I’ve said it a thousand times, being an entrepreneur is not an easy task. There are a lot of unknowns and it can be very overwhelming. Many entrepreneurs bring on advisors to give them outside perspective. It can be a very beneficial relationship that helps your company take the next step. There are a few considerations I would take when bringing on a business advisor.
*Disclosure: My marketing company doesn’t have any official advisors. I have several personal advisors and I’m considering bringing on an advisor for my new venture. My opinions on the matter derive mostly from second hand observations and self-education.
Typical Business Advisor Relationship
This is my take on the entrepreneur/advisor relationship. The entrepreneur brings on an advisor for their advice and expertise. The advisor’s participation can validate you and your startup in the eyes of some people. The advisor can open his/her rolodex to you and open doors that might not otherwise have been available to you. Sometimes an advisor is more of a ceremonial role. It all depends on the advisor and what the entrepreneur is looking for. Typically an advisor will get about 50 points of equity but that varies as well. The Founder Institute has attempted to standardize the advisor equity formula, which is really helpful. Bottom line, an advisor is only a part-time fixture at your company. They’re helpful, but they probably won’t make or break your startup…you will. So don’t think bringing on Person X to advise will mean you’re going to get $5 million in funding and a $50 million exit.
What To Look For in an Advisor?
This is highly subjective, so let me be clear, this is what I look for. First and foremost, how successful have they been? I respect founders/CEOs with an exit the most (obviously). The pressures of being the CEO, the number one guy (or gal) is something only a few people know first hand. Taking an idea to market, building traction, and creating a valuable company that someone else actually wants to acquire is rare. There are so many experiences and lessons within that journey, knowledge only someone who has done this first hand can really know. An undervalued advantage of having a founder/CEO as an advisor is the emotional familiarity. The emotional toll between #1 and #2 is larger than it may appear and you can’t learn that from a book.
The second type of person I would look to have as an advisor is someone from a founding team (or very early employee) that had a successful exit. A former CTO or VP of Product can also have a great deal of knowledge to share with you. And their knowledge may be a bit more focused (like technical or design knowledge) than a former CEO who guided the entire company. Plus, there is the possibility that a founding team member might have a different exit experience than a founding CEO.
A CEO that builds a product/company and sells it for $10 million is a success, but would have a completely different experience than employee #4 who saw the company go from $0 in yearly revenues to $100 million in yearly revenues. Just because you exit for millions, doesn’t mean you know how to scale, which is why you should know why you’re bringing on the advisor.
Who Not to Hire as an Advisor?
Everyone else. I’m not interested in anyone else’s opinion. If you don’t have success under your belt or taken the risk, your opinion is lost in a sea of other unaccomplished, wannabes (sounds a little harsh, but if it makes you feel better, I currently put myself in that category). Everyone’s got an opinion and it’s easy to give advice when you’re on the sideline. I don’t care if you’ve been around the scene for years, if you don’t have first hand experience as a founding team member with an exit, I don’t want you as an official advisor. Success breeds success and I’d rather learn from someone who has learned from doing it right as opposed to someone who learned by seeing it done wrong.
Aside from credentials, be aware of why the advisor wants to advise your company. We all want to trust everyone and believe they have the best intentions, but that’s not the case. Don’t bring on an advisor that sees you more as a feather in the cap than some they really want to help. It sounds bad, but it happens. I’ve seen people get burned by advisors who like talking about their affiliation with the startup, more than actually providing valuable insight. This doesn’t turn out well for anyone, so be aware of this when considering an advisor.
At the end of the day, you have to trust your business advisor. You must have a relationship that both of you are comfortable with. These are the guidelines that I believe in with a business advisor, but there is no right or wrong answer. What works for one business and entrepreneur won’t work for another. Trust your instincts, make sure you know why you’re choosing this individual, understand their motives, and go be extraordinary.
*I must note that I do respect the opinions of many entrepreneurs who don’t have exits and been around the scene for years. I go to these people for advice because they have seen more than I have. However, if I’m going to give you equity and an official advisor role, you need to bring something to the table that I cannot. I don’t have a successful exit, which is why I put such a great deal of emphasis on it right now.
