26 Jun Tapping the value of entrepreneurial advisors
An effective team of advisors can help an entrepreneur make a high-growth company successful and realize its full potential. However, as a corporate attorney, I know that finding advisors who are a good fit for an early-stage company, and using advisors effectively, can be challenging for entrepreneurs.
In a discussion moderated by my colleague, Matthew Storms, a partner in the law firm Michael Best & Friedrich, I was eager to hear the solutions to these issues from a panel of executives at the recent Wisconsin Entrepreneurs’ Conference in Milwaukee.
Advisors create value by providing an outsider’s perspective on the entrepreneur’s strategic vision, the wisdom of someone who has “been there and done that,” or the technical expertise to suggest how to trouble-shoot challenging problems. Advisors also can lend credibility to a growing company in the marketplace, make introductions that lead to sources of capital, and help an entrepreneur to uncover opportunities, Robert Young, president of Paradigm Sensors, LLC, explained.
Advisors can be found by networking with colleagues, business associates, trade associations, and academic contacts, or by seeking referrals from service providers such as attorneys, accountants, and bankers. The free online matching service DirectorConnector is another resource that an entrepreneur can use to find candidates who are willing to serve as advisors.
Finding an advisor who is a prospective user of the company’s product can offer valuable insights into what is important to potential customers and how the product compares to what competitors offer, explained Praveen Sinha, Ph.D., CEO of Securitas Technologies, Inc. A functional expertise in a discipline relevant to the company’s needs is also important, according to Young.
Expertise is a starting point in seeking an advisor, according to Ted Hart, managing partner of the Wisconsin offices of Clifton Gunderson, LLP. An advisor must also be able to communicate that expertise and transfer that knowledge to the entrepreneur, Hart explained, as well as challenge and engage the entrepreneur in helpful and productive ways.
Great advisors often have many demands on their time. Cary Silverstein, president and CEO of Strategic Management Associates, LLC, noted that an entrepreneur should seek an advisor who also is available and accessible.
An entrepreneur should conduct some due diligence on a prospective advisor, including obtaining a resume or C.V., checking references, and having a conversation with the prospective advisor to confirm that there will be good chemistry.
However, before disclosing any confidential or proprietary information, the entrepreneur should have the prospective advisor sign a non-disclosure agreement that has been reviewed by the company’s attorney. These agreements often are negotiated and customized with the help of the company’s attorney to accommodate the company’s needs for protection and the advisor’s own work separate from the company.
Forming an Advisory Board
Entrepreneurs often create a team of advisors in the form of an Advisory Board. While an entrepreneur might find the members of an Advisory Board and a Board of Directors through a similar combination of networking, referrals, and DirectorConnector, an Advisory Board is different from a Board of Directors.
An early-stage company’s Board of Directors usually is made up of the entrepreneur and representatives of investors. Dr. Sinha explained that an Advisory Board can instead be made up of people who either understand the domain of the company’s product and its market, or have a specific expertise that the company needs. Storms gave examples of individuals who had clinical trial expertise or joint development experience as people who made good Advisory Board members.
Also, while a Board of Directors has requirements and obligations such as fiduciary duties to the company, an Advisory Board does not need to adhere to the same legal formalities, explained Storms. As a result, the relationship between an entrepreneur and the Advisory Board can be very flexible. Flexibility is particularly helpful given that a growing company will need different advisors over time that have the expertise that fits the company’s current stage of development.
Getting the most value from advisors
The panel offered several tips for making sure that relationships with advisors help an entrepreneur overcome the many challenges he or she faces. The experience of the panel was that an optimal size for an Advisory Board is about three or four advisors. Productive ways to work with an Advisory Board include regular one-on-one discussions with advisors about specific technical or tactical issues, and convening a meeting of the entire Advisory Board less frequently to discuss strategic issues.
Additionally, Young shared that his company has had success using advisors to moderate focus groups for market research and to assist with representing the company at trade shows.
After finding advisors who fit the needs of the company and after addressing issues of confidentiality, then regular, honest, and open communication between an advisor and the entrepreneur can have a great impact on the success of the business. As the panel indicated, effective communication is the key to unlocking the value of an advisor.
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