May
21, 2021
6 min read
Opinions expressed by Entrepreneur contributors are their own.
Entrepreneurs should know how important it is to have the right advisors when undertaking a new business venture. An advisor is not the same as a co-founder or an investor. While both of these roles advise the company in their own interest, a business advisor is set apart in how they approach giving advice. Even experienced boards with decades of experience within a field can benefit from having an expert advisor present to help them. Choosing the right advisor is usually a consideration of what the advisor offers to the firm.
Advisors fall on a spectrum
When selecting an advisor, it is vital to remember that there’s no binary between a good and bad advisor. Instead, we should consider advisors on a spectrum. The excellent ones are just as rare as the disastrous ones. Yet, in the middle, you’ll find individuals who know what they’re doing and are right a decent amount of the time. Firms must be careful not to fall into the trap of hiring a “paper advisor.” These individuals look great in their resumes and references, but they aren’t truly the type of person a company wants advising them. Their experience may look extensive, but their ability might be less than stellar. Instead, firms should be looking for advisors that help to shore up inefficiencies within their board. The board already has skilled individuals who are experts in their own right. To avoid redundancy, the company should find an advisor that fits into a slot where the company doesn’t already have a co-founder or investor.
Once you locate the right advisor, having them jump-start the business isn’t difficult. They already bring a level of expertise to the management board that doesn’t already exist. The only thing now is to ensure that the management team members listen to their pertinent advice. To truly benefit from advice, a firm may be better off forming an entire advisory board to address its management board’s shortcomings. Here, we look at how these advisors can help to catapult the business into success.
Related: 4 Reasons You Should Have a Board of Advisors
Bringing founders back to reality
Visionaries that form companies have significant problems staying grounded. Visionaries can be overly optimistic and fail to anticipate the places where their idea may crash. Advisory boards can help to balance a visionary’s passion with the reality of the situation. In many cases, management boards get overwhelmed with the idea of a new vision and product and lose sight of how that translates into real-world marketing, production and customer needs. The result is a product that is not mature enough to make its way in a competitive market.
Advisors are there to help the management board see these problems. A management team that doesn’t have a background in marketing and advertising, for example, would be hard-pressed to say why their expected product sales are so different from their actual numbers. An advisor could easily highlight a lack of marketing or aiming the product’s advertising at the wrong demographic as tangible reasons for the disconnect. Knowledge is an advisor’s most important asset to the business.
Increased reach and networking
In several startups, the board is made up of people who are close to one another. They may have been former co-workers or schoolmates, and they move within the same business and social circles. A board made up of a homogeneous cross-section of society limits its outreach and networking capabilities significantly. Advisors can help to shore up this inefficiency by offering broader networking capabilities with those outside their circle.
For a new business specifically, an advisor should reach out to relevant companies they know personally. In this way, an advisor’s experience may be secondary to the contacts that he or she can call upon to help promote the product and make it known to the right people. For example, an IT firm is more likely to hire an advisor with a history in IT management or security, allowing them to pitch their product directly to heads of department the advisor may know. This direct approach can be far more effective than merely putting out targeted ads, especially in the business-to-business arena.
Expert advice without the consultancy fee
Expertise isn’t cheap. However, a company gets what it pays for when it comes to consultancy. Advisory boards can offer their expertise to the business without having to pay the expensive consultancy fee that usually comes with this level of knowledge. The advisors, as mentioned before, should be hired to complement the experience the board already has. Since the advisors are already with the company, they benefit from a robust company relationship without paying for things like consultancy offices.
In some cases, the company can even bypass the payment for the services and instead offer the advisor payment in equity. Many modern advisors see this as a far better solution since it also helps them manage their portfolio to their advantage. What they offer in return is expert advice and contacts in different industries that the existing board doesn’t have access to. The business benefits in the long run, and since the advisor is now an investor, they also put their all into ensuring their information is current and correct.
Related: The Importance of Getting Advisors to Invest in Your Business
A feeder for the board of directors
Management teams usually run the show at private companies, but this all changes when a business decides to go public. A public offering usually means that the company needs to have an established board of directors. The management team is the most obvious inclusion, but the board of advisors should also get consideration. If advisors had enabled the company’s growth to become large enough for an IPO, the most fitting reward would be to offer them a spot on the board of directors. The company would secure their services as members of the company even after it goes public and wouldn’t need to worry about competitors offering better options for their advisor.
Only the advisors who have proven their worth should carry over onto the newly formed board of directors. Bad directors, just like bad management, could bring down a company. Advisors as board members have the benefit of proving their usefulness to the company and leadership early on. This trust makes it easier to justify adding them to the board once the company has launched.
Growth and expansion with advisors
Most entrepreneurs who have opened a business before will tell you that, in the beginning, a lot of their decisions were made through trial and error. In some cases, this is fine since it allows the management team to learn valuable lessons. However, in the hyper-competitive world of startups, many businesses have neither the time nor the money to devote to mistakes early in their growth. Advisors are like insurance in this sense. They can help the company navigate the early startup issues and secure their means of earning early on. With time, these advisors show how useful they can be to the company.
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