Company Advisors & Advice
Bringing on formal or informal advisors can be very beneficial as you grow your business. The benefits of receiving good advice are obvious, but knowing how to obtain and utilize good advice is less obvious, especially when you receive conflicting advice from multiple sources. This section will help you recruit, on-board and work with advisors, and help you apply advice on your business.
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Seek advisors who could “teach, not just tell.” Teaching, not telling means people who can share frameworks, formulas and programs that can be modified and reused. It means having an advisor sit down with a team member and perhaps provide training wheels through a real world scenario. It doesn’t mean having the advisor become part of your org chart or solve your problems for you. If you want that, create a separate consulting agreement.
Most of the time the entrepreneur will have a better feel for their product vision than the VC will. But there are times when what the entrepreneur is doing is not working and the VC will have to figure out how to get the entrepreneur to see that. I have learned to trust the entrepreneurs instincts until it is very clear I should not. Finding that line is art and not science and takes a lot of experience. And I still get it wrong from time to time.
Many startup companies hire advisory boards. It’s very tempting. It’s mostly done by first-time entrepreneurs who want to persuade (bribe?) prominent industry luminaries to be closely associated with the company. It’s done partly in hopes of gaining their wisdom but it’s also done to portray the company in a positive light through association. So do advisory boards really add value? And if you decide to have one how do you best implement it? In my experience most advisory boards under deliver relative to expectations. The CEO picks prominent people who are busy in their own right with their own companies. They are usually offered around 0.25% of the companies equity in exchange for their role and I’ve seen many companies hand out a total of 2% to advisers. If you plan to set one up – no problem. But know what your expectations are and make them realistic. My main advice to you if you’re considering it is don’t waste much equity on it.
Lawyers teach you the rules of the game. But they usually can’t teach you how to play it. Lawyers say whether you can do something, within the confines of the law and your existing contracts. Lawyers will also write the contracts and do the filings. But they usually can’t tell you what to do—that’s what coaches do. A lawyer knows that you’re not breaking any laws or contracts if you give a common board seat to a new CEO. He also knows how to write the contract. But an advisor knows the possible outcomes of that decision.