May 21, 2021
6 min read
Opinions expressed by Contractor the contributors are theirs.
Entrepreneurs need to know how important it is to have the right advisors when starting a new business. An advisor is not the same as a co-founder or an investor. While both of these roles advise the business in their own best interests, a business advisor is distinguished by the way they approach advice. Even seasoned boards of directors with decades of experience in an area can benefit from having an expert advisor to assist them. Choosing the right advisor is usually a consideration of what the advisor offers to the business.
Advisors stumble upon a specter
When selecting an advisor, it is essential to remember that there is no binary between a good and a bad advisor. Instead, we should be looking at advisers on a spectrum. The excellent are as rare as the disastrous. Yet in the middle you’ll find people who know what they’re doing and are right most of the time. Businesses need to be careful not to fall into the trap of hiring a “paper advisor”. These people look great in their resumes and references, but they’re not exactly the type of person a company wants to advise them. Their experience may seem vast, but their ability may be less than stellar. Instead, companies should seek out advisors who help reinforce inefficiencies within their board. The council already has qualified people who are experts in their own right. To avoid redundancies, the company must find an advisor who fits into a niche where the company does not already have a co-founder or investor.
Once you’ve found the right advisor, getting them started in the business is not difficult. They already bring to the board a level of expertise that does not already exist. The only thing now is to make sure that the members of the management team listen to their relevant advice. To truly benefit from guidance, a business may be in a better position to form a full advisory board to address the shortcomings of its board of directors. Here, we take a look at how these advisors can help propel the business to success.
Related: 4 Reasons Why You Should Have an Advisory Board
Bringing the founders back to reality
Visionaries who form companies have significant problems staying grounded. Visionaries can be overly optimistic and fail to anticipate where their idea might crash. Advisory boards can help balance the passion of a visionary with the reality of the situation. In many cases, boards of directors are overwhelmed with the idea of a new vision and a new product and lose sight of how this translates into real marketing, production and customer needs. The result is a product that is not mature enough to find its way into a competitive market.
Advisors are there to help the board see these issues. A management team that lacks experience 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 target product advertising to the wrong demographic as tangible reasons for the disconnection. Knowledge is the most important asset of an advisor for the business.
Increased reach and networking
In several startups, the board is made up of people who are close to each other. They may have been former colleagues or classmates, and they operate within the same business and social circles. A board made up of a homogeneous representative sample of society considerably limits its outreach and networking capacities. Counselors can help reinforce this ineffectiveness by providing more extensive networking capacities with people outside their circle.
For a particular new business, an advisor should contact relevant businesses that he knows personally. In this way, an advisor’s experience can be secondary to the contacts he or she can call upon to help promote the product and get it known to the right people. For example, an IT company is more likely to hire an advisor with a background in IT management or security, which allows them to pitch their product directly to department managers the advisor may know. This direct approach can be much more effective than just serving targeted ads, especially in the business-to-business arena.
Expert advice without consultation fees
Expertise doesn’t come cheap. However, a business gets its money’s worth when it comes to consulting. Advisory boards can offer their expertise to the business without having to pay the high consulting fees that typically come with this level of knowledge. Counselors, as mentioned earlier, should be hired to complement the experience that the board already has. Since the advisers are already in the business, they benefit from a strong corporate relationship without paying for things like consulting offices.
In some cases, the company may even bypass payment for services and offer payment from the equity advisor instead. Many modern advisors see this as a much better solution, as it also helps them manage their portfolio to their advantage. What they offer in return is expert advice and contacts in different sectors that the existing board does not have access to. The business benefits in the long run, and since the advisor is now an investor, they also go out of their way to make sure their information is up to date and correct.
Related: The Importance of Convincing Advisors to Invest in Your Business
A nanny for the board of directors
Management teams usually run the show at private companies, but that all changes when a company decides to go public. A public offering usually means that the company must have an established board of directors. The management team is the most obvious inclusion, but the advisory board should also be considered. If the advisers had allowed the growth of the company to become large enough for an IPO, the most appropriate reward would be to offer them a place on the board of directors. The company would guarantee its services as members of the company even after its IPO and would not have to worry about competitors offering better options to their advisor.
Only proven advisers should be transferred to the newly formed board. Bad administrators, like bad management, can bring down a business. Advisors as board members have the advantage of proving their usefulness to the business and leadership early on. This confidence makes it easier to justify their addition to the board of directors once the company is launched.
Growth and expansion with advisors
Most entrepreneurs who have opened a business will tell you that at the beginning, many of their decisions were made through trial and error. In some cases, this is good because it allows the management team to learn valuable lessons. However, in the hyper-competitive world of startups, many companies don’t have the time or money to spend making mistakes early in their growth. Advisors are like insurance in that sense. They can help the business overcome early start-up problems and secure its means of earning quickly. Over time, these advisors show just how useful they can be to the business.