Why entrepreneurs should assemble an advisory board (and how to go about it)

There is a big difference between an official board of directors and an advisory board. Many start-ups and entrepreneurs benefit from assembling an advisory board. They may use it as a stepping-stone to a full board, to supplement the expertise of the main board or simply as a mentoring and support network. Here we look at the difference between a board of directors and an advisory board, explain the board of advisors roles and responsibilities, consider how to go about putting an advisory board together and assess how much advisory board members cost with the help of Oliver Cummings, CEO of Nurole.

What’s the difference between a board of directors and an advisory board?

Directors of a board are elected to represent the shareholders and stakeholders of a company or organisation. They play a formal and permanent role in the corporate governance and  management of your company or organisation. An advisory board is more informal, it doesn’t have these governance and fiduciary responsibilities. It can consist of one person or a group of people and it has no formal powers. It exists only to advise, often with a focus on a particular area of the business. Some companies have more than one advisory board. One might concentrate on advising you on sales, for example, and another on business development.

How entrepreneurs benefit from assembling an advisory board

'An advisory board is often ideal for entrepreneurs.'

'An advisory board gives you their best insights on how you can do better, without having the ability to tell you what to do or feeling like they have responsibility for dictating your risk appetite.'

'Often we see start-up organisations assembling a collection of advisory board members they engage on a one-to-one basis, rather than in a round-table discussion, which avoids the politics and ego issues that sometimes plague group discussions.'

'Often advisory board roles are a cost-effective way of accessing talent you couldn’t afford in a full-time executive role.'

Oliver Cummings, CEO of Nurole, a global platform for hiring board-level talent.

What are the board of advisors roles and responsibilities?

Advisory board members tend to be recruited for their specialist knowledge and contacts. By recruiting one or several advisory board members, entrepreneurs benefit from the knowledge of their particular industry or specialism, access to their contacts and advice on funding. Their role is to let you benefit from their expertise and their responsibility is largely to impart that knowledge and expertise to you.

It’s a flexible role, you may seek to take on a specialist Brexit advisor only to see you through the initial few months of Brexit, for example, and then seek another group of advisors to help you scale your business.

If you don’t have the need or the budget for a full-time sales and marketing executive, tech expert or research and development pro, for example, by appointing an advisory board member with these skills, you get to tap into top talent only as and when you need it.

Select advisors who will help you to fill the gaps in your knowledge, who can guide you and feel invested in growing your business too. Many advisory board members are seasoned entrepreneurs themselves, they enjoy giving back and mentoring the next generation.

Can an advisory board be a stepping stone to a full board?

By setting up an advisory board, entrepreneurs get a taste of what it will be like to introduce a full board, because they have a group of people to discuss the workings and challenges of the business with, but they are two very different entities. A full board has power and responsibility, as the name suggests, an advisory board is just there to advise.

If and when the time comes to set up a full board, however, an advisory board member or members could be incredibly useful for helping you to recruit and onboard a fantastic diverse group of non-executive directors (NEDs) and a chair.

How should an entrepreneur go about forming an advisory board?

The key to finding the right advisory board member or set of members is working out what role you are looking for them to perform and which areas of expertise you want them to advise you on. Focus on what you perceive as the question you need help answering, rather than what you think is the solution, says Cummings.

'You have to be clear about the problems you are looking to solve. Most people under invest in creating the role specification and focus too much on what they think the solution is.'

'Say, for example, they want to grow faster. They think they need a digital marketing expert, but in fact there is a serial scale-up founder who understands their challenge is a sales issue. If you pose the role as requiring a digital marketing expert you never find that founder. It’s really easy to get wrong.'

Oliver Cummings, CEO of Nurole

Once you are happy with your role spec, you can start searching for your advisory board members. You may approach people you respect within your industry who you know have advised other start-ups, you may find people via your local small business advice network, or you could use an executive search firm or a digital platform such as Nurole.

Once you have a list of applicants, it’s important to approach the process with the same professionalism and vigour that you would a standard employee interview. And once you have made your choice, it’s vital that you onboard your advisors properly.

'You have to put in place a structured assessment process, so you don’t get impressed by big names who you get on with, but ultimately are not best positioned to help you; either because they don’t have the time or the relevant expertise.'

'Doing this well is time consuming, but if you don’t give board advisors the necessary insight and understanding of your business you cannot maximise their value.'

Oliver Cummings, CEO of Nurole

How much does an advisory board member cost?

Advisory board member costs vary widely, depending on their area and level of expertise and their connections, and you don’t always have to pay them in cash.  Some advisory board members will accept share options in lieu of payment, some will charge a day rate, and some will ask for a mix of cash and options.

Nurole’s stats show that average day rates for an advisory board member vary from £500 to £6,000. Share options range from 0% to 0.5% over a specified period of time.

Harper James Solicitors can advise you on the legalities involved in creating an advisory board and setting up share options for advisory board members. Get in touch with our corporate law team for more guidance on this.