In a recent conversation with Nacho de Marco, our blog partner and super successful Argentinian entrepreneur now living in SF, the subject of advisors for a start-up came up. Everyone seems to have an advisory board. Why? And are they useful?
It made me realize that having formal advisors is a very Silicon Valley construct and not necessarily prevalent in other countries. It also forced me to really understand the value and costs of advisors, not just the “because it has always been done” answer.
In the various start-ups I have been involved in, both in the US and in Mexico, I have looked for people that could help move our business plan along. One key value I have found is when you have a point problem and can find someone within your network who has solved that particular issue. I find that is the perfect advisor role. It has a defined goal and the person has specific experience.
If you do this well, then you might end up with a long list of people that are advisors, but not any longer. At some point they were helpful, but as far as you know, they no longer are. Is this a reason to not have them in the first place?
Actually, this is where the real work (and possibly rewards start to come in). Managing advisors is time-consuming and, as with most things in life, you get back what you put in. An absolute first priority is to align your interests with your advisors’ interests. I am still amazed at how many people feel that they can mine your experience and endlessly ask for your time with no thought to some compensation mechanism.
It also makes no sense since what you want from an advisor is for her to be there when you need her, and not when she feels like it or when has nothing else to do (think: never). A just reward for valuable advice is a key part of this relationship. That way, you never feel bad or guilty about calling her on the cell when an urgent question comes up. For advisors, the most obvious cashless reward is shares, or, more accurately, options. (If the reward is cash, though, then in my book that person is a consultant and different rules should apply, e.g., a written agreement as to the scope of work and deliverables).
As with most things in Silicon Valley, the advisor relationship has already been pretty standardized. Advisors typically get 2-year vesting on their shares with a 6-month cliff and monthly vesting thereafter. Depending on the time you expect to get from your advisor and stage in the company the actual shares typically go from .10 to 1.00%, with the lower numbers applying to Series A post-revenue start-up and the higher numbers to pre-solid-pitch, 2-founders-in-a-garage kind of deal. In any case, it creates exactly the right feel-good between you and your advisor: add value to the company and you will share in its riches.
Once you have the Mammon part of the relationship covered with your advisor, you must feed the actual value-bringing side and that takes work. I believe that work is worthwhile, but only if you choose your advisors well and they feel fairly compensated for their contributions. Assuming you followed the “specific problem, specific advisor” model, once you have solved that issue, you still have that advisor on board. Should you forget her? Never contact her again and remember her only when you look at the list of tiny shareholders in your cap table? Many entrepreneurs do just that and I think it’s a huge waste of an opportunity.
If someone was helpful once, there is no doubt they can be helpful again. The problem is, you do not know in what or how. Here is where actively updating your advisors really comes into play. Jonah Greenberg, founder and CEO of Bright, is the entrepreneur I know who does this best (I confess to not being up to his level of diligence in managing advisors, though I sure talk a good game)!
My impression is that he waits until he has a critical mass of “asks” and then sends out to his advisors a company update email that includes this list. It allows his advisors to be engaged with the company even if they are not investors or employees, and then gives them (disclosure: I am one) a succinct list of specific needs. The list could go from the most obvious (any interesting leads for funding?) to the more esoteric (looking for an HR manager in Puebla, Mexico?). In this way, he is able to continuously mine the experiences and networks of those of us that — for some specific reason — got involved with the company, but are no longer active.
I think Jonah’s strategy really embodies the best of what a start-up/advisor relationship can be. He aligns everyone’s interests and selectively sends requests to his advisors to help solve specific problems that his team cannot or does not have the time to do. Further, whenever something comes up in his advisors’ professional circle that is adjacent to his space, because we have relatively fresh information, for sure we will bring up the fact that we are an advisor and maybe lead to a profitable new lead or key hire for him. Perfect synergy.
Convincing a top-level executive or a successful entrepreneur to be your advisor, giving you time and access to her contacts will be hard. Also, managing the relationship will take time, but for a start-up, wherever you may be, I am convinced that the ROI is definitely positive.