“So, what do you think I should do?” They’re the eight little words that put any advisor on the spot. I’d been on the phone for an hour with a successful young woman from Calgary. At a crossroads on how to grow her business, she’d called me as someone who knew something about growth. Although we’d identified at least three good options, we hadn’t spent enough time, nor did I know enough about her business, for me to be sure what she should do. Yet I didn’t feel right saying, “I don’t know.”
So, I offered her this: “I don’t know what you should do, but I have a good idea how you should figure it out — for this issue and many more in the future.” I told her that getting advice ad hoc was no longer enough — she needed to create a formal advisory system.
In my early days as founder and CEO of College Pro Painters, I relied heavily on ad hoc advice. If I had a problem that required more perspective, I called someone I respected who had relevant business experience. Over a meal, I’d explain my problem and ask those “eight little words.” The advice I got seemed helpful, but it was potentially flawed. Random advisors didn’t usually know much about my business. They didn’t really know me. And they wouldn’t “be there” when the results of the decision unfolded.
In my later years at College Pro, I came across a solution I think every entrepreneur should consider: an advisory board. Mine was a group of three seasoned businesspeople who met four or five times a year with my management team and me to review plans and results, ask tough questions and offer strategic insights. This worked far better than obtaining ad hoc counsel, for three reasons:
>The meetings were regular, imposing valuable discipline on both sides.
>The board members were informed. Because they had committed for at least three years, my advisors didn’t need to be educated on the business each time there was a new problem.
>Our time together built trust, so I felt comfortable sharing what I really felt.
My advisory board became my source for RITA: Regular, Informed, Trusted Advice. Plus, if I wanted it, another A: Accountability.
Three years after selling College Pro in 1989, I started a venture-capital firm, and each of our investments had a board of directors. These boards had a fiduciary duty to look after the firm’s interests, along with a key lever: the power to fire the CEO. (In contrast, an advisory board is usually chosen by the CEO/owner, and has neither any fiduciary duty nor any power except that of compelling thinking.) This experience convinced me that a properly composed and managed board is good for both the CEO and the firm. Call it “success insurance”: it reduces the odds you’ll make a bad decision, and increases the odds you’ll hit your targets.
In 2001, Toronto entrepreneur John Armstrong asked me to help him create an advisory board to give him the focus and extra discipline he said he needed for his marketing firm. We set it up carefully and he used it well. At the first meeting, John announced his goal of creating an enterprise value of $25 million. In 2006, with his board’s help, he sold his company for exactly that.
I’d seen it from both sides of the table: advisory boards work. I knew that many successful firms have one. For instance, 28% of the privately held firms on the past three PROFIT 100 rankings of Canada’s Fastest-Growing Companies have an advisory board. Now I wanted to find out more. Enlisting fellow PROFIT columnist and entrepreneurship expert Rick Spence, we set out to discover more about advisory boards and what makes them work. Our survey and interviews with dozens of entrepreneurs across the country revealed that most users praised their boards to the skies. Bill Barnes, executive vice-president of business development at Enquiro Search Solutions Inc. in Kelowna, B.C., expressed a common sentiment when he told us, “I only wish we had started our advisory board earlier.”
Bottom line: there’s a growing trend towards using advisory boards as an integral business tool — and tremendous growth in the number of entrepreneurs who would start one if only they knew how. To help you build an effective advisory board or get more out of the one you have, this four-part series will look at what one can do for you, how to set it up and how to make it work.
Based on our research, here are 10 key benefits of advisory boards:
“You don’t want the bank manager to be the first person you are accountable to.” — Sandra Lemon, former acting CFO, Armstrong Partnership LP, Toronto
“It helps to have someone who is in your corner, and who is focussed only on you and your needs.” — Rob Bracey, president, Quartet Service Inc., Toronto
“It helped us make a much better strategic decision on what business we wanted to be in. It may have saved the company. It certainly saved us millions.” — Bill Barnes, Enquiro Search Solutions Inc., Kelowna, B.C.
“One good suggestion and it pays for itself.” — Tim Moore, president and CEO, Premiere Executive Suites, Halifax
“Over time, it greatly improves the quality of decision-making. And, after all, isn’t that what it’s all about: consistently making better decisions?” — Glenn Fraser, CEO, Taligent Group, Toronto
Better decision-making processes:
“It buys me time with my employees. I can honestly say that I need to take this decision to the board and get their input. The decision then has the benefit of simmering for a while, and hence is more chewed over, more objective and less personal when it is delivered.” — John Armstrong, president, Armstrong Partnership LP, Toronto
Help with people decisions:
“By having my people present to the board, I get more input on their capabilities, and it strengthens their commitment to their plans.” — Paula Courtney, president, The Verde Group, Toronto
Being more strategic:
“I am starting an advisory board because I believe it will help me see things from a broader perspective, be more strategic and make fewer mistakes.” — Jeff Lem, president, Qdata Inc., Markham, Ont.
“An advisory board is there to shorten the learning curve.” — Peter Mitchell, partner, Mitchell Sandham Group, Toronto
Peace of mind:
“I sleep much better at night knowing that all of these people think we are going in the right direction.” — Andrew Scott, CEO, Digital Payment Technologies Corp., Burnaby, B.C.
There are many other benefits as well. “An advisory board can provide you with a 360-degree view of the overall business environment,” says Michel Nadeau, director of the Institute for Governance of Private and Public Organizations at the business school HEC Montreal. He says a board can also give you access to a variety of specific skill sets at low cost; help you anticipate risks; create new networking opportunities; improve the image of your company and impress potential clients; and reassure bankers and investors that your business is well managed and capable of overcoming adversity.
Who needs an advisory board? The firms likeliest to have one are those that: are growing exceptionally fast; have had some VC investment (outside investors often mandate an advisory board); are family businesses seeking outside input; or intend to go public sometime and want the discipline of a board without the formal trappings and potential liabilities of a board of directors.
So, why don’t more entrepreneurs have an advisory board? Doug Kerr, president of Vancouver-based Kerr Construction, says he’d love to have one because “I get into new territory all the time. I have to quickly get up to speed, so it would be nice to have people who could give me some direction.” But he says he doesn’t know how they work, or how to get started. He doesn’t know how to select advisors, or how much they would have to be paid. He has asked other entrepreneurs in his circle, but no one knows or has had the time to look into it.
The good news, as our research shows, is that the formats are wide open. We call it BYOB: Build Your Own Board. What people call “advisory boards” run the gamut from an informal group of people called on by a CEO occasionally to a formal body that provides regular accountability. Some advisors are paid princely sums, in fees or stock, while others work for a cold lunch and a warm feeling inside. And some structures undoubtedly work better than others. (More on that in the next article in this series.)
But if finding the perfect system is holding you back from creating a board, stop making excuses now. Get out there and find some advisors. Find ways to align their interests with yours and those of your firm. Advisory boards work. Get one working for your company to help it get to the next level faster and with less risk.