By: Samantha Pederslie
Many young companies find success difficult to achieve without some kind of guidance from startup advisors and mentors. Their knowledge, experience, and connections often mean the difference between a startup’s failure and funding.
Of course, most entrepreneurs are aware of the benefits that startup advisors can bring to their companies. However, many people are still confused about what advisory boards are, what roles advisors take on, and how to procure mentors in the first place. Read on, and we’ll answer those questions.
What Is an Advisory Board?
This term often comes hand-in-hand when talking about startup advisors. Here’s a general idea of what advisory boards are:
- An advisory board is a formal group of people that give you advice to help your startup to grow into a large, thriving company. The board usually consists of 3-6 people.
- The members are highly experienced entrepreneurs, meaning they have the proper background and network to help you make decisions and handle problems as they arise.
- They provide cautions when necessary; their goal is to steer your business clear of unwise and expensive business decisions.
- The advisory board is not the same as a board of directors! A board of directors is made up of shareholders. It holds the authority to wield certain legal powers, and they have scheduled meetings. Additionally, all public companies are required to have a board of directors. In contrast, an advisory board lacks authority, holds ad-hoc meetings, and is optional.
Why Assemble an Advisory Board?
Advisory boards offer a number of benefits to startups. Here are a few:
- Advisory boards have been shown to increase a startup’s general likelihood of success. This success is measured in terms of fundraising and user growth, and it occurs when the company internalizes the knowledge of advisors and mentors.
- Advisory boards bolster a startup’s credibility in the fundraising sphere. Investments are more likely to occur when the entrepreneur has a proven track record of success. For first-time entrepreneurs, advisory boards offer a way to leverage the authenticity and reputation of veteran entrepreneurs.
- Advisory boards help you to increase your startup’s breadth of knowledge. Procuring advisors from an array of backgrounds can fill in the “gaps” existing in your startup team’s experience and knowledge. Many startups bring on lawyers or marketing specialists to “round out” the company’s insight.
- Advisory boards encourage business growth (your ultimate goal as a startup founder.) The traditional method of spending lots of capital on marketing rarely brings palpable rewards in today’s interconnected world. Instead, most modern startup success stories involve “piggybacking” off of the capabilities of another platform. Securing a startup advisor from a large company can create the momentum needed for rapid growth and adoption.
How Are Mentors and Advisors Different?
Mentors and advisors are often perceived as the same role. However, there are some distinctions to be made:
- Usually motivated by altruism as opposed to financial reward. A mentor is often a close friend who personally wants to see you grow and succeed.
- Typically older than you; they use their accrued wisdom to provide guidance in both your personal and business life. You’ll interact closely with them for many years.
- Not on your payroll, and not formally employed by your startup.
- Professionals that concentrate entirely on improving your business, as opposed to your personal developments.
- Knowledge experts that help you in relevant business areas.
- Corporationally-minded people who focus solely on increasing the company’s market share through product, team, and culture.
- Formally employed by the company.
What Should You Do Before Recruiting Advisors and Mentors?
There are a number of things you should do to prepare before contacting people that you consider to be ideal advisor or mentor candidates. Remember that they are sharing their knowledge and business wisdom with you, and they expect preparedness and concreteness in return.
- Decide what skills and expertise areas you want for your startup. One of the most common mistakes in assembling advisory boards is homogeneity: Don’t pick people who are too similar to you or your team. Diversity encourages a variety of perspectives that uncover new opportunities and risks.
- Plan ahead on what your advisory board will be responsible for. For example, you’ll need to decide on the board’s degree of power when it comes to decision-making and voting. Additionally, you should choose the board’s structure and create a terms of service agreement before setting out to find startup advisors.
- Think about how you will compensate your advisors. As we discussed earlier, advisors are different from mentors in that they’re financially motivated. They’re helping your company because they hope to see monetary benefits in the future. It’s possible to pay them in cash, but that’s considered uncommon. Most advisors expect some equity in your startup, which ranges from 0.1% to 2.0%.
- Commit yourself to making an advisor agreement. This is a legal agreement that states the amount of equity for compensation, as well as the advisor’s various responsibilities and commitments. As with any professional relationship, having a legal document that formally states expectations is highly beneficial. When the stipulations are ambiguous, your relationship with the advisor is more likely to have inconsistencies and misunderstandings.
- Have a concrete offer for your candidates. Similarly to securing a seed investment, you need to show potential advisors that you have something more tangible than just a “good idea”. Be prepared to show them how your company operates, what challenges you’re experiencing, and what you’re doing to improve the company. Additionally, on the flip side, you need to do your research on the advisor candidates. Why do you think they’d make a good fit to help your company? Veteran advisors appreciate entrepreneurs that come highly prepared.
- Show candidates that you are a professional. Again, remember that advisors and mentors are investing their time and energy into you and your company. As with any business pitch, you need to demonstrate that you have a strong work ethic, passion, and impeccable business acumen.
How Do You Recruit Advisors and Mentors?
Of course, you need to know how to find potential startup advisors and mentors in the first place. There are a number of resources that you can look to:
- Your professional networks. This is one of the best ways to find skilled and competent advisors. For example, you can connect with people on LinkedIn, ask for introductions, and seek out recommendations from people. The likelihood of recruiting an advisor successfully is much higher when you know them already. Most importantly, you should take a genuine interest in the endeavors of your potential mentors and advisors, as this sets the stage for that initial reach-out. “Cold” emails can also work, but you have to know how to word them correctly to encourage a response.
- Finally -- get out into the real world. While the pandemic has most likely changed how we do this for quite some time, traditional business events such as conferences and networking events are still being held online. Navigating online networking can be difficult for many, but it’s going to be a vital skill from now on. On the positive side, teleworking can enable your startup to access advisors and mentors from all around the world.
The main takeaway here is that procuring a startup advisor and/or mentor is essential to your venture’s success. Of course, the process of seeking out qualified advisors can mean a lot of rejections. At MassLight, we eliminate your cold-calling struggles by providing our talent and resources to act as your technical founder, your advisor, and your mentor. In our build-for-equity program, we create sophisticated software for you in exchange for equity, eliminating many of the steps in finding the right advisor. Connect with us now to tell us more about your startup!