Entrepreneurs are often told that it's a good idea to recruit an advisory board for their new business. In theory, this makes sense. In practice, however, it is very difficult to form an advisory board that is effective. Keep the following tips in mind when forming an advisory board for your startup:
1. Recruit advisors for short-term objectives. Startup business models evolve and change. Don't recruit advisors who will help you with future products or future markets. Focus on the short-term and determine what skills, introductions and knowledge you will need to accomplish your immediate business objectives. Your advisors should help you fill the gaps for the next six months, not six years.
2. Advisors can help establish credibility. One of your needs as a startup entrepreneur is to establish business credibility. This will help you attract customers, partners, key employees, financiers and other essential ingredients to get your business off the ground. Picking the right advisors will help you establish credibility. In fact, it is often easier to persuade industry luminaries and prominent experts to join your advisory board than it is to persuade operational executives who are not used to the idea of devoting personal time to serve on boards. Keep in mind, however, that industry luminaries are not likely to roll up their sleeves and help you with basic startup issues like meeting payroll and paying rent.
3. Look for advisors in unusual places. One traditional place to find advisors is by getting referrals from the SBA's SCORE (Service Corps of Retired Executives) program, a national mentoring service for entrepreneurs. However, to find advisors who are specialists in your business, you will need to be more creative. If your business has industry conferences or training workshops, this is one place to start looking. Open the Yellow Pages and call "competitors" from different regions or different neighborhoods that you can learn from. Ask your relatives and friends if anyone they know has started a comparable business. Talk to potential suppliers for introductions. You should also try using online services such as MicroMentor , a free matching service for entrepreneurs and business mentors.
4. A free lunch is often a better motivator than equity. Some advisors will ask for equity in your business in exchange for advice and introductions. Others will be satisfied if you pay for lunch now and then. In my experience, the advisors who prefer a free lunch are better than the advisors who demand equity. As a gesture of gratitude, you may decide to give a particularly helpful advisor some equity in your company over time-but do not be in any rush to do so. If you have attracted a top advisor who is asking for equity, make sure you structure the compensation over a payment schedule (such as quarterly or annual) rather than upfront.
There is no standard compensation scheme for advisors, because it depends on how many advisors you need, how much time they will devote and what kind of company you have. For example, a rule of thumb for high-growth ventures is 1.0 to 2.5 percent of share capitalization for all advisors-contrasted with 10 to 20 percent reserved for senior executives and key employees. If you have five advisors, you should consider 0.2 to 0.5 percent of share capitalization as compensation per advisor.
If you are too early-stage to put together an equity compensation plan, you should consider making a small cash payment to your advisors. For example, you can cover their expenses to attend meetings, or you can allow them to submit expense reports for sales and marketing activities that are tangentially related to your business. (If you do this, don't forget to specify an expense limit.) These are variations on the free lunch concept and tend to motivate advisors more effectively than equity-particularly while the company's business model is not yet proven and the value of the equity is difficult to pin down.
5. Don't treat advisors like employees or suppliers. It's not easy to hold advisors accountable. They are not like employees whom you are paying with a steady paycheck. They are not like suppliers who are billing you for services rendered. Even if you are paying them, it is difficult to hold advisors accountable in practice. This is because most advisors have income from other sources and will treat your business as a part-time hobby or casual business interest. Since they are usually not fiscally responsible in the same manner as a company officer or director, they can easily walk away if they do not perform up to expectations.
6. Set term limits. Much like board members have term limits, advisory board roles should also have term limits-such as 12 months or 24 months. It is awkward and may even be potentially damaging to your business's reputation to kick out an advisor if he or she is not performing. Setting term limits makes the transition happen naturally. In my experience, most advisors make their most valuable contribution shortly after they sign on and are excited about their involvement. After some months, they get distracted with other matters and it takes effort to keep them motivated. Some advisors will become very involved with your business, will take on the role of passionate advocates, and will want to renew their engagement. If you cannot afford to do so, don't be discouraged. If you treat your advisors well, they will continue to help you without any formal compensation and title and will expect nothing in return but the satisfaction of watching your business grow.
Hiring Your First Employees
For daily support, hiring effective employees you trust is crucial. In a large company, there are usually plenty of other employees to carry extra weight for a while if one employee leaves.
But the scenario is quite different for small companies. A single wrong hire could cost you an entire year's profit and result in a mountain of work that needs to be redone. So let's take a look at some of the steps to follow when hiring. And to make it a little more interesting, let's hire our very first employee.
The great part of owning a small business is the right, indeed the responsibility, to make decisions. Those decisions can't be second-guessed by people with the authority to overturn them. So the reasons business owners hire people are not necessarily the same reasons a large corporation may have to justify the action.
Quite often, business owners ask us "When should I hire my first employee?" In short, whenever you want to--it's your company. You'll find, though, that you'll have some advance warning of a need to hire. In general, you should hire when one of two factors is present: Your workload has become unrealistic, or you are in need of some special skills beyond your own.
Some business owners are resistant to hire even when faced with the obvious need. And it seems to usually be fear-based--they're simply afraid to manage a work force of even one person, or they fear admitting deficiency in certain skills. Get over it. Your business should provide more than a living; it should provide a life. That means free time to enjoy your family, friends, interests and hobbies--and the likelihood of successful growth.
So you've decided to take the plunge and hire that first employee. Be methodical. You will probably never get it perfect, but the job applicants are not the only ones interviewing. You are, too--you're trying to sell the merits of working for you rather than someone else. These are the steps we suggest:
- Identify the specific needs to be filled. Determine the duties, responsibilities and authority.
- Write a colorful ad that will stand out from the others, and place it where your target candidates are likely to read it. Let your friends and business associates know you have an opening, too.
- Arrange to have someone other than you handle incoming calls and set interviews. Have that person screen out those who obviously don't meet your basic needs. Limit the number of applicants based on how critical the position.
- For the interview, dress appropriately to convey success and authority. Give your complete attention to each applicant--no interruptions. Ask every question that will have an impact on your decision, but do not ask anything inappropriate or illegal, i.e., questions about a person's age or marital status.
- Do not hire anyone until you've met with all applicants and have given yourself the opportunity to review them during some quiet time.
- With permission, call references and former employers. Do they confirm your own impressions?
- Make your decision, and don't second-guess yourself.
The interviews and the hiring decision were certainly important--but now comes the hard part: integrating this new employee into your formerly one-person company. His or her first day on the job will set the tone for the foreseeable future. Let's look at some helpful steps:
- Make absolutely certain you are there on time to greet your new employee on his or her first day. Spend some time in casual "friendly talk."
- Show the new person around the business, and make him or her feel at home. Let the new employee know you are there for his or her success.
- Get all new-hire paperwork completed.
- Begin the process of helping your new associate learn the business and the job.
Like much of life, hiring your first employee will go smoothly if you take the time to do it right. Just be well-prepared, and overcome your fears.
Asheesh Advani is CEO of Covestor, an online marketplace for investors. He founded CircleLending, which was acquired by Virgin.