Creating the right advisory board for your startup can be the single most important step you take in building a new business. As good and as smart as you may be, no one knows everything. I truly wish I was as smart as I thought I was when I started my first company 30 years ago. I was fresh out of college and had never worked in a tech company, yet alone run one. And even though I eventually had a great exit, I didn’t realize how much I didn’t know like: What is the best way to structure an employee equity plan? What do I really need to fight for in my Series A term sheet? When and where should I go for a strategic investment? How do I position my company to be acquired?
So many of the major decisions that affect the entire future of your enterprise happen during its first year in business. In fact, most don’t make it because they don’t know how to get the resources they need to survive. Much like a pregnant woman who listens to experienced doctors and mothers during her baby’s gestation, a founder needs to surround herself with a team of experts to make sure the creation is healthy and has the best shot at growing strong. A successful entrepreneur is one who recognizes her blind spots. You may be the world’s best engineer, but you probably have never run a 10-person sales force. You may be a brilliant marketer, but how do you structure a cap table?
An advisory board is the one time in your life that you can get some of the most successful people on the planet to work for you for free. I know at least a dozen billionaires who sit on advisory boards. Not only are these eminent minds a great source of knowledge for you, they are a tacit endorsement of your company to the outside world. With so many varying points of view about business, finding the right mix of strengths on your board is the key to getting the most out of your advisers. There are three types of advisers that I strongly recommend recruiting onto your board.
First you need subject matter expertise. No matter how revolutionary your idea, some other company has been working in that field for years. Use social media tools such as LinkedIn and Twitter to find the best and brightest leaders in your industry. If your idea is as great as you believe, they will be eager to get involved. Don’t just focus on current company leaders; many former CEO’s of Fortune 500 companies would love to stay relevant and share their expertise with the next generation of business leaders.
Be respectful and mindful of how much time you require from advisers. Don’t call every day with every new problem, but rather ask yourself what is the one problem that adviser can solve better than anyone else you know. And when their efforts really help, take the time to write a handwritten thank you note. Appreciation is the one currency that is in short supply in the business world and you should dole it out gingerly.
The second type of adviser is an experienced fundraiser. This can be a serial angel investor, a venture capital firm partner or a banker. Raising funds for your startup is one part dollars and two parts structure. Knowing the best way to capitalize your company is an expertise in itself. Should you price your first round or go with a convertible note? When and how do you set up a debt line? This knowledge can be learned over time, but your first company isn’t the time or place to master Finance 101. Without this advice, many of your freshman mistakes won’t be able to be undone as you go to sell the company years from now when your equity and control have been severely diluted. Until you can afford an experienced chief financial officer, rely on your advisory board to help you navigate your way through the capital seas.
Lastly, I strongly recommend that you have a serial entrepreneur on your advisory board. This is the role I usually play with startup boards. I have been involved with dozens of startups. I like to say that most of the mistakes I have made in my career were on someone else’s dime. Running a startup is a very unique skill set and a founder can best relate to someone that has walked in his or her shoes before and survived. Every company is unique, but so many of the growing pains are universal. By aligning yourself with a serial entrepreneur, you will feel more emboldened to take risks because there is a team to support you when you stumble. The professional investors on your board (VCs, Angels) are first and foremost looking out for their investments; a serial entrepreneur is looking out for you.
There is one more bonus that comes with an advisory board: funding. I always say, if you want to raise money, ask for advice rather than money. When your company is ready to go out and raise capital, don’t be surprised when some of your biggest investors come from your advisory board. While these advisers have spent months guiding you, they have also fallen in love with your company and your vision. That’s exactly what happened with me and Realty Mogul. I started as an adviser and then a board member. As the company started to grow, I wanted to be more involved. Eventually I was hooked and leaned all the way in. Today I am a full-time executive chairman and having the time of my life.
This post originally appeared in the Wall Street Journal on March 19th 2014