Small businesses benefit from outside resources.
Many small businesses lack entrepreneurial depth and business experience. These shortcomings contribute to the high failure rate of small firms.
To reduce the failure rate, you can create an outside resource centre or advisory board to provide straight talk at generally very low cost. The input received by small businesses from going outside for candid and timely advice has saved more than a few fledgling firms from crashing on the rocks.
This concept was quickly adopted by emerging small technical companies in Silicon Valley during the past decade. An advisory board is a powerful, strategic thinking concept that, if not already in place, should be considered for immediate implementation.
What is an advisory board?
An advisory board, unlike a board of directors, has neither legal obligation nor the authority to give direction with respect to the firm. They bear no fiduciary duty. Therefore, they are able to focus on giving seasoned business advice in a way that a more formal board of directors could not.
Between three and six members is sufficient for the initial membership of a small-business advisory board. As the business grows, the advisory board can also increase.
The board should include people who are well respected within the community and within the industry. Recently retired executives from larger firms would make a “good feeding ground” to identify sound, potential board members.
These people bring with them credibility, connections within the community and ecosystem intelligence. With time, they may even become potential investors. It has been my experience that a process of “bonding” takes place between the advisory board members and the firm. They develop a passion for your firm and take some form of unofficial ownership for the firm’s well-being.
Because of the potential for conflict of interest, I do not recommend that the firm’s lawyers, accountants, bank managers or customers be members of the board. The firm will have to pay for their advice as required in any event. Focus on other entrepreneurs and vendors (it gives them a vested interest in the firm’s well-being.) Select people who have done it from scratch, those who have “been there, done that.” Select people who can look at the firm’s issues without ego or emotion getting in the way.
While an advisory board can “dress up” a small firm, do not come to rely upon it or create your board only for this reason. To do so would be a mistake. The board’s real power is straight talk from the shoulder . . . honest advice.
The board will coach, evaluate, play devil’s advocate and make business introductions. They will give the absolute straight, unvarnished truth. This advice is extremely valuable guidance in operating the firm.
Like Weight Watchers and other activities that involve peer pressure, you’ll find that the formal structure of an advisory board will give you a sense of accountability and will impose a discipline in the management of the firm. You want the board to rigorously critique the introduction of new innovations. It is brainpower that money can’t buy.
How often should you meet?
Quarterly meetings work well in most cases. This affords sufficient time to reflect upon emerging issues as well as on the advice received during earlier meetings. You don’t want to burn out the goodwill of the board members. Take time to reflect on the issues and consolidate them for fixed quarterly meetings. Then keep the meetings fun.
If you have time, read how Martha Stewart conducted her meetings. It is fascinating. Martha’s boards were always well treated with fresh flowers, fabulous cooking and presentations.
How much should you pay?
Advisory boards are one of the best bargains you will receive for the money.
I have been successful in attracting influential advisory boards for the price of an upscale quarterly luncheon. At the luncheon, I would provide briefings of the issues on which I needed some direction. During the short discussion period afterward, I received very valuable guidance.
On occasion, it may be appropriate to offer an honorarium of $200 to $500 per person for the meeting.
At some point in the firm’s development, share options may be issued to the board members. This would enable board members to acquire shares at some future date at a price much higher than they currently sell for over-the-counter. This contributes to the vested interest in your firm’s well-being and motivates the board members to assist in growing the value of the share options.
As a business owner, you want growth, more money and no surprises. The trade-off in using an advisory board to achieve these common goals is that you must be prepared to share your innermost secrets and fears with your board.
Anita Brattina, president of U.S.-based firm Direct Response Marketing, grew her firm’s revenues to several million dollars a year by overcoming her reluctance to divulge too much to her board of advisors when seeking their advice. When she became candid with her board, there was exponential growth as a direct result of the solid business advice she received once all the facts were made available to the board.
Brattina refers to shedding her fears and weaknesses to her board as “what one of my friends calls ‘unbuttoning your kimono.’ ” It is the type of open, honest candour that is required. If you’re unwilling or unable to do that, this strategic thinking concept is not for you.
Your new mental model must accept that it is smart to draw on people who bring external insight into the operation of your business.
