Christopher V. Flett

There was a great article in the Times recently about setting up an Advisory Board for your small business. I hear the terms Advisory Board and Board of Directors interchanged all the time and wanted to outline what the differences are and why and Advisory Board can be an exceptional tool for expanding the growth of your business model.

A Board of Directors is: a group of individuals that have a certain level of ‘authority’ over your business operations. Many times they have some vested interest in what the company does, how they do it, and importantly, how it makes money. They have legal liability regarding the decisions of the company and have fiduciary duties as part of sitting on the board.

An Advisory Board is like having a group of advisers that support the ‘captain’ in steering the boat in the right direction. They make suggestions or recommendations that the owner will or will not action upon. An advisory board can make suggestions on how to cut costs, develop markets, offer moral support, or suggest opportunities that the owner might not otherwise see. Normally advisory boards are comprised of people with different expertise and areas of experience that they can lend to the owner of the company.

It isn’t a Kumbaya (as many times they become). Instead, it should be strategic, measurable, and honor the time of all involved. If you approach it this way, you’ll keep your Advisory Board engaged; if you make it unstructured, a free for all, and without deliverables, the good people will quickly fall off. Here are some things to consider when forming an Advisory Board:

• Be clear on what the role of the board is. Are they a sounding board for new ideas? Are they providing strategic input for development/expansion/retention of market share? Be clear on what role you want each individual, and the board as a whole, to play.
• Honest feedback. You don’t want a bunch of cheerleaders on your board. You need to have people with opposing points of view and that will call you on things if they don’t make sense. My most recent step-mother was a great sounding board for development. She would question everything I was doing to make sure that I had covered the details (my weakness).
• Consider people already in your circle. You don’t have to hunt out brand new people for your board. Make a list of the skills that you require and then look to recruit from your existing contacts. Look for those that are better in the area than you are (i.e. accounting or marketing). It is hard to take advice from people who normally come to you for advice. They don’t have to be the smartest, just smarter than you.
• Document the process of board meetings. How often they will happen, requirements of sitting on the board, roles and responsibilities. Don’t take this lightly. If you want them to act professionally, treat them professionally. You will also want a non-disclosure agreement signed by everyone on the board. Board members may ask (and you should oblige) that they are acting in the model of an adviser and protected (indemnified) from any choices that the company makes. This is always a concern for me when asked to sit on an Advisory Board.
• It shouldn’t cost them anything to be on your board. Make sure you reimburse for parking, feed them, make sure they have something to drink. If they are important to your business model, make sure your actions showcase the value you put in their time.

Be careful about offering your advisory board interest (i.e. stock/equity/etc.) in your business model. It will muddy the role of advisor and them having ’skin in the game’ may move them into a more ad hoc role of a Board of Directors. Look at how you leverge what you do, who you know, and other things to support your Advisers in what they do. The focus on reciprocal support will be noted.