Entrepreneurial Boards: The View From 20,000 Feet - and 200
Auren Hoffman, Founder and Chairman, Stonebrick Group, Stonebrick Group
Two of the three companies I founded in the past eight years - BridgePath, an enterprise software concern, and GetRelevant, which placed Internet advertising – had both a board of directors and a board of advisors. A third, Kyber Systems, an Intranet consulting firm I started right out college, by contrast, had neither a board of advisors nor a board of directors beyond the two founders.
In the process of thinking through what boards were right for each company, and then recruiting and dealing with the members, I've learned a lot about the care and feeding of both types of entities and how the entrepreneur can make best use of each.
This knowledge, I believe, is worth passing on to other aspiring and active company builders, because directors and advisors are an entrepreneur's chief – and sometimes only – source of guidance and information from a "higher up."
Viva la Difference
The first lesson is that the boards differ. An advisory board is most useful in providing strategic ideas or feedback on increasing revenue and building your business, with the members not involved in the details of your company. You go to them, as you would an old high school friend whom you don't see often, to catch up and pick their brains – for a view of your landscape from 20,000 feet.
The members of your board of directors, by contrast, are more like your parents, the people you go to when you are up against it and you need not so much advice, but guidance on a day-to-day basis about how to navigate choppy waters: a law suit, for example, or the sale of your company. These people give you the view of your business from 200 feet.
Your directors comprise your company's governing body and have fiduciary responsibilities for which they can be held legally accountable. Your advisors, by contrast, are high-level strategists – or mentors, if you prefer - who parachute in and out. For small companies, directors are generally shareholders and thus are already incented to spend their time on your company. Many companies might compensate their advisors with a small token of stock, but I've found that advisors are motivated, not by money, but by the ability to help mentor an entrepreneur.
The Link to Recruiting
Making best use of your boards is linked inextricably to the way you recruit the individuals who eventually agree to serve. With directors, many are simply the people who have invested in your company – or those whom your investors have recommended (or demanded) be given a seat. Your advisors, on the other hand, are people you must recruit, and to do so effectively for top talent, you must give them a compelling reason to join.
Some companies throw cash at advisors, but cash compensation is rarely necessary, and often not possible for a small or start up company. At BridgePath, whose software allowed staffing and recruiting firms to work collaboratively, we were able to offer only modest stock options and thus needed other "hooks" to entice advisors.
Since we were seeking mostly former "C-level" people, such as chief executive, financial or technology officers, in the recruiting industry, a major lure was their ability to network on a regular basis with peers.
Other enticements included a low time commitment – we promised each no more than two hours a quarter, one a conference call with the group, the other a one-on-one conversation with a member of our executive team, usually me. Thus, the opportunity to counsel enthusiastic young entrepreneurs in an atmosphere of low liability was also an attraction.
Best Perspectives From 20,000 Feet
With the right people on both boards, you must next make sure that you tap their full potential. Let's start with your big picture people – your advisors.
These are the people you turn to, not during times of crisis – that would be too late – but rather for a forward-looking perspective when building your company. At BridgePath, I learned to approach advisors for high-level advice about ideas I had for products. Most often, these were bad ideas, and my advisors shot down a lot of them, which was good for the company.
Conversely, my advisors were able to affirm the rare good idea, and even better, to add to or refine it. A lot of the best advice had to do with strategy – for example, warning us against sending out a product mailing during a time of the month that was particularly busy for prospects. Nuggets like that – information we wouldn't have been otherwise aware of - were especially useful.
The other area in which advisors were invaluable concerned helping us source deals. Almost all of the major customers we secured at BridgePath were referred either directly or indirectly by those former executives in the industry whom we were lucky enough to have on our advisory board.
Keeping in Touch
Since the advice from 20,000 feet is coming from people who are likewise as far removed from your company, you need to contact them at regular intervals. While not exceeding your promise of a commitment of no more than two hours a quarter, don't make the opposite mistake of not calling them at all.
At my companies, I made it a point to "touch" each advisor at least once a month – for example, with an email updating them about a new product introduction or a recent hire. Then, once a quarter, I made good on my pledge to call them individually. I always had something in mind that I figured could use their perspective. In doing so, I was able to avail myself of 300 years of experience – 10 advisors, each with 30 years in the business – during the course of a smattering of phone calls.
Your advisors will tell you if you are calling them too frequently. Conversely, they won't say anything if you aren't utilizing them enough. They will just feel slighted and unappreciated, which you shouldn't let happen.
Finally, remember to thank your advisors often. Let them know their advice is valuable and that you are listening. Like any important relationship, make sure you let them know that you need them.
Up Close and Personal – at 200 Feet
When it came time to sell BridgePath, it wasn't the advisory board that I turned to, but rather the board of directors. At this stage, advisors are not as much help, because you need people you can call all of the time during a lengthy and drawn-out process and also because the information is likely be sensitive.
Some of our advisors were people we couldn't inform about a potential sale because of their position in the industry. At most, we were able to use them for high-level advice, such as what companies might be likely buyers. Indirectly, however, our advisors might have played a role by giving us good references when buyers called them for information about us. I know that I called the advisors of our interested buyers for their opinion about those companies.
At this stage, directors step up to the plate, spending the considerable time necessary to bring about the desired resolution. At BridgePath, we had a deep and experienced board of directors. One of our board members would even frequently talk to a counterpart at the interested company. This pairing of the right personalities allowed for the free exchange of information that enabled both sides to determine whether there was a "fit."
Largely because we made good use of our boards, we were able to sell both companies - BridgePath to Boston-based Bullhorn, which sells front-office software to staffing and recruiting firms, in 2002, and GetRelevant to Lycos, also in 2002. (I hadn't been an officer of the latter).
At the formative stage of each, we availed ourselves of the best information from 20,000 feet to build the companies. Then, when we were ready to sell, we turned to the perspective from 200 feet. Thus, it was the interplay between our executives and our advisors, and then between our executives and our directors, that made for the happy outcome that all entrepreneurs desire.