At some point in your growth journey, you’re going to need the sort of expert perspective that isn’t frequently found in early stage or startup companies. Maybe your strategy is to rapidly expand into new markets, and you need help understanding the risk. Or you’re faced with new and complex regulations. Maybe you simply need guidance on whether to consolidate or let go of a part of your business, or to evolve your products or solutions.
To solve these problems, and others like them, a growing number of startups have begun appointing ‘advisory boards’. These are teams of, or individual, non-executive advisors who work on a part-time and advisory basis, often for a fixed term of anywhere between 12 and 36 months. Over the past few years, appointing advisory boards has gained momentum among the startup community. But in the wake of Covid-19 with many industries still facing years of uncertainty, this trend has accelerated.
So what can an advisory board do for your business, and how can you ensure you appoint the right advisors?
Most board advisors come with the sort of battle scars your average business owner wants to avoid – experience in guiding organisations through economic crises and market crashes. But it’s the lessons learned from previous global downturns that can be invaluable for businesses currently trying to cut a path through the fallout of the pandemic. How can you best navigate the disruption to global supply chains? Should you take advantage of new business opportunities or double down on existing relationships? Continue to invest raised funds or even profits in engineering and platform development or focus on sales and marketing? And which geographic markets are a safe bet, and which aren’t? Having seasoned leaders to turn to for guidance and advice on these issues can be critical for setting a long-term path to profitability and sustainable growth.
They are also highly cost-effective. A full-time suite of non-executive board members is a serious financial investment and typically reserved for established medium to large-sized organisations who need extensive and ongoing governance. However, for advisory boards, there are various means of remuneration that don’t need to break the bank. This includes both short-term fees or equity, making them an economical option for scale-ups that need to access heavy-weight leadership skills.
Return on Investment
When appointed to source funding opportunities, an advisory board’s return on investment is usually particularly noticeable. Having a background on the boards or executive committees of other, often larger companies, brings both an understanding of how to raise venture capital funds and access to a community of investors. A direct link to this network has huge value for start-ups looking for their first rounds of series funding.
What’s more, as your company develops and matures, you’ll probably want to expand into new geographies. Advisory boards can be appointed to bring region-specific experience; a knowledge of how to market products or services to foreign consumers, and an understanding of country-specific business practices, micro geo-political and cultural nuances. It’s now not uncommon to see early-stage companies appoint advisory boards with a single advisor based in the UK, Europe, North America, and Asia respectively.
The most value, however, often comes in the form of diversity of thought and fresh perspectives. Board advisors bring a level of knowledge to a company that it wouldn’t necessarily be able to gain (or afford) through a permanent executive appointment. For example, if you engaged a board advisor to help with product development, they could offer guidance on innovation pathways and R&D, or simply act as a sounding board for ideas.
Challenge of appointing the right advisor
Whilst this might all sound great, appointing the right advisors can be challenging. When utilised successfully, these individuals will engage with you and your leadership team and influence some of your most important decisions. A certain level of chemistry, ‘fit’, and passion for the business from an advisor is therefore paramount. Understanding a potential advisor’s motivations will also help you discern who is, and who isn’t right for your business.
Often, prospective board advisors will be motivated by the opportunity to work with a startup that has a unique proposition – your business might be solving complex problems, tackling social or environmental issues, or just have a really interesting product. Others may be motivated by joining a well-funded scale-up at a critical moment on its growth journey – the opportunity to help a good business grow is an attractive sell, especially for those with an investment background. Whilst others will consider an advisory position simply because the alternative (a formal non-executive role) is often laden with governance. In these circumstances, a vibrant culture, a visionary CEO with big ideas, or the opportunity to take the business into untested markets can be highly appealing.
Whatever the selling point is, finding the right advisor will mean having someone who is dedicated, provides meaningful input, and genuinely wants to see you and your business succeed.
Mike Drew, Partner and Head of the Global Technology & IT Services Practice, explains how early-stage companies can benefit from appointing an advisory board.