The startup industry is so competitive that founders and board members may not always possess the knowledge required to run a sustainable business. An advisory board is thus necessary and can be very helpful for your startup.
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An advisory board is a flexible, informal body that is appointed by the board of directors to provide the company’s management team with business and strategic advice. It is a structured and collaborative method for organizations to engage with external advisors. The advisory board is a group of experienced and influential business leaders useful in scaling emerging or multinational businesses, non-profits, academia, and governmental institutions.
The role the board is not to make decisions, but rather to provide expertise, critical thinking and analysis to increase the confidence of the decision-makers who represent the company.
An advisory board is different from board of directors. It is crucial to note that the advisory board members cannot vote on issues brought before the board of directors and can only attend board meetings if they are invited. The members of the Advisory board do not have a fiduciary duty towards the company.
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Who should have a space on the board?
The board must be composed of individuals with various relevant expertise and experiences. The board must be made up of people that can assist the business in moving forward in areas that are clearly defined. Finance, customer acquisition, marketing, growth, and technology are a few areas in that a Startup might need an advisor. Additionally, It’s also essential for advisory board members to be interested in the organization, culture fit, value congruence, and motivation to help the company succeed.
Founders should include people on your advisory board who can bring new connections, new knowledge, and new insights that their experience cannot. They include senior finance executives, management icons, attorneys, leading researchers, business leaders, key executives from professional or trade associations in your industry, etc. It is important for entrepreneurs or startups to examine the needs of their company that would require expertise. That will help to define the kinds of members wanted on their board.
Why should you have an advisory board?
Founders usually have a great deal of experience, yet, don’t have enough expertise in every area of the business. Having an advisory board can combine the benefits of a team of consultants, a focus group of your customers, and the leading knowledge experts in your industry, all in your company at the same time. The following are some advantages of having an advisory board:
- The addition of experts and professionals to the advisory board can boost the company’s credibility.
- As experts in fields other than that of the particular company, advisory board members can bring in new perspectives for business sustainability.
- Encourage and support the exploration of new business ideas.
- Support the creation of a governance structure that enables expansion of the business.
- Monitor business performance and challenge the directors and management to consider options for improving the business.
- Provide wise counsel on issues raised by the owners/directors or management.
Startups are advised to discuss and agree on the terms of the advisory relationship with the Advisory Board members. These discussions should be documented and must include clauses addressing compensation (if applicable), the manner in which advisory services will be provided, and the protection of the company’s proprietary information and trade secrets.
Conclusion
When advisory board members are carefully chosen, a company is giving itself the chance to benefit from the experience of seasoned industry experts without the potential long-term commitments associated with appointing a director to the board or hiring an executive officer.
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