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High-quality, independent advice can have a significant positive impact on a business, yet the Business Development Bank of Canada’s 2014 study of Canadian small and medium-sized businesses found that 76% have neither an Advisory Board nor a Board of Directors. An Advisory Board is an excellent way to get ahead of your competitors. Here are answers to some of the most frequently asked questions we receive on this topic:
Yes. Companies that created an Advisory Board saw their sales grow almost three times faster in the following three years than in the previous three years. You probably have a group of advisors anyway – friends, family, maybe a peer mentorship group – but formalizing the way you interact with these people will provide far more value to your organization, and also encourage you to spend more time thinking strategically (instead of being stuck in the day-to-day). Further, finding independent people to sit on your board – people with different perspectives and experience than your own – will pay dividends. The leader’s job can be a lonely one and having a sounding board for strategic decision making, one that deeply understands the unique challenges you face, will allow you to develop more robust solutions and strengthen your conviction to follow through on your strategic plans.
An Advisory Board’s primary function is to represent the interests of the shareholders. If you own the business, that means your interests. Sometimes, however, you can get confused between your leadership and ownership roles, particularly when tough choices are before you. What might be easier for the leader, may not be the most profitable course of action. Boards also help set strategic direction and hold management accountable to its plans.
Typically, an Advisory Board meets three to four times per year to review the company’s performance and assist with setting the strategic direction of the firm. It also holds the leader accountable for progress, and provides feedback to improve overall performance.
A Board of Directors has a fiduciary duty to the shareholders. That means the members can be held personally liable for the decisions they make and the direction the firm takes. An Advisory Board, on the other hand, can operate very much like a Board of Directors but without risk to the members, and without the legal authority to hold management accountable for what happens to the business.
Before you try to find them, figure out who you need. You likely have a lot of experience in your own industry, so look outside of your industry for board members. Need help with marketing strategy – how about a great marketer? If employee relations are a challenge – how about an HR expert? Financial expertise is always an excellent addition to any board, as is solid experience with evaluating and providing constructive feedback to the leadership of a company. A member who represents the kinds of people you sell to can also provide insight.
Knowing the skills you are looking for facilitates finding the best people to fill the roles. LinkedIn (connections of connections), trade associations, professional advisors like lawyers and accountants, and even recruiters all make great sources of expertise.
Not always, but you should. While we have seen the “board of old cronies” in play a number of times, we’ve never seen it work particularly well. Because you want a diverse group of members who are outside your immediate circle, you’ll need to entice them somehow, and financial reward is the easiest way. It will also encourage you and your Advisory Board members to treat the effort as you would a job – to show up prepared, on time, and have meaningful interactions. Let’s not forget, advice is often worth as much as you pay for it. If you pay nothing…
The perception of those without an Advisory Board is that setting one up is too much work – but this perception does not match the experience of those who have one. Setting up an Advisory Board can happen very efficiently and the returns are almost immediate. Eighty percent of business owners with Advisory Boards say if they had to assemble one all over again, they would.
But 20% wouldn’t. The real reason companies shouldn’t set up an Advisory Board is when they don’t intend to heed the board’s advice. Some business owners see them as more of a cheering squad than a business advisory team. Simply put, many small businesses are satisfied with the status quo and have no interest in changing how they operate, even at the most basic level. If you don’t intend to take the Advisory Board’s advice seriously, don’t bother setting it up in the first place. You’ll lose your members quickly and possibly damage your reputation in the process.
Want to set up an Advisory Board but don’t know where to start? Need to put more structure into your existing Advisory Board’s operations to take it to the next level? Let’s talk.