
of the shares, have invested approximately $300,000 into product development and the business plan; have a
prototype and have identified a large Communications company as its first customer.

One of the partners has a degree in software design and worked for a large software company in Seattle for 8
years. He conceived the idea and did most of the architectural work. The other partner has an MBA in Marketing,
has worked as a product manager for a large accounting software firm and has strong credentials in the
marketplace as well as some mid level contacts in the communications industry. He has held that position for 9
years. They are seeking $2.500,000 in funding as an angel round.

VentureMedia has not experienced any major obstacles at this point and all is well, except they are burning cash
far more rapidly than they expected and will be facing a cash flow crisis in 60 days if they are unable to raise
some money. There is a great deal of interest in the product, it has performed well in two Beta sites, but as of
now they have no serious interest in investment.

The partners are now faced with several new situations, the looming cash flow shortage, slow response from
potential customers, little knowledge of the seed/start-up capital market, youth, legal issues and someone to
bounce ideas off.

What VentureMedia needs is the help of some advisors. Had they asked someone from their past, whom they
respected as business associate with financial experience, and/or someone they knew had started a company to
be an advisor at the start; things probably would have been different.

As I indicated in the last article, pick advisors who have been successful and who can round out your talent, be
direct and get them involved. As an example, had they built a relationship with a financial advisor, and shared
information with him/her, the cash flow situation would have been recognized far earlier allowing time to take
alternative action. There’s a fine line between using and abusing advisors, but reviewing financial statements every
so often (maybe monthly) is not an abuse. Getting the advisor involved in the accounting process is.

To deal with a more serious problem, finding money is far more difficult than fixing a cash flow problem. It takes
months of persistence, patience and fortitude to find the right investors for your company. It requires an extensive
network of people to find the right match. Here again, having an advisor or two who are well respected in the
business community and have a successful business history can open a lot of doors and lend a great deal of
credibility to your presentation (having experience in your industry sector is a plus, but not a requirement).

Don’t
expect your advisors to automatically do this for you, earn it. Earn it by walking them though your proposed
presentation, by including them in technology or product update sessions periodically. Show them progress is
being made and you are moving forward. Once the offer is made to introduce you to a potential investor, make
the best of it, be prepared, ask the advisor for details about the investor, know as much as you can.

If you are fortunate enough to have advisors to help you in different areas, don’t waste their time by including all of
them in all meetings and discussions, instead assign individual projects slanted towards their strengths. Keep the
projects simple and short so that everyone gets a feeling of success. Then, if you have quarterly Advisory
committee meetings have each of the advisors give a report on their project. This will allow them to become an
integral part of the business and build relationships with other advisors. It also shows that others are interested in
your success and you have sought them out.

There is a great deal of management involved when dealing with Advisory Committees, but from the above you can
get a sense of how to most effectively use the talents and expertise they bring to the organization. It is much like
operating a not-for-profit organization with volunteers.

There are some rules:

1.Don’t waste Advisors time

2.Use their talents and expertise wisely

3.Provide feedback on a regular basis

4.Use a project oriented approach

5.Compliment them on their effort frequently

If you are lucky, over time, one or two of your advisors become more than that, they become mentors and
confidants and the value of this relationship is immeasurable. Not only do you now have a strong perceived
management team you have a trusted friend.

There’s many variations on advisors and many roles to fill. As you seek them out, look at your current
management team; identify the main weaknesses and work on shoring them up with advisors until you can afford
to hire someone. Who knows, maybe the advisor becomes so involved in your company, he/she becomes the
employee.

I strongly recommend the use of advisory committees, but you must manage them carefully or they will be
ineffective.

By the way, VentureMedia is a fictitious company, but the situation is real. This is an Ace-Net client, who did find
$2,500,000 (it took 7 months and the connection occurred as a result of an advisor contact) and is now in the third
year of business with a revenue stream close to $8,000,000. They still have their advisory members on board and
have rewarded them for their participation.

Dan Mitchell is the Executive Director of ACE-Net. For information on advisors, contact Mitchell at
[email protected].

http://www.angel-investor-news.com/ART_AceNet3.htm

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