Knowledgeable, experienced, and well-connected mentors/advisors are crucial to a startup’s success. Overwhelmingly, startups that don’t explicitly seek out the advice and assistance of advisors and thought leaders in their industries fail to raise the funding necessary to scale. Whilst entrepreneurs know that mentors/advisors are vital to the growth of their companies, much confusion persists regarding what an advisory board is, which roles advisors can be expected to play, and how startups should secure mentors in the first place. In this article I’ll provide answers to some of the most common questions concerning the role and benefits of advisors/mentors.
1. What Is an “Advisory Board”?
An advisory board:
- Is a formal collection of talented individuals, usually 3-6 people, who provide your startup with professional advice and guidance intended to help you grow your venture into a thriving company;
- Consists of experienced persons (usually entrepreneurs) who draw on their individual expertise and network connections to advise you on decision-making processes and assist with crises/potential problems;
- Cautions you, when appropriate, against making costly business (and/or personal) decisions; and
- Is not equivalent to a board of directors: whilst a board of directors 1) consists of shareholder representatives 2) has official authority to exercise specific legal and business powers 3) meets at schedule times and 4) is mandatory for public companies, an advisory board 1) lacks formal authority 2) meets on a more ad-hoc basis and 3) is optional (sources: 1, 2, 3).
2.Why Should You Assemble an Advisory Board?
Contemporary startups should assemble advisory boards because:
- Advisory boards statistically increase startups’ chances of success: “Startups that have helpful mentors, track metrics effectively, and learn from startup thought leaders raise 7x more money and have 3.5x better user growth” than startups that do not explicitly seek out the assistance of advisors (source).
- Advisory boards boost startup credibility: first-time entrepreneurs in particular often lack credibility and so startup founders can increase their legitimacy and reputation by building an advisory team that comprises veteran entrepreneurs who bring with them lots of social proof and authenticity (source).
- Advisory boards can help “round out” a startup: As Jess Toress explains, “[t]he best entrepreneurs use advisory boards with subject matter experts to fill gaps of knowledge”. Advisors/Mentors can effectively provide the expertise, insight, and experience that your startup team may lack. For instance, a lawyer could be brought on to help you company with legal matters or a marketing specialist to assist with PR (source).
- Advisory boards facilitate startup growth: Startups must grow and scale, otherwise they ultimately die. Rapidly expanding startups rarely achieve their quick growth by spending lots of money on traditional marketing. Rather, companies like AirBnB, Facebook, Google, and Spotify grow by piggybacking on, or working with, bigger platforms. For instance, Spotify’s initial growth was powered by its relationship with Facebook: Spotify not only took advantage of Facebook’s Open Graph to boost the number of people using the music app but Sean Parker, the co-founder of Facebook, served as an advisor to Spotify (source).
Sean Parker, co-founder of Facebook, was an advisor to Spotify from 2009-2017:
3. What Is the Difference Between “Mentors” and “Advisors”?
Although mentors and advisors are commonly mentioned in the same breath, especially because the two groups tend to work closely with startup founders (and other entrepreneurs), we can, in fact, differentiate between the two:
- Mentors: typically, close friends who help you grow as an individual; their focus is altruistic (i.e., they genuinely want to see you do well and they care about your progress and wellbeing) rather than financial (i.e., wanting a piece of your company); usually older in age, using their “wisdom” to guide you in both personal and general business matters; often involved in your life for many years, if not decades; not on your payroll.
- Advisors: professionals who focus overwhelmingly on helping your company (rather than supporting your developments as a person); experts who provide insight and assistance in specific business areas; corporate individuals who help you strengthen your product, team, and culture and gain more market share; formally employed by your startup, i.e., they’re on your payroll (sources: 1, 2).
4. What Steps Should You Take Before Trying to Recruit Advisors or Mentors?
Before reaching out to one or more people whom you believe might make excellent advisors or mentors, here are some important steps you should take:
- Determine the specific skills, kinds of expertise, and experiences that you need in a mentor and that your startup needs in an advisor. Be careful not to assemble members for an advisory board (or to recruit mentors) who are too similar either to you and your startup team (i.e., possessing the same strengths and weakness of you and your co-founders) or to each other (i.e., functioning as a deeply homogeneous group that lacks diversity in abilities, knowledge, and connections).
- Plan in advance what your advisory board’s responsibilities will be: Adam Toren reminds us to ask: “[W]hat powers [will it] have[?] [Will the members] vote on the senior management team? [Will] they have a say in financial or business decisions[?] You need to decide what the board’s structure, power and terms of service are before you go out and find its members”.
- Figure out how you will compensate advisory board members: because advisors (but not mentors) interpret and approach their involvement with your company from a professional/financial (rather than personal) standpoint, you must decide how you will compensate your advisors for their time, guidance, and practical help. Although it’s possible for you to pay your advisory board in cash, this practice is usually discouraged. Rather, in most situations, you will reward your advisors by providing them with some equity in your startup. The standard rate is anywhere from 0.1% to 2.0%.
- Understand the importance of, and commit to securing, an advisor agreement: Jessica Alter insists: “[T]he biggest mistake you can make in an advisor-advisee relationship [is to fail to secure a formal advisor agreement]. Once in a blue moon, everything might work out well but more often than not, your relationship will fizzle or be inconsistent at best if you don’t have an advisor agreement in place”. An advisor agreement is a legal document that briefly outlines the advisor’s commitment to your company and stipulates the amount of equity that he/she will receive in exchange for his/her services. The Founder Institute’s “FAST” template is a popular agreement form that’s worth considering.
- Have something concrete to offer: recruiting members for your advisory board requires that you present potential candidates with more than a bright idea or a few hopes and dreams. Instead, not only must you “do your homework” by cultivating an understanding of why exactly you want these people on your board and how exactly you think they can help your company but you also must be able to present data about your startup operations. What is your company currently doing? Where is it struggling? What steps are you taking to improve things? Professionals will want this kind of information so make sure you gather it and make it available.
- Be a professional: don’t forget that recruiting a mentor/advisor essentially involves trying to pitch and convince somebody else to invest his/her hard-earned time and energy into you and your company. Persuading somebody to mentor you requires that you act as a professional so as to demonstrate that you’re worth his/her investment. Show your potential advisor that you’re passionate, dedicated, hard working, disciplined, and eager to learn from others. Commit yourself to this mentality before taking any meetings with potential mentors/advisors (sources: 1, 2, 3, 4, 5, 6).
5. How Can You Recruit Advisors/Mentors?
Here are some helpful tips for ways to effectively locate potential mentors/advisors:
- Start with whom you know: it may sound obvious or uninspiring but the truth is that one of the best ways to locate and interact with experienced and skilled people who can advise you and your company is to exploit your current professional (and personal) networks. Using your online and offline connections, ask people for introductions, seek out recommendations, and build up your social capital. Connect with folks on LinkedIn, Facebook, and Twitter; take an active interest in what your potential mentors/advisors are doing these days and use that knowledge as leverage to contact them (even “cold” emails can sometimes work if done properly).
- Utilize online resources: there are plenty of websites and social networking communities dedicated to helping entrepreneurs find co-founders and mentors/advisers. Services worth checking out include Founder2Be, FounderDating, com, and Startup Weekend.
- Get out into the “real world”: attend business events like conferences and corporate meetups, visit local universities, business associations, chambers of commerce, and not-for-profit organizations that explicitly help to match first-time entrepreneurs with mentors.