Building a company can be lonely work. One way to reduce your isolation and gain a wealth of knowledge is by forming an advisory committee. I’ve had advisory committees for two of the companies I’ve owned, and I’ve found them to bring experience, skills, contacts — and friendship.
How do you go about setting up an advisory committee? Who should you ask? What can you reasonably ask — or expect — them to do for you? How much time will this take, of your time or theirs?
First, know the difference between an advisory committee and a board of directors.
A board of directors is a legal entity, with legal responsibilities and legal liabilities. If you’re incorporated and have more than one shareholder, you’ll need a board of directors. They control your company — their decisions are binding. If you have investors, especially venture capitalists, they’ll expect to have representation on the board.
Members of an advisory committee, on the other hand, have no legal authority over the company and assume no liability.
There are no set rules about advisory committees, such as how often they have to meet, or how many people serve on them. In fact, your advisory committee can be so informal that you don’t even name it; you just have a group of people to turn to for advice. But forming an official advisory committee forms a closer bond between you and your advisors. They’ll take their involvement seriously and be committed to your success.
Who to ask?
People you respect. Look for people with good judgment, experience and wisdom. Ideally, they’ll either be from the industry you’re in, seasoned entrepreneurs, or those who have skills you need such as a terrific marketer. Be careful when choosing potential investors. If they choose not to invest, it sends a negative message to other prospects. Also be wary of asking potential customers, employees or competitors.
How many members should you have?
A few. I’ve never had more than five or six. A very large advisory committee looks a bit suspicious — as if you’ve just rounded up every name you could think of.
How often should you meet?
Perhaps never. I never held even one meeting of my first advisory committee. What I did was call on individual members from time to time for help with specific concerns. One member helped me build my financial statements, another helped shape our marketing efforts, others introduced me to contacts or told me which conferences I needed to attend. All read my business plan, gave me real-life insights, and would return my phone calls when I needed help on a particular problem.
How often should you call or e-mail?
Enough to get help but not enough to bug them. If you never call on your advisors, they’ll forget about you. Just be careful not to call too much. Advisors aren’t signing up for a job, and they’re all already overworked. I’d regularly keep them informed about what the company was up to, sending them e-mails, announcements, inviting them to company events. We’d each have lunch about once a quarter. But I respected their time, making them much more responsive when I did call.
What do you pay them?
Not cash. Most of the people you want as advisors aren’t motivated by money — they’re motivated to help you succeed. You don’t really have to give them any financial reward if you’re careful not to impose on their time too significantly. However, granting stock is an appropriate form of compensation if yours is a fast-growing company that you expect to have acquired or go public one day. That means they share in the pay-off when you succeed. Of course, make sure your advisors get any company trinkets — T-shirts, coffee mugs, pens. And invite them to the company holiday party!
What advice should you ask for?
To share their expertise, contacts and judgment. Do not ask them to provide you with free professional services.
Rhonda Abrams is the author of “Six-Week Start-Up” and “What Business Should I Start?”
