I have read a lot of "how to" stories out there on how to build and use advisory boards but this is the first one that I have seen that actually gives some practical advice. This Inc Magazine article gives some very good and unique ideas that I have not seen from other articles that I have read and reflects some of our own best practices. Most of those articles are usually around how beneficial advisory boards can be and from a very high level, how to build them and structure the process. In general we agree with the context of most of these articles what we have found after 100's of advisory board meetings that we have facilitated is that very few of those ideas would actually work long term if you tried to implement those recommendations in an actual advisory board. This article does a good job of coming up with some new ideas that we have not seen written about before.

For example the article opens with "assembling such a board (advisory board) may be one of the most important steps a CEO can take to assure an enterprise's success. Besides offering credibility and contacts, advisors working together provide guidance sharpened by boardroom debate, something that individual mentors can't match." They also talk about the importance of advisory boards to family owned businesses. We could not agree more with these statements as we have witnessed firsthand the power of the outside perspective that these boards bring to the CEO's and management team's of our clients and how much their organizations have grown.

One important factor that they don't mention here that we find to be most critical from our clients perspective is the accountability that an advisory board can provide. As the CEO of a privately held company you might not have a lot of people to answer to. Thus when you come up with the next great strategic idea you have few people to run that by and thus that idea, although important, gets set on the backburner since you are dealing with critical issues in your business every day. When you present your idea to an advisory board all of the sudden you are getting feedback, coming up with action items and in most cases dates of when it is going to be completed. This is the instant accountability that our clients experience. Our clients tend to get things done since they do not to want to let down a group of individuals that they respect and have helped them identify the strategic value of their idea to their business. As the article points out "if you are not willing to execute the advice of the board, then you better not put one together". We could not agree more here.

Most of the published materials out there discuss the type of person you want on your board or as the Inc article puts it "Whom Do You Want?". We completely disagree with this thinking because by talking about the" Who", you are now building your advisory board the way boards have always been built with a name and a resume and not "What" value they bring to your organization. We have found this strategy to be inefficient and ineffective and leads to low performing boards with a high risk of failure. In this case the Inc article actually provides some great insight here that we have not seen before outside of our own processes. They suggest "a good board is tailored to the opportunities and obstacles in the path of your specific company." They go on to explain that by defining your companies key success factors and obstacles you will better understand who to put on your board. We call this the "what you don't know factor" and we could not agree more that by focusing on this (the What) you will have a better understanding of who brings you the information you need to help you take your company to the next level.

Some of the other issues discussed in the article:

* Right Level of Experience - "the advisory board should be at the level you want to go rather than the level you are at". Again complete agreement here and make sure that you are building your board with individuals that are going to provide you long term strategic advice that is going to get your company to the next level and not a short term issue or project that will be completed in 6 - 8 months. We recommend to our clients that they think about what their company looks like years out.
* Right Number of advisors - they recommend 3-5 here. We somewhat disagree as we have found that 3 is almost too small for real collaboration. We also understand that most boards are not built with the level of executive that we have access to in the ABA network. We have found that at this very high level you can count on at least one board member being unable to attend at least one meeting per year given their schedules. If you have a board of 5 and you expect one board member not present at one meeting per year there is a good chance you are going to have meetings of 4. We have experienced that this is just enough for good collaboration and idea flow. We do not have any board right now with more than 6 and would not recommend more than 7-8.
* Whom to avoid - they recommend avoiding putting professional service providers on your board. We could not agree more, you can hire a good lawyer or accountant to give you legal or strategic advice so hire them. When it comes to your board, unless they are providing you expertise or relationships in your space (i.e. a legal staffing firm hiring a Managing Partner to give them strategic advice on their model to provide services to individuals like them) then just hire them and pay their fees.

Two things that the article avoided speaking to in depth that we feel are two of the most important factors for your advisory board. First, compensation is a major component of these boards. At least they recommend paying your advisors something (many of the "experts" don't) but they really skated over how best to do this. As with most things you will get what you pay for and to build these advisory boards with the highest caliber individuals you are going to need to pay them something. We recommend some mixture of a small stipend that will pay them for their time and then a small percentage of equity that is performance based and will provide that extra level of engagement that can make the difference between a highly functioning board that feels a part of the company and one that could fail over time. The issue for many organizations is the conflicts of interest that can arise from paying advisors who may also be clients or be clients at some point in the future. ABA has a proprietary process to deal with this but it is something that you need to be considerate of when building your board. The second piece is probably the most critical and they don't even address it and that is the time component of managing a board like this. To manage a board like this at the highest level we know firsthand that you are looking at 20-30 hours minimum per quarter not including the meetings. Most of our clients are growing so fast that the CEO's would not have that kind of time and thus would increase the chances that the board would not provide long term value.

Again we thought overall this was a great article and a good roadmap to follow to start to think about building your own advisory board.

Bob Arciniaga
Managing Partner
Advisory Board Architects