In today’s cutthroat business environment, companies often seek external advice to champion their growth and prosperity. Traditionally, companies achieved this feat by inviting experts to join their board of directors.
While useful, a board of directors is shrouded with formality and liability and can be quite expensive. These drawbacks fuel the popularity of an informal, cost-effective, yet effective alternative – a board of advisors.
With no legal authority or formal powers, a board of advisors functions as an informal executive team of experts. Such trusted advisors are indispensable to startups and other small, budget-limited companies looking to grow and overcome stiff competition.
What is a Board of Advisors?
A board of advisors is a group of professionals that provides helpful advice to help organizations streamline and improve their operations. It’s an informal body that helps companies develop, implement, and supervise business strategies.
Because a board of advisors is an informal committee, the business owner can structure it however they deem most valuable to the organization. Typically, such a board comprise professionals drawn from different sectors. They include a financial expert, legal expert, marketing advisor, human resource manager, and an accountant.
Companies and business owners appoint an advisory board to guide, counsel, and provide a fresh perspective. Since they’re drawn from different disciplines, board members can complement the company’s strengths and expertise while delivering broader management knowledge.
Since there are no parameters to creating a board of advisors, you are at liberty to expand or decrease its size and add or remove people as you deem fit. In most cases, you can recruit an advisory board that serves as needed.
Unlike a board of directors, an advisory board is purely ceremonial. Board members have no fiducial duties or liability to the company. As a result, they can readily provide guidance and advice in their field of expertise without bias.
Since advisory board members can’t be held liable for mistakes, they’re entitled to less compensation. They’re usually compensated through a small yearly stipend or equity interest in the organization. Usually, the management covers any expenses, including lodging and travel, that board members incur while discharging their duties.
Board of Advisors Vs Board of Directors
While there’s considerable overlap between a board of advisors and a board of directors, they’re vastly different.
A board of directors is a formal group of individuals duly elected through an election. They’re an executive team duty-bound by law to represent the organization and its shareholders. Shareholders can hold board members personally liable for their actions. Board members are responsible for creating policies, resolving business problems, and championing business success. Conversely, an advisory board is purely an informal group, and the company is not mandated to heed or implement their advice.
A board of directors shoulder more and greater responsibilities than an advisory board. Board members are cautious when providing business advice since they have a financial obligation to the stakeholders. Members of an advisory board have no official voting rights, and their role is strictly consultative.
Company owners may personally constitute a board of advisors since they have no voting rights. However, a board of directors is elected by stakeholders since they have a direct role in decision-making.
An entrepreneur may follow or choose to disregard the recommendations of the board of advisors. A board of directors is much more powerful and influential. The members carry enough clout to steer a company in a given direction and oversee any changes they deem necessary, including ousting the owner as CEO.
Members of an advisory board are chosen for their specific expertise, skills, and business experience. Subject matter expertise isn’t a primary consideration while appointing a board of directors.
Benefits of an Advisory Board
The ultimate goal of a board of advisors is to help you steer your business to greater heights. They will help you take the company where you want it to be. Perks of having an advisors board include:
Offering outside Perspective
A board of advisors bring different perspectives, insights, opinions, and experiences to your business. They can view critical issues such as market trends, business performance, and long-term business strategy through an unbiased lens. That helps identify problem areas and blind spots and uncover untapped opportunities.
Grow Your Business Network
A well-connected board of advisors can be instrumental in helping startups, and small businesses expand their business network. The board can help you grow your business network and expand into relevant markets. It can help you cultivate strategic partnerships, get funding, connect with vendors, and other industry experts.
Listing your board of advisors on your website can help build credibility with clients, vendors, and investors. An advisors’ board comprising community leaders and industry experts lends instant credibility to your business. You can quickly build trust with potential investors and gain leverage with vendors while attracting customers.
How to Build a Board of Advisors
Your choice of board of advisory members can make or break your company. You should constitute your team of experts carefully to reap the benefits, achieve business growth, and overcome the competition.
Set the Standards
An advisory board is a great way to fill knowledge gaps in your company. Therefore, you should handpick and target advisory board members for the expertise they can bring to the company. Consider their skills, industry knowledge, and awareness of what your company needs. Pick individuals who can research and deliver accurate and objective information during board meetings.
Determine the Size of the board
An ideal board of advisors should have between 3 and five members. Settling for a larger board could complicate your brainstorming sessions, lowering its overall productivity.
Pick Accomplished Individuals
Ideally, advisory board members shouldn’t have any emotional attachment to the business. Their entire livelihood shouldn’t be tied to that business. They should have other sources of income but have more than a passing interest in growing the business. Avoid close relations as their emotional connection to the company may cloud their judgement.
Set a Clear Objective
Identify the problems or challenges the board of advisors seeks to solve and clearly outline the goals and objectives. Use these needs to identify skills required to snag a slot on the board. Each board member should help solve a specific problem for the company.
Harness the Power of a Board of Advisors
A board of advisors is an effective way to import skills and expertise into your business while reducing your board of directors’ burden. An advisory board grows with your company since different stages of growth and development call for different skills. Since advisory boards are informal, you can easily customize them to suit your needs and preferences.