Smaller companies with no more than 20 employees typically have up to three advisers. An odd number is preferred in case the management is looking for a swing vote on key decisions.
Six tips for finding mentors who can take to the next level.
Whether a company has 10 employees or 1,000 having reliable group of advisers who can offer objective analysis and a few timely introductions can make all the difference.
Slightly different from a board of directors, an advisory board serves more of a mentorship role. These members have no fiduciary responsibility to the company or its stakeholders.
Young, growing companies stand to benefit most from advisory boards. An advisory board is good for that independent eye. It helps ask questions beyond just what is on the first line of the profit and loss statement.
And with business regulations growing complex and transactions more international, the number of companies with advisory boards has crept up.
Here are six tips for building a firmâ€™s own indispensable advisory board.
Where to look: Start who you know and trust. Lawyers and bankers are no-brainer additions to any advisory board. Beyond the inner circle, the firm must search through local small business development center or industry association. A riskier option: customers and vendors who might have good connections in the industry. Just be careful what a firmâ€™s CEO tell them about the advisory role; better yet, have them sign confidentiality agreements.
Threeâ€™s Not Always A Crowd: Smaller companies with no more than 20 employees typically have up to three advisers, according to the National Federation of Independent Business (An odd number is nice in case youâ€™re looking for a swing vote on a key decision) Just donâ€™t load up the kitchen with cooks: More than six or seven advisers is probably too many.
Perhaps the greatest asset an adviser lends is credibility if the firm can find a big name or two with clients, employees and investors. A firmâ€™s management wants someone who validates a solution with a name to bank on. Advisers are people who open doors.
Smart advisers are good, but companies may also want a spread of perspectives and skills that complement their own. One person might be an expert on technological trends, while another might keep the firm honest about its financial projections.
Many mentors will sit on a start-upâ€™s advisory board for no pay. After all, they want to network with other industry players and to build their own credibility. Still, about 20% of small businesses offer some kind of compensation, if just enough to cover traveling costs to and from meetings. The price tag climbs as companies grow. According to Compensation resources, almost 91% of firms with $50 million to $100 million in revenue pay their advisers; average compensation: $4,800 per year. Equity is an option, too, but the advice better be really good.
Recruit advisers on a short term basis. They advice business needs at $500,000 in sales is different from what it needs at $5 million. Set adviser term limits from 12 to 24 months so that the company need not have to deal with sudden, awkward dismissals. The company may only hold meetings a handful of times a year, but check in more often than that. A firm may not want to fall into mentors radars.