PRINCIPLE 9
You—Yes, You—
MUST Have an Advisory Board
Does the following reaction sound familiar?
I know I should have an advisory board. However, after putting in ninety hours a week, for Lord knows how long, and finally turning my company into a success, you want me to bring in people who don’t know my business to give me their thoughts? You want me to pay them for their opinions when they have no real skin in the game, then seriously contemplate what they have to say knowing:
They never walked a mile in my shoes.
Once they walk out of my conference room, they may not spend a minute thinking about my business until just before the next meeting.
Have an advisory board? No, thank you.
A lot of entrepreneurs feel this way. Are they wrong? If you are picturing a board like that, advisers who are dilettantes or retired businesspeople with nothing better to do than offer platitudes to you, then you’re probably not wrong.
But why would you ever have a board made up of people like that?
Let’s take a step back and discuss why you would want an advisory board in the first place, before we go into detail to explain why it is a good idea.
WHY YOU NEED A BOARD
Entrepreneurs are reluctant to change, and that is especially true if they’ve been successful. When things are finally going well, the natural tendency is to look around and say, “Everything is great; there is no reason to alter anything. If it ain’t broke, don’t fix it.”
What’s the problem with that? A lot.
First, things are going to change, whether you like it or not. New competitors will enter your industry; the economy is going to tank or take off; your most important customer may wake up one morning and decide she would prefer to do business with someone else. Very few things are within your total control.
Second, you get into a rut when things are going well or worse, you may be feeling tired. Putting in ninety-hour weeks is exhausting, and “only” working sixty—or maybe even fifty, now when things are going well—is so much more pleasant. Once you make the decision to cut back, things begin to slip or fall through the cracks, and new projects start to take longer to implement.
The third point is directly related to the second. New ideas become harder to come by when you’re not putting in the time to truly study what the competition is doing and what customers really want.
The upshot: You keep doing things your old way, and your business begins to slip. Or, as you grow, you begin to encounter problems you’ve never faced before, and you realize it would be beneficial if you could discuss these challenges with others who have successfully solved them.
These are the starting points as to why you need a board of advisers. They can keep you focused on the things that matter.
Now, let’s walk through these extremely specific places where they can help you, along with details of the composition and workings of the board.
HOW ARE YOU REALLY DOING?
You always want honest feedback. Sure, most of your ideas are good ones, given your track record, but everyone has a huge clunker every once in a while, and it sure would be nice to prevent that from happening if you could. You expect your staff to tell you when your ideas are not the best.
1. But this may not always happen.
2. Given the fact that your staff works for you, you may tend to discount their opinions. As a result, you run the risk of not getting solid feedback.
That’s where a good board of advisers can come in handy.
I want to be clear about this. You want your board of advisers’ feedback and ideas, but you have the final call.
You always want to surround yourself with people who have alternative points of view.
The way you handle your board’s feedback should be identical to how you handle it elsewhere in your life. If you think it makes sense, you take the suggestions. If they don’t, you don’t. The obvious advantage is, if you have a good advisory board, you’re going to get lots of suggestions and ideas that you haven’t thought of and different points of view and alternative ways to solve problems you’re facing.
CASE STUDY: WEST CONSTRUCTION
If ever there was a situation where a board of advisers could have helped, this is it. Jerry West, twenty-eight, is about to graduate (with high honors) from Babson’s MBA program, and he has two solid job offers. One is from a multinational company based in Houston, with a starting salary of $80,000 a year. The other comes from a relatively small, but rapidly growing, specialty food company in San Francisco. They will start him at $70,000, saying, “You can advance as far and as fast as your talents allow.” Jerry’s bride of six months says she’ll let him decide where they’re going to live. She is a fledgling, talented decorator (a big-city girl from the West Coast), so she would prefer San Francisco.
Following graduation, the couple heads out to Utah to visit Jerry’s folks. His father owns a $10 million construction company in rural Utah, where Jerry happily worked every summer since he was fourteen. There have been occasional comments made by his parents (pointing to the construction offices) that “someday all this will be yours, Jerry,” but nothing more than that has ever been said.
His dad is sixty and in excellent health. Jerry’s two siblings have shown no interest in taking over the business; one plays in a rock band and the other is a stay-at-home parent. The fact that his dad hasn’t mentioned anything about Jerry taking over led Jerry to believe they were not counting on him. (That’s why he decided to go to business school in the first place.)
This visit changes everything. His parents tell him that his uncle, the second in command of the firm, is retiring and add, “The timing has worked out perfectly for you to join the company and begin preparing to take over.” There is talk about his father staying on “until you’re ready to take the reins,” but no time frame is given and it’s clear that his father expects to make the turnover decision unilaterally. While the offers Jerry received from the two other firms were certainly “flattering,” his dad said, “You can’t expect to start here at those kinds of salaries. Maybe we can go as high as $60,000.”
Complicating the picture, Jerry’s parents want to be “fair,” so for “the time being” his father will own 50% and his mother will own 20% of the company, and the three children will split the remaining shares. While Jerry truly likes the construction business, and sees the possibilities of what it can become, his wife hates the idea of living in “Middle-of-Nowhere, Utah.”
EXERCISE 10: WEST CONSTRUCTION
1. Should Jerry join the business?
2. What recommendations could an independent board of advisers have made as to:
a. Jerry’s father years ago
b. Jerry years ago
c. Jerry now, to attract him to the firm
d. Changing the ownership structure
e. A reporting structure
f. What would be palatable to Jerry and his father
g. The entire West family to help them deal with the emotional component of all this
3. What would be a “win-win” solution for Jerry, his dad, his wife and her career, and the family business?
NETWORKING
In addition to being smart, creative problem solvers, the people on your board should also be accomplished. They should have achieved some success; met a lot of smart, talented, and successful people along the way; and be in a position to introduce you to them.
Suppose you are looking for additional financing, and banks are charging too much interest and making unreasonable demands for collateral. When you bring your board of advisers up to date on this challenge, it would be extremely helpful if one of them says, “You know, I was having lunch the other day with old Fred. You guys remember Fred, right? He made a ton of money when Old Fred Corp went public. He told me he would like to start backing emerging growth companies like this one. The $10 million we need is about the size of an investment he’s hoping to make. If it’s okay with you, [Ms. Entrepreneur/CEO], I’ll give him a call and introduce you two.”
Or perhaps you’re thinking of expanding internationally and you really aren’t sure how to do it. Again, hopefully someone on your board has had to handle the exact same problem. Equally important, they’ll be willing to share their “networking list” with you to introduce you to experts you can call on as you head overseas.
MENTORING
We all need help from time to time. For an entrepreneur, one of the biggest challenges is usually succession planning, and it usually falls to the bottom of the entrepreneur’s “to-do” list. It’s not surprising for an entrepreneur to wake up one day at the age of sixty, sixty-five, or seventy to find that they really don’t have a succession plan.
Your board can be a huge help here, simply by constantly raising the topic at meetings and reminding you it needs to be done. Eventually, if for no other reason than you want them to stop bugging you, you’ll address the issue.
But perhaps the biggest role an advisory board plays is being someone the CEO can talk to. It really is lonely at the top; having someone to bounce ideas off of, or simply having someone to discuss challenges with, can be invaluable.
Mentoring your staff, and even your family, is another place your board can help. Some executives get flustered if the boss tries to give them feedback. They concentrate so much on the fact that the person who signs their paycheck is offering suggestions and/or criticism that they can’t fully concentrate on the advice itself. Having a member of your board—instead of you—coach them can help a great deal.
The other thing they can do is to serve as a mentor for members of your family. This can be true whether or not family members are part of your business. Obviously if they are, there can be conflicts that have little or nothing to do with the business itself. It can be difficult working for/with your spouse, brother, sister, or parent. Having someone from the outside who can moderate/referee/coach can help.
Even if your kids aren’t in the business, members of your advisory board can serve as mentors to them. As every parent has learned the hard way, children don’t always listen to their parents. They may pay attention to an accomplished member of your advisory board.
THE COMPOSITION OF YOUR BOARD
Having laid out the foundation, let’s spend some time discussing how all this can work. The most basic question first: Who should be on your board?
Let me begin my answer in the negative: Don’t include people who are your company’s accountants, lawyers, senior executives, or bankers, because they all have a vested interest in pleasing you. They are beholden to you for work—and income. You can always choose another accountant (or accounting firm), lawyer, or banker—and they know that. They have a vested interest in making you happy and, as such, have a potential conflict of interest.
Yes, you want your business to have an accountant, lawyer, and banker, but they shouldn’t be on your board. They’re already giving you advice.
If not these people then, who? I’ll answer that question in a moment. First, let me flag an important point that might make having a board of advisers even more palatable to you.
They serve at your pleasure
Unlike the board of directors at a publicly held company, which is answerable to the shareholders, an advisory board is answerable only to you. This means you can fire them any time you want—and you should if it’s clear that they aren’t adding value.
There’s a difference between their offering solid ideas you don’t want to accept and not adding value. But if it becomes clear, after a reasonable period of time, that all they’re doing is taking up space, then you should fire them.
So what types of people are going to add value? I want board members who:
Are honest
Are independent problem solvers, reflecting the kind of values I have
Can add industry knowledge
Have the networking possibilities that we mentioned
May be of financial assistance (personally, or through referrals)
Have a passion to be on the board
PROCEDURES
Let’s talk about how this plays out in practice. You can set up your board any way you want, but let me share what works for me.
I like our boards to meet quarterly. More frequently, and we end up discussing the day-to-day minutiae; less frequently, and small problems can become large ones before we can get around to dealing with them.
SHOULD FAMILY MEMBERS BE ON THE BOARD?
I know some people disagree, but I think it’s important your spouse and children be part of the advisory board, even if they aren’t part of the company itself. Since the business is so important to you, and indirectly to them, they should be involved.
I insist that they follow the rules when they attend meetings. Board meetings are not the place to discuss family issues and conflicts. They’re attending to gain a better understanding of the business and to ask questions only about the business.
How many people should be on your board? I find somewhere between six and ten works well. More than that, and it can get unwieldy; fewer than that, and you don’t have enough differing opinions.
Speaking of diversity, I think it’s extremely important. Some people think they should have board members who offset their weaknesses. If they’re a marketing guy, then they concentrate on having people on their board in finance and technology. I think that’s exactly the wrong way to go.
When it comes to creating a board of advisers, you’re building a team. All the team-building rules apply.
So, what am I looking for (in addition to smart, creative problem solvers) when I pick my board? I want a mix of calculated risk-takers as well as conservative people to help ground us. Do they have to have extensive business experience? Well, it’s helpful but not always necessary. For example, in earlier years, Rabbi Jack Rosoff was one of my advisers because of his unique sensitivity and conflict-management skills, which he used daily as a clergyman.
It could be helpful if you knew your business was going to go in a new direction—you are going to buy a company in a different market segment or you’ll be expanding internationally—if your board members have expertise in those areas. Is it absolutely required? No. You’ll be amazed by how many people your board members know.
They don’t have to be experts on what you do, but you do want differing perspectives. Not only is it important to generate more and better ideas, it also sends a positive message to your staff. If you have young people and women on your board, it reinforces to the young people and women in your company that they are important.
Let’s discuss what happens when the board actually gets together.
Given that they’re accomplished individuals, there are going to be numerous demands on the time of the people you’d like to serve on your board. So, you have to come up with a good reason—and perhaps more than one—why they should.
Not surprisingly, it all ties to the Maslow hierarchy of needs:
Let’s start at the bottom of the triangle. Money—as in their compensation—is a factor, but not the deciding factor. For my board meetings, I pay people $200 an hour and all their expenses. In addition, advisory board members are often given other benefits such as stock options, or the ability to buy shares at a discount. Even though money isn’t the main reason someone will serve, no one has ever turned down the check.
There are factors farther up the Maslow hierarchy that come into play.
You’re appealing to their ego; it’s flattering to serve on someone’s board. Also, having the chance to get in on the ground floor of something, and help shape a company’s future, gives them bragging rights for their contributions.
Two last points.
Never waste their time. Always show your gratitude.
HOW THE MEETINGS SHOULD WORK
I recommend using the following outline so you maximize the benefit of an executive board.
About a month before the meeting, board members get a package that contains the minutes of the last meeting, along with a note asking what topics they want to discuss this time. If there is nothing specific they want to discuss, I create an agenda. If they have specific concerns, I will make sure they are addressed. I also ask what information they want to see ahead of time (financials, projections, strategies, etc.) so they have what they need to make solid contributions at the meeting.
They get the agenda about ten days before the meeting so they have time to prepare. The meeting—running a few hours to all day, depending on what needs to be discussed—is always divided into three parts.
1. Business. We discuss their issues plus what I want their advice on.
2. Mentoring. Who needs help, both inside and outside of the company? (We’ll set up a schedule where the board members can work with these people.)
3. Social. There’s always a dinner the night before or after the meeting. Once a year we hold the meetings off-site at a resort or some other nice venue, and the advisory board members are encouraged to bring their spouses. An advisory board is a team, and the social aspect is a good way to try to forge close bonds among the members.
FOUR TAKEAWAYS FROM THIS CHAPTER
There are numerous advantages to having a board of advisers. If you only remember these four, you’ll do just fine.
1. Honest Feedback. It’s nice to think your employees will tell you the truth, the whole truth, and nothing but the truth when you ask for their opinions. This isn’t always the case with people who receive their paycheck from you. Your board of advisers doesn’t have these conflicts. Yes, you are paying them, but it isn’t enough to get them to sugarcoat their opinions.
2. Networking. Ideally, your advisers will know people who can help your business grow (a factor you should be looking for when looking for board members).
3. Opinions and Problem Solving. You always want to consider different points of view and different ways of solving problems. Your advisers should be a big help here. (If they’re not giving you new perspectives, they shouldn’t be on your board.)
4. Mentoring. You may need to improve in certain areas; your board could help you and the people who work with you.