Before choosing individuals to sit on an advisory board, CEOs should first adopt these best practices to create an effective board that contributes to and guides the organization.
The CEO of a startup gaming company is in the middle of developing its next big hit for gamers. From ensuring the product is perfect for release to examining the workflow of the business and keeping his employees engaged, the CEO however, quickly realizes that he can’t do it alone.
He makes the decision to build an advisory board for the company and starts by recording where he sees the gaps in the business, as well as his own questions that he’d like answered by this group of unbiased individuals. But the success of his company depends on how he goes about choosing the right people.
“Building an effective board means CEOs must be open to accepting coaching and guidance”.
While advisory boards are not mandatory within an organization, tech CEOs can benefit greatly from the presence of a board, as each member can offer insights, ideas and strategic advice outside of the CEO’s expertise. For startups, establishing an advisory board can play a pivotal role in their corporate development.
Understand the business needs
CEOs often begin the search for advisory board members prior to understanding the needs of the organization and the critical matters the board will be looking to solve. As a first step, tech CEOs need to identify goals and a clear path to accomplishing those goals. This in turn will offer insight into the type of individuals and skills needed on the board. Think about areas of the business that need improvement and find the gaps in knowledge, skill and experience.
Welcome challenges
Although advisory board members are chosen by the CEO, they lack the legal liability and corporate power for decision making and strategic direction of the organization. Because of this, individuals are often selected based on relationships, a tech CEO’s network or on specific expertise, likely making them more hesitant to offer a counterargument to the CEO.
It’s important to remember that building an effective board means CEOs must be open to accepting coaching and guidance, welcome challenging thoughts, and be willing to allow outsiders to help structure and build their organization.
Know what good looks like
The advisory board should consist of executives who have an interest in the company and are willing to contribute time to its development. Review backgrounds and experience to identify the skills that each individual has to offer. CEOs should keep the number of members small enough to make the group manageable, but large enough to get the talent needed. The larger the advisory board, the more attention and resources it will require.
Each advisor should be able to offer some of these attributes:
- Industry knowledge
- Customer contacts
- Access to capital
- Access to potential management team members and advisors
- Partnership contracts
- M&A experience
- General management experience
Avoid conflicts
CEOs will want to determine any conflicts of interest early on and have necessary agreements in place, including nondisclosure agreements (NDAs) and conflict of interest agreements, as advisors will have access to confidential business plans, intellectual property and the organization’s overall strategy.
To prevent conflicts in positions, a set term limit and mandatory performance reviews should be put in place. This will also enable the board to remain fluid as the business needs of the organization change and new skills and experience are required.
Don’t rush the process
While it’s important to staff the board as soon as possible, it’s not necessary to choose the entire board at once. Begin with one or two strong candidates and fill each seat as you find the right individuals.
Motivate your members
Lastly, advisors should be incentivized via correct compensation when possible, through equity, cash or other expenses, to ensure members stay engaged. When deciding on compensation, take into account a prospect’s potential role, current position, strengths and what they bring to the table overall.
CEOs who prepare their company properly for the existence of an advisory board will set it up to play a key role in dealing with many issues, including finance, sales, marketing, expansion, production, funding and infrastructure. Ultimately, an effective advisory board can assist in many aspects of running a business, help lead strategic changes and actively contribute to the organization’s success.
