Do I need an advisor for my startup?
Advisors can play a very positive role in the development of a company when deployed effectively. Over the last few years, however, we have seen a rise of the “Advisor Class” where it appears everyone is either advising, or believes they are in need of advice. During this same period, more self-service resources have become available, from movements like the Lean Startup, to thoughtful Q&A discussion boards, such as Quora, which boasts nearly 75,000 people following questions on entrepreneurship.
So, does my startup need an advisor? An advisory board? How do you manage that relationship to get the most value from it while expending the least amount of effort? You know your effort needs to be on your company, your product, and your team. Anything else should be given rigorous consideration before adding it to your plate. So how do I take on advisors without being distracted?
If you read no further, remember that your investors value ‘team’ more than you know. Often, in fact, than your idea itself. They are placing a bet on you, your team, and your collective ability to make decisions and execute. If you can enhance your team with a small number of focused advisors to fill gaps, that’s a great win for the team. Just remember, never once has an investor said “I don’t believe in the team, but they have a great advisory board.” – team first, team always.
If you choose to read on, the following post provides hints for you to weigh when considering advisors, and most importantly, how to maximize advisor relationships. It’s a framework, but not an answer. And remember, only you can truly decide if you need advisors, because after all….YOU are the CEO!
You’re the CEO
Let me reiterate that you are the CEO, and therefore ultimately responsible for how the advisory process is built and unfolds for your company. Your advisor should help you see all sides of an issue, think deeply about the decision making process and assist in identifying gaps in the information available to make any decisions. While it is certainly okay to ask your advisor (and for them to respond) to the age-old “What would you do?”, that cannot be how decisions are made, or the process on which the relationship is built. The advisor cannot make the decision for you, nor should they be upset if you choose something other than what they would suggest – this is your first red flag that your advisor is more interested in deciding, than advising.
Engage your advisor when you are comfortable sharing everything you know. There will be topics that you do not want to share, which is fine and expected. But when you seek to engage them, you must be willing to put all of the information on the table. If you are not willing to do so, it’s probably not a good topic to discuss with your advisor, since any resulting discussions will be based on incomplete information, and frankly, a waste of your startup’s most precious resource: time.
Finally, for a fruitful relationship, you must be willing to de-brief with your advisor once you make a decision. I would actually suggest doing that before you put the decision into action, as sometimes just articulating the rationale will help solidify any loose ends in how you ultimately communicate and implement the decision. This is critical as you express your decisions to your employees or Board of Directors.
Explaining your position also helps your advisor understand your process, which will enable them to take a more thoughtful approach in your discussions as the relationship matures. These transparent feedback loops will train you to be a better leader and communicator, and will help your advisors and employees set expectations and better understand how you make decisions.
A warning sign to consider with any advisor is a “know it all” mentality, or the inability to say “I don’t know”. More specifically, it’s attempting to give advice on every single question or topic. The obvious reality is that no one has perfect or complete knowledge on all of the issues a startup will face; it is simply not possible or practical. Far too often, however, advisors attempt to answer questions far outside their scope of intellectual value, and end up in a time-wasting situation.
So, what is the preferred behavior?
You want advisors who can say “I don’t know, but I can find you someone who does”. That sentence is specific – it does not mean that they have to know the person already (although that’s never a bad thing). It does mean that they will work to find someone who can help. The “find someone” is the operative phrase, because it is an indication that they are working on your behalf. It is an emblem of their effort and commitment. This is the type of behavior that should be encouraged and compensated (more on that later).
You, as CEO, can always help steer the “know it all” in the right direction through preparation. Spend a little time to look at their connections on AngelList and LinkedIn to scout out who they may already know that might help solve your problem. Taking even the smallest bit of initiative is motivating and encouraging to an advisor; a clear signal you’re putting the work into the relationship and also making it easy for them to add value.
Earn an introduction
Speaking of introductions, you want to earn them, not just “get” them. You want your advisor to be someone who makes meaningful, thoughtful introductions. While everyone agrees that a “warm” introduction is much better than cold-emailing, it’s not that much better when the introduction comes from someone who simply introduces anyone to everyone. Social signal is a real phenomenon, and there are two types of connectors–“targeted marketing” and “bulk mail”. People know who is who, and value introductions accordingly. Don’t be offended if your advisor says “I’m not sure you are ready to talk to [important VC] yet.” This is a sign that they value their social equity, and when they do make that introduction, it will stick.
Good advisors have a filter, and value a reputation as a connector. You want them to make you earn the introduction. You want to be the company that this person is proud to introduce, and values the introduction. So go earn it!
Too Many Voices
There is little difference between a lack of information and an overabundance; both equally paralyze the decision-making process. The same is true of advice. At a minimum, you will have a team, investors, board members, customers and coaches, all of whom will want to provide you input on nearly every decision you will make. (For the sake of this conversation, when I say coaches, I mean trusted friends who you can bounce ideas off of and brainstorm. They are different than advisors in that they are not compensated by equity, and their responsibility is to you, not the company.)
You will quickly find yourself swimming in a sea of data, but very little information. The more voices you have, the more stories you hear, and the less clear the decision making process will be. Stories are not inherently bad, but they are often just a rehash of personal experiences of the advisor that are a complex confluence of events. It’s easy to incorrectly synthesize the story into false assumptions. Whenever possible, try to step through the personal experiences into the deeper meaning, into the abstractable concepts, and do not get caught up in romantic tales of the past.
Your very best advisors will be able to help you process all of these incoming pieces of information, not just add to your collection of stories. If they are not helping you develop a process and framework for dealing with these varied inputs, they are a storyteller, not an advisor.
That is not to say having many advisors, or even an advisory board, is something you should avoid. There are situations where an advisory board makes sense; sometimes they are scientific, regulatory, or even policy related. Often, an advisory board is a group of experts–for example, surgeons or pharmacists–that are used to evaluate certain clinical decisions for the organization. They can also operate as a de-facto “seal of approval” where none may exist in the industry. However, before mashing together a bunch of individuals, ask yourself what the board does, what its goals are, and how it is measured. If you can’t give your advisors a charter and measure success, you are simply giving away equity.
Compensation for Value
A common question around advising is compensation. Advisors, who have a fiduciary responsibility to the company, should be compensated in equity. This still leaves vexing topics like “How much are advisors worth?” and everyone’s favorite, “What percentage is fair?” or “How should it vest?”
Before you start working through those issues, focus on a value-added activity with your advisor. You’ve already seen every blog, read every book, and heard every panel at every conference talk about how important your team is, and how building it should be methodical and deliberate. So why are you rushing to add someone to the team and give away part of your company? Don’t you value it? You need to make your advisors earn it, and they need to prove to you that they are worthy, compatible, and passionate team members.
Set a goal–as small or as big as you both are comfortable with–and figure out if and how you can work together. Nothing separates the talkers from the doers like action. It could be as simple as a few regularly scheduled phone calls that ensure you can communicate. It also makes sure that three weeks later, you still feel the same way you did after that exciting talk at the conference or coffee shop. Let the real-word rub off some of the shine, and see what still stands.Once you have determined that you can, and should, work together, set a list of deliverables or goals for your next year together. Of course, you will have clarity on the next three months, and the following nine months will be in various states of blur, but working backwards from tangible goals will allow you to come up with an equitable agreement, based on a mixture of achievement and availability.
And be sure to find a comparison point. Did you just give an advisor, who spends two hours a month on your company, the same amount of equity as your 10th engineer, who works full time on your product? Use your comparison point to provide stability to the process.
Finally, do not give away even .0000000001% of your company just for an introduction or a contact list. If you have not done it already, you can use AngelList and LinkedIn to optimize your introductions. Yes, a warm introduction is always better, but with AngelList’s new connections features, you are likely to find a warm introduction that you already have that does not cost you equity. You don’t need to lose bits and pieces of your company for access to your own peer group.
The reality is, few advisors are worth what they get from you and only in some cases do they add real, long term value. If you really value them and they value you, you should be able to find an equitable agreement that’s focused on getting actual work done and the success of your company.
One hint on non-dilutive, non-cash compensation: if you think the advisor is adding value to your company, and they care about the process of advising, putting a recommendation for her on AngelList or LinkedIn will be one of the best things you can do. Remember our discussion on social signal? It goes both ways, and is a powerful currency. The best advisors are interested in “paying it forward” (or in many cases, back) to their ecosystem by encouraging innovation and entrepreneurship, and supporting something they believe in. A public thank you will be appreciated in spades.
An Advisor ThoughtList
Here are some things to consider when seeking out advisors. It’s not a test you can pass or fail, but things to keep in mind. In all cases, “yes” is the answer we are looking for:
- Can you talk to another startup who this advisor has worked with, and see how they add value?
- Are they talking about value before compensation?
- Are they connected, and do they have a leveragable network? What is their reputation? Good, bad, none?
- Can you communicate with them? Have you had a few “coffee meetings” where it was clear that you can communicate complex ideas, and even disagree respectfully?
- Do they fill a gap in your company that you are not planning to address with a new hire in the next twelve months?
- Can they articulate why they are excited or care about your product or solution? While it may not be financially possible in all cases, would they actually invest in your company?
- Will you be proud to have this person represent your brand?
- Can you see them face-to-face at least once a quarter?
- Are you really looking for their endorsement? Their face on your website? Do you value who they are, or what they will bring?
- Are you ready to engage with advisors? If you have a great team and great investors, be sure to ask yourself – do you need the person, and do you have the time to maximize the relationship?