I am unsure how to build a strong group of advisors for my startup or how to weigh their advice. Do you have any suggestions?
Any time you build an advisory team, you are creating a system which will help you succeed or which will condemn you to Sisyphean frustration as you daily make the same mistakes they did. Most advisors are exceptionally talented in one or more areas, but you must choose wisely.
First, check your advisor’s track record. Is this person truly competent? Most people floating around startupland have a few experiences in one industry at one stage but usually lack a deep well of expertise to see broader patterns. Or their knowledge may be 20 years out of date. Did your advisor have some significant operational and strategic role, or was the advisor just a bystander? Can you speak to other companies advised by this person? Ask the advisor to help you think through a complicated situation. Introduce the advisor to other trusted people in your network for vetting. Game recognizes game and can also sniff out the con artists.
Second, does the advisor add something to the team? Relevant industry experience always helps, but, like boards, you are looking for a breadth of experience also. Perhaps the advisor knows scaling, sales, or manufacturing, or has a knowledge of global franchising or some other skill you need. Perhaps the advisor is just a business savant and has enough crisis management to be useful as a sounding board, despite ignorance of your industry.
Third, get advice from many sources to help ensure you get a wealth of perspectives. Always check advice which seems dubious or suspicious, or made for shock or contrarian value. Use the forums on the site, expand your networks, and ask for introductions from existing friends and professionals if you need to gain more views.
Fourth, I recommend two of your advisors be other CEOs of startups, perhaps one who is at a similar stage and another further along. Before COVID, one of the most popular features of our fund annual meeting was our CEO day, where our executives spent the day together discussing problems they faced, looking for feedback and solutions from their peers. I think peer CEO advising crucial, yet rare.
Fifth, find a special few who become your player/coaches. Often your initial angel investor fills this role, but you need someone who can be more than a mere advisor. You need a true mentor and guide. For this person it is crucial you reflect deeply on the soundness of the advice you receive. Many in the entrepreneurial world are charismatic and passionate, but rock solid competence and deep wisdom correlate little with charisma and passion and can often be found in unusual forms.
If you do assemble advisors, put them to work! Many entrepreneurs actually assemble quite impressive advisory boards, but only use the advisors’ names as some talisman of validation. “Hey, look at all the smart people I have on my website!” What is the point of collecting the set if you do not actually ask them anything? Have regular advisory meetings. Share updates. Call them once a month. Share your most difficult problems.
Advisors will go to extreme lengths to help you if they feel informed and connected. If your advisor is not networking like crazy for you, especially in the beginning, the advisor is usually not doing a very good job or lacks conviction. Well-motivated advisors are your pathway to angels, funds, strategic partners, talent, and early buzz.
Compensate advisors fairly. I discuss the normal terms for advisor compensation in the courses, but target 0.1% to 1.5% vesting over two to four years, depending on value and experiences. Also, if someone is no longer helping, terminate the agreement and cease vesting. Stock is too precious to waste on someone unproductive.
It is crucial you get agreements as soon as possible with advisors. Many entrepreneurs resist giving advisory agreements to those helping, as it seems somehow crass. Yet, Silicon Valley is rife with “advisors” who later claim to be co-founders, inventors on patents, or entitled to huge stock grants. Almost all of those claims are frivolous, but why risk it? Make expectations clear up front and ensure all IP and rights are assigned.
Many companies have a “board of advisors,” but understand that this is entirely distinct from your real board of directors. Advisory board members do not have any of the legal obligations and fiduciary duties of an actual board director. Advisors just do whatever you ask and there is no legal obligation other than whatever you and the advisor agree by contract. This may be a blessing, as you sometimes want advice outside your official board, or you value advice from someone who would make an abjectly poor fiduciary.
Finally, be suspicious of weird deals. I have discussed many times in the courses unregistered broker-dealer agreements or people trying to suck bits of equity from founders. Resist the urge to shred your cap table by a thousand cuts. Good advisors will deliver clear value pursuant to standard agreements.
My radar always goes off then I hear advisors who believe they have shortcuts or alternatives to best practices or who bash all the top funds, angels, and professionals. Best practices are so for a reason. Be suspicious of anyone who has untested theories to inflict upon you or seems more interested in being a martyr or maverick. You are trying to make your journey smoother by walking in the footsteps of the most successful entrepreneurs before you. Good advisors show you the path.