1.2.17 Mentors, Advisors and Advisory Boards


The focus of our discussion today will be on mentors and advisors. This is different from a board of directors which has formal voting rights and can be legally held responsible for the business. The board of directors usually comes in a much later stage of entrepreneurship. Typically, when you’re raising your first round of VC funding. Let’s first look at mentors. Mentors are close friends who help you grow as an individual. The advice you seek from them will often be both professional and personal in nature.
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Mentors have no financial upside in helping you but they want to see you succeed. Next let’s move to advisors. Whereas mentors tend to be more focused on you, advisors are usually more focused on your company. As early stage investor and entrepreneur Brad Feld puts it, advisors provide services in exchange for a portion of your company while mentors merely ask how can I help you? You can also assemble an advisory board. An advisory board is a group of advisors, who you have selected to help you advise you on a number of business issues. But unlike a board of directors they do not have the authority to vote on business matters and are only there to help you run your business better. There are a number of considerations to think about before approaching people to join an advisory board. First, determine your business’ greatest area of need. Ideally, an advisory board will provide their knowledge and expertise on a consistent basis on an area of your business, where you have the greatest need or that you know the least about.
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For example, if you’re great at sales and marketing but have no legal or financial expertise, you’ll want to create a board with a strong background in finance and law to make sure they are helping you think through issues in areas that you are weakest.
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Second, set expectations. Devote some time outlining what your advisory board will be responsible for and what powers they have. Outline whether they have a say in financial or business decisions or where their scope is. Third, think about what you will offer advisors in return. A great advisor will make a huge and lasting impact on your business. Think about what you can provide them in return, how will being on this board enhance their lives and careers?
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It’s usually common to give a very small equity percentage. And in a separate lecture, you will specifically see how to determine what amount of equity is most appropriate, based on the specifics of your business. As you think about building your board, think about people who’ll be on this board. Who do you need? Advisors should match your opportunities and the obstacles that you’re going to be facing.
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Think about their level of experience. You want people who have experience both building a business as well as running a business. You want to also think about how many advisors you need. Ideally, you want to have three to five people. As you think about attracting and compensating your board, first think about how to get them aboard. Build a two or three page prospectus that describes your business. Frame the initial discussion with prospective members as more exploratory and let them give their thoughts.
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In terms of pay, this is sometimes tricky and definitely controversial. So be wary of advisors who are only after money. It may be appropriate to offer some compensation, and again, we’ll cover this in a separate lecture. As you think about operating and meeting in structure, think about the meeting logistics, usually you want to be thinking about meeting two to four times a year and these meetings should be confined to less than three hours at a time.
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As you structure the conversation, focus attention on a few core strategic topics to make sure you’re covering the biggest problem areas.
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Final things to keep in mind as you manage these relationships. Advisors can help you establish credibility. They bring their reputations with them. Second, recruit advisors for short-term objectives as well as long-term objectives. Third, set term limits. This advisory role should have limits, typically 12 months or 24 months in duration.
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Fourth, look for advisors in unusual places. Fifth, there is no standard compensation scheme for advisors. And finally, don’t treat advisors like employees or suppliers. Remember that they’re giving their valuable time and advice to you.
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If you are unable to devote the time and resources necessary to a full-fledged board of advisors, there are alternatives. You can leverage paid professional advisors, perhaps bankers, consultants and lawyers. Professional advisors see many businesses and can help you quickly spot common areas of problems. If nothing else bringing people together at your disposal forces you to do your homework and think more deeply about your business. As we’ve seen, you want to determine how much and what kind of advice you need.
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Bring in people that help you fill gaps, areas that you do not know well. Go for great people, not just those that are easily accessible.
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And remember that this is a give and take. If you’re giving equity and cash, make sure that you’re getting advice, introductions and customers in return and vice versa.
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Thanks for joining this lecture.

Jim Rohn