During their life cycle, many small businesses reach a plateau in their growth. The owner can't seem to increase sales and profitability despite trying different approaches. This is a signal that it may be time to consult people with more experience in sales, business development, scaling operations, product development and human resources. Seasoned consultants or full-time hires may be prohibitively expensive for your company at its current stage. How do you obtain the advice you need to grow without having the money to buy it? Build an awesome advisory board.
How an Advisory Board Leads to Explosive Growth
When structured properly an advisory board consists of three to seven superstars with complementary skill sets and deep experience growing businesses. These are the people that you need but can't afford to hire. In addition to their expertise, advisory board members also provide perspective. While owners are typically busy dealing with the day-to-day responsibilities of running a business, advisers are focused on long-term industry trends, shifts in buying patterns among customers, and competitor moves. Working together, owners and advisers can map out a realistic plan for growing the business.
How to Choose the Right People for Your Advisory Board
An advisory board only works as intended if you choose the right people. Good advisors tend to have certain characteristics:
- They are genuinely interested in helping you grow your business.
- They have proven experience in an area where you need help.
- They have professional and personal relationships that are valuable for your company.
- They have the availability to dedicate time and effort to advising you.
- They communicate well and have a good rapport with you and the other advisers.
- They have a good reputation which can help raise the profile of your business.
When identifying candidates, you should start looking among people that you know and those with one degree of separation ("friends of friends"). You should then ask these people if they know others who would be a good fit. Finally you should resort to cold contacts. When approaching people without a mutual introduction its best to start with a request for a quick phone call or cup of coffee to discuss a particular business issue related to their area of expertise.
How to Compensate Advisors
Advisory board members need to be compensated for their effort, but not at first. When you start working with an advisor, it may be difficult to tell if the relationship will work out. Do they have the expertise they claim? Are they showing a genuine interest in your company? Are they adding value at advisory board meetings? It's best to evaluate advisors before compensating them for at least two advisory board meetings or six months. An advisor that is willing to make a long-term commitment to your business won't object to this type of request. Those that want to be compensated without first showing what they have to offer aren't a good fit.
Once you determine that someone is a good fit for your advisory board they should be compensated with equity, not cash. This will align the interests of the advisor and the owners. Typically the equity is earned over a two-year period with an equal amount vesting monthly.