Do I Need a Board of Advisors for My Business?

Recently, more and more entrepreneurs and startups have been reaching out to discuss the possibility of establishing a “Board of Advisors (BOA)” for their companies. The questions are pertinent and primarily relate to the value of such a board from the perspectives of company maturity, development strategy, and available resources. Additionally, they touch on the structure, composition, working format, and costs associated with implementing such a mechanism.

Having over two years of experience practicing as a Board Advisor in our ecosystem, and given the importance of this topic for an increasing number of my collaborators and acquaintances, I decided to create a summary of what I consider to be the relevant and determining aspects regarding the implementation of a BOA in a business.

My experience in the entrepreneurial and startup ecosystem leads me to believe that it is currently very challenging for an entrepreneur or a startup team to develop a successful business on their own. In this context, an effective, well-structured Advisory Board can provide non-mandatory yet informed advice and serve as an exceptional ally in seeking superior corporate governance. There is growing importance in the global business world on these Advisory Boards, how they should be structured and organized, and the value they bring to companies.

What is a Board of Advisors?

A Board of Advisors (BOA) is a body that provides advisory services without mandatory authority for a company’s management. The informal nature of this board offers greater flexibility in structure and management compared to a board of directors. Unlike a board of directors (CA), an advisory board (BOA) does not have the authority to vote on corporate matters and does not carry legal fiduciary responsibilities. Many startups or small companies choose to have advisory boards to benefit from the knowledge and experience of others without the cost or formality of a board of directors.

A BOA does not replace the statutory board of directors and does not have authority over company governance. The selection and oversight of management, monitoring company performance, approving strategy, and assessing risks are all subjects reserved for the board of directors. An advisory board can support the board of directors by providing information related to the business field, strategy, and networking but must be clear from the outset where the final decision-making authority and collective responsibility lie.

How Can a Board of Advisors Help a Company or Entrepreneur?

Benefits of a BOA for the Company:

  1. Provides Objective and Independent Perspective: Offers an unbiased view of the organization, helping to identify areas for improvement and potential opportunities.
  2. Complements Management Team’s Skills and Expertise: Adds skills and knowledge that may be missing from the current management team, enhancing the overall capability of the business.
  3. Encourages Governance Framework Development: Helps establish a governance structure that supports continuous growth while maintaining the founders’ vision and entrepreneurial spirit.
  4. Monitors Business Performance: Assesses company performance and challenges the leadership to consider various options for improving the business.
  5. Analyzes Market Conditions and Trends: Provides insights into market conditions, trends, and future outlooks to better inform strategic decisions.
  6. Helps Anticipate Market Changes and Trends: Assists in forecasting market shifts and trends, allowing the company to adapt proactively.
  7. Offers Recommendations for Management Efficiency: Provides advice on how to streamline and enhance management processes within the company.
  8. Helps Avoid Costly Management Mistakes: Offers guidance that can prevent expensive errors in management decisions.
  9. Recommends Product or Service Changes and Diversifications: Suggests modifications or new directions for products or services to better meet market demands.
  10. Provides Recommendations on Technological Innovation: Advises on adopting new technologies and innovations to stay competitive.
  11. Ensures Good Governance and Increased Discipline: Supports effective governance and instills a higher level of discipline within the organization.
  12. Assists with Strategic Planning: Contributes to the development of the company’s strategic plan, ensuring alignment with long-term goals.
  13. Enhances Company Credibility: Boosts the company’s credibility with investors, partners, and clients through demonstrated strategic oversight.
  14. Provides Strategic Direction and Business Opportunities: Offers guidance on strategic directions and identifies new business opportunities.
  15. Serves as a Hub for Strategic Partnerships and Networking: Acts as a center for developing strategic partnerships and expanding the company’s network.
  16. Can Lead in Crisis Situations: Can take charge in emergencies or major transitions, such as the death or resignation of the CEO, to ensure continuity.
  17. Facilitates Recruitment of Top Talent: Demonstrates commitment to company growth, attracting high-quality employees.
  18. Creates a Potential Source of Board Members: Provides a pool of potential candidates for the board of directors as the company expands.
  19. Offers Talent and Expertise Beyond Normal Affordability: Provides access to high-level talent and expertise that the company might not be able to afford otherwise.
  20. More Cost-Effective for Startups: Serves as a less expensive alternative to a formal board of directors for startups and early-stage companies.

When Does a Company Need a Board of Advisors?

A Board of Advisors (BOA) is a valuable resource in various situations. It is especially recommended in the following scenarios:

  1. Rapidly Growing Companies: For companies experiencing rapid growth that need additional resources such as talent, expertise, experience, networking, and visibility.
  2. Startups Seeking Funding: For startups aiming to raise funds and attract investment. A BOA provides valuable expertise for managing the startup, as well as visibility, traction, and credibility with investors.
  3. Companies Developing Strategic Partnerships: For companies looking to establish strategic partnerships and requiring know-how and traction in this area.
  4. Companies Facing Major Decisions or Directional Changes: For companies dealing with significant decisions or changes in direction, including entering new markets, launching new products, or international expansion.
  5. Companies with Formal Management Structures: For companies with established formal structures involving professional managers, where a BOA can complement existing governance.
  6. Companies with Ambitious Strategic Plans: For companies with ambitious plans such as mergers, acquisitions, public listings, or franchising.
  7. Companies with Complex Shareholder Structures: For companies dealing with numerous and diverseshareholders, where a BOA can act as a facilitator and mediator between various interest groups.
  8. Companies Pursuing Highly Ambitious Goals: For companies aiming for rapid expansion or other significant strategic objectives.

Steps for Implementing a Board of Advisors (BOA) in a Company

  1. Assess the Strengths and Weaknesses of Your Management Team:
    • Identify critical areas of expertise and knowledge that your company needs (e.g., business development, finance, legal, marketing & PR, e-commerce, research, development, IT/digitalization, funding strategy). If you plan to go public in the coming years, seek advisors with experience in capital markets.
  2. Establish Clear Objectives for the Board of Advisors:
    • Define specific goals and expectations for the board. The members should understand what they are expected to achieve and how their advice will be utilized. For example:
      • What are the main areas where advice and guidance are needed?
      • What does the management team or board expect from the BOA?
      • Who are potential candidates for board membership?
      • What will be the powers and limitations of the board?
      • What will be the initial costs associated with the BOA?
  3. Determine the Size and Structure of the BOA:
    • In mature ecosystems, advisory boards typically range from two to seven members. The appropriate size depends on factors such as company size, complexity, development stage, and required skills. For startups, it’s often advisable to start with one or two members and expand as the company grows. Include members with experience in business development, marketing & PR, technology, and relevant industry expertise (e.g., a recognized expert if you have a health tech company).
  4. Recruit Candidates:
    • Avoid relying solely on friends or family unless they are recognized authorities in a needed area. An external advisor can offer a more objective assessment. Key steps include:
      • Create a candidate profile based on the expertise required.
      • Search for and approach proven experts online and offline.
      • Seek recommendations from industry experts.
      • Assess candidates’ motivation. The best advisors are often driven by the intellectual challenge of building successful companies.
      • Ensure diversity within the board to bring in fresh perspectives from various disciplines.
  5. Communicate Your Objectives Clearly:
    • Spend time discussing your goals and expectations with potential members. Clearly convey the company’s objectives and the role you envision for the board.
  6. Sign the Mandate:
    • Draft and sign an agreement with the BOA members detailing objectives, responsibilities, limits, and available resources.
  7. Set Meeting Frequency:
    • The advisory board typically meets regularly. Plan meetings in advance with an agenda, calendar invite, reminders, and follow-ups. A common arrangement is a minimum of 12 months with 1-2 meetings per month, with additional meetings for urgent or special situations.

Compensate BOA Members:

  1. For startups and small companies, compensation is often on a per-meeting basis, ranging from €150 to €500 per member, depending on the complexity, maturity of the business, and the advisor’s experience. In mature markets, advisory board fees can range from $5,000 to $25,000 per year per member, with additional payments for meetings and coverage of expenses like travel, meals, and accommodation.
  2. Consider offering stock options to attract high-quality advisors and align their interests with the company’s growth.

Remuneration for Board of Advisors Members

My focus as a Board Advisor is primarily on startups and small companies (“small growing companies”), rather than the corporate sector. In this context, based on my experiences and knowledge within our ecosystem, the typical practice is to compensate members per meeting with fees ranging from 150 to 500 EUR per member per meeting, depending on the complexity, maturity of the business, as well as the objectives set and the level of experience and reputation of each member.

In mature markets, typical compensation for advisory boards ranges from 5,000 to 25,000 USD per member per year. Some companies pay board members per meeting, with fees ranging from 500 to 3,000 USD per meeting. Additionally, companies often cover transportation, meals, and accommodation costs for BOA members when they attend meetings.

In many cases, to develop a successful BOA mechanism and to maximize the value derived from advisors with notable expertise and credibility in the local/national ecosystem (who offer significant traction for the company’s growth prospects), I recommend considering a stock plan (equity ownership in the advising company) for BOA members. This approach will enhance commitment from the BOA members while allowing the company to attract valuable assets at reasonable costs.

Conclusions:

Board of Advisors can be highly effective tools for any organization, particularly for small companies and startups with limited resources. For a typical startup, a BOA provides a mechanism to enhance the team’s capabilities and signals strong potential to investors. It helps balance the natural tendency of companies to focus inward rather than outward.

Based on my experience with companies such as Blugento, Telios Care, Deveo Media, and others, I strongly believe in the value of this tool. I recommend attracting experienced, valuable individuals with whom you resonate and can build a sustainable partnership. Avoid “consultants” or “speakers” who may not offer the intellectual challenge and commitment needed.

This article is the result of significant research on this topic, but it largely reflects my own ideas derived from my direct experiences in this role with companies such as Blugento, Telios Care, Deveo Media, Cluj Hub, Johnlight, Alegria, and Uny. I personally believe strongly in this tool and consider it a preferred way of working, which also gives me the opportunity to invest in some of the companies for which I provide advisory.

My recommendation is to try to attract experienced, valuable individuals with whom you resonate and with whom you can build sustainably. Real people, those who inspire, who serve as role models, and who can bring synergies and positive, multiplying effects to the entire organization. Individuals with achievements relevant to what you aim to achieve. Avoid falling into the trap of hiring “consultants” or “speakers” as a profession… The most effective members of the Board of Advisors are motivated by the challenge and intellectual stimulation of building successful companies.

If you don’t already have a BOA, I encourage you to try it. Invite a few respected experts to discuss your strategy and plans, and evaluate the outcomes of these discussions. This will help you make an informed decision about establishing a BOA for your company.

Therefore, if you don’t already have a Board of Advisors, I recommend trying and testing the idea. Invite a few close collaborators whom you respect—experts in certain fields—to your office for a few hours. Let them know that you would like their opinions and suggestions on your strategy and plans. Share with them the major issues you are facing and assess the dynamics and outcomes of the meeting. Subsequently, decide whether to establish a Board of Advisors in your own company.

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