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Building the Entrepreneurial Advisory Board

"I’ve got (fill in the name of the high-profile business person) on my advisory board," said the emerging entrepreneur to the group of angel investors. "When was the last time you saw him?" asked the angel at the table in the rear of the room. The response? Blank stare.

by Greg Moran
Talent Management Group in EntreWorld.com

For the entrepreneur looking to grow a business through equity financing or the business owner simply looking to limit the stupid mistakes caused solely by inexperience, an advisory board may be just the answer, if it’s built right.

I have had four businesses, with advisory boards of varying size and activity levels and value to the company. Like all entrepreneurs, I did some things right, some things wrong, and cultivated a lot of experience. Being in the executive search field – my current company, Talent Management Group, is a recruiter – I also advise my growth company clients on strategy and recruiting for their board.

Board Types

First, a simple explanation of the type of boards you can create is critical to address. An actual "Board of Directors" is a fiduciary body, which carries significant legal weight and liability. Its members, who are usually compensated, are the final arbiters of corporate governance in a business. For the typical entrepreneur of a private company, this is not the norm and is rarely required.

The second, far more common, association is the "Board of Advisors." This group carries no fiduciary responsibility to shareholders, but simply serves as a mentoring organization for the management team. For the purpose of this article, we will assume that this structure is your desired outcome.

Develop the Profile

Chances are you have, or are currently recruiting, some important members of your management team. When you began that process, you (hopefully) had some definite vision of the skill set and behavioral and cultural characteristics of the individuals whom you sought to recruit. The board is no different. You must have a clear vision of the type of individual you require for each seat.

For example, look at your weaknesses and those of your management team. Are you stellar salespeople but poor financial managers? If so, you want to make a strong financial manager your top priority. Do this for each position on the board you are assembling, with preference given to those areas in which you are vulnerable.

After the skill set is clearly identified, you must next focus on the personality of the individuals being sought. I once had a brilliant colleague on a board on which I served. The challenge was that he actively sought to make the CEO feel as though he could do nothing right. Negative motivation was his modus operandi, and in the end, he was asked to step down for that reason. You, as the CEO, must recruit only those individuals who motivate and inspire you, and of course, in whom you can trust.

Develop the List

After the profiles of the ideal candidates are developed, it is time to focus on identifying the right individuals. First, develop the list of potential candidates. Do this by sitting down with individuals who are leaders in your field or community, and simply ask for recommendations. Think about your lawyer, accountant, and banker for referrals.

For one major cautionary tale when considering your list, go back to the first paragraph of this article. I have a client who has built a marquee board filled with "brand names." Unfortunately, none of these individuals is as accessible as he would like. Most calls to his board members go unreturned, and he has never had a board meeting at which all members were in attendance. When adding names to your target list, be sure to balance your desire to recruit well-known leaders with your need to have ready access. From my experience, the lesser-known individual who serves on a few other boards can be a far greater benefit than the well-known name that serves on many.

Lastly, when developing your list, be sure to have at least three names for every board seat, because many will not be either willing or able to commit.

Creating the "Ask"

You’ve got your target list, now you need to start recruiting. First, prioritize your three names for each seat from most desired to least. Obviously, begin with the most desired for each.

When creating your "ask," you are basically creating your sales pitch. In doing so, remember that most individuals who agree to board service do not do so for the money or stock. (I never even offer this.) They simply get excited about the opportunity to assist an energetic entrepreneur, and perhaps to mingle with other advisors who are likely to have common interests. Remember, the opportunity is usually about you, not your business plan. When creating your pitch, focus on your need and desire to learn and grow as a businessperson and entrepreneur.

Lastly, in your "ask," create a brief synopsis of your business concept and model as well as the time commitment that you are expecting from each member. Do not expect that the prospective board member will read your entire plan; just focus on the elevator pitch for now. Again, remember that this is more about you than your business.

Ask

You have what you need, now call. This is where the referrals you gained while building your list are critical. If possible, have the individual who referred you call and notify your prospect about who you are and why you will be calling. If this is not possible, create your own email explaining yourself and your purpose. After the initial contact is made, follow up, follow up, and follow up. This is a sales process. It may take many attempts to "get on the radar screen" of the targeted individual. Keep at it. They will respect you for your tenacity and ambition. Personally, I have been trying to make my initial contact with one person for three years. (I am still at it.)

If, after you make the contact, an individual rejects your offer, always ask for a referral to another prospective member. In building a board for a client company, our No. 1 target said no, as he was over-committed. We asked for a referral, and he provided a dream list that he volunteered to contact for us. From this list of referrals, we were able to build our entire board.

Coda
How many advisors are optimal? In my last two companies, I’ve had between three and five, as I believe smaller boards are more productive. The more critical factor, however, is that you have a board. I mentioned earlier that I made some mistakes. My biggest was not putting a board together at my last company until two years after its launch. A lot of basic mistakes could have been avoided if I had the benefit of advice earlier on from such knowledgeable outsiders.

Building an advisory board is not a terribly difficult process, but it does carry a tremendous benefit when done with thought and clear structure. Strong, active boards can often be a determining factor in the long-term success of your business. Its members can open doors for you that could not have been opened on your own. But, as with anything else, your return will be a derivative of your planning for the process. Identify the characteristics and personality types, the structure, and the commitment. Then focus on how you plan to ask. If you do this well, your board will serve you long into the future.

http://www.entreworld.org/Content/EntreByline.cfm?ColumnID=501

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And here’s a slightly different view…

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Friends and Advisors

by Barnett Helzberg, Jr.

In 1995, when I suspected the time had come to sell my company, I turned first to six individuals with whom I had consulted for decades – on personal as well as professional matters.

I asked what they thought of the four options I was considering for Helzberg Diamonds, the business I had taken over from my father in 1962 (and which my grandfather had founded in 1915.) I could take it public, sell out to a venture capitalist, merge with a national retail chain, or accept an intriguing offer from legendary investor Warren Buffett.

It took this group – which we call the "forum" and of which I am a member – all of a few seconds to rule out the first two options. Because we know each other personally as well as professionally, they understood that I couldn’t sell to a buyer who would flip the company, leaving long-term employees without jobs. Just as instinctively, they knew, as did I, that the Buffett offer was the way to go.

In a nutshell, this scenario illustrates the value of advisory relationships for entrepreneurs. Advisors provide a knowledgeable third-party perspective that can’t be overestimated. In this article, I will discuss the advisors who have played a part in my entrepreneurial life and suggest ways in which other entrepreneurs can benefit.

Advisors for All Seasons

In my years building Helzberg Diamonds, I’ve had several different types of advisory, or mentoring, relationships. Some, like the forum I mentioned above, have been informal. That group was suggested three decades ago by the Young Presidents’ Organization, of which I was a member.

We are still active today. Unlike advisory circles comprised of businesspeople from the same industry, we seven are an eclectic group. Included, besides me, are a grocer, a flower grower, a lumber dealer, a construction man, a druggist and a tire dealer. Over the years, we have become friends as well as business associates, sharing concerns about whether to undergo operations as well as sell companies. For a while, we met on the balcony of the grocer’s store, over rounds of coffee and bagels.

Another of my informal associations was with the late Ewing Marion Kauffman, the founder of the nonprofit organization that bears his name (and publishes EntreWorld.) I met him in 1973 at a conference in Pebble Beach. We had a drink, and he suggested I contact him when I got back to Kansas City. That I did – again and again over the years, availing myself of his wise counsel.

In the late 1980s, after two and a half decades of running Helzberg Diamonds, I decided to form a formal Board of Advisors that would meet twice a year and consider a pre-set agenda. I felt that confronting issues, such as financing and planning, on a regular basis would help bring order to the often seat-of-the-pants decision-making at our family company.

In creating a formal board, I nonetheless decided to keep it small and personal. It has had only three members. The first was a Wall Street analyst who has been a lifelong friend; in fact, he and I met at summer camp when I was 12. YPO suggested the person who became the second member – a C.P.A. – and he, in turn, referred me to the third. They are all among the brightest people I know.

Telling It Like It Is

As a businessman inclined to seek advice – my employees have chided me for going up to every bum on the street for an opinion – I believe that doing so provides marinade for the brain. The more points of view you have, the more your own thoughts mature.

Another plus is that advisors are willing to undertake the difficult task of telling you what you don’t want to hear. Just after putting together my formal board in the late 1980s, I made one of my periodic visits to Mr. Kauffman, who said I needed "depth of management." He said Helzberg Diamonds had gotten too unwieldy for me alone.

But who was I to listen? I promptly went back and did nothing. My old camp buddy delivered the same message when I saw him in New York. Then, when he came to Kansas City, we had dinner with Mr. Kauffman, who had wanted to meet my friend. It was there that they both jumped all over me – with hobnail boots!

The result was as they intended. I decided to step aside as president, retaining the chairmanship, but bringing in someone to lead day-to-day operations. I also agreed to leave that capable individual alone to do the job.

In the mid 1990s, I ran the issue of selling the company by, not only the forum, but also my formal Board of Advisors. One member said that if I didn’t sell, I would have to "go out of the country" to expand.

While I had understood viscerally the need to sell, the advisor was able to speak from experience about the need to do so. His comment about going global brought me up short because I knew at that stage in my life I didn’t want to expend as much energy on the business. So I thought, "Now I know I am right about selling, because the last thing I want is to go overseas."

Putting It Together

In considering my own relationships, I have come to believe that advisors are essential for entrepreneurs, many of whom prefer not to go it entirely alone. Thus, what follows are six suggestions for making the best of these valuable associations. Most have been the underpinnings of my own dealings with advisors.

* Start Slowly. I didn’t have a formal advisory board for years. When I put it together, I started with one person, whom I had known and trusted since childhood.
* Limit the Terms. While I never took this step, I still believe that asking candidates to serve for a pre-set amount of time is wise. If your company’s needs change, you won’t have to fire that person.
* Consider the Chemistry Between Members. Use your best judgment to recruit members who will work well with each other – and then pray.
* Allow Prospective Members to Meet. I learned this lesson the hard way, when I named my second board member and failed to inform my old friend. Is it any wonder he was upset? (A subsequent lunch between the two rectified the situation.)
* Keep It Small, Flexible, and Absolutely First Rate. My board has had three members throughout. I’ve never had to replace anyone, but I do admire those entrepreneurs who have replaced me on their boards when their businesses changed.
* Pay Your Advisors. This isn’t always possible for young companies. But when you can, do so, because it obligates the advisors.

It’s smart for entrepreneurs to seek advice, and the best advise comes from knowledgeable third parties who aren’t afraid to tell it like it is. Cherish these people – they are "advisors." Their expertise will help you build your company. Play your cards right, and they will also become friends who will help you build your life.

http://www.entreworld.org/Content/EntreByline.cfm?ColumnID=502

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