So you’re a founder considering bringing on an advisor. Or, maybe your investors are encouraging you to build out an advisory board? We’re here for you!
We are a team of operators. We have worked with, advised, and invested in hundreds of founders. We are surrounded by an amazing network of GTM Leaders who collectively have consulted with thousands of companies. We are speaking from experience when we say there are great advisor relationships and there are less successful ones.
You have probably heard mixed things about advisors, spanning the full spectrum of “this person was instrumental in solving X challenge” to “I issued equity on a 2-year vesting schedule and haven’t heard from him/her in 6 months.”
In any situation, it’s important to approach a new advisor opportunity with eyes wide open. These relationships are not one-size-fits-all. They should be tailored to your unique needs at the specific stage of your business. With that in mind, we want to share an overview of the most common types of advisor relationships.
STRUCTURES TO CONSIDER:
12-24 month term
This is the most common type of advisor relationship we see in early-stage businesses. There are many use cases and you can expect to see value across a number of key areas. Common ways to engage an advisory board include:
- Introductions: Prospects/customers, candidates, investors, other advisors…
- Domain Expertise: Industry or functional experience to compliment you/your team
- Recruiting: Network referrals, interviews, selling the opportunity
- Brand/Amplify message: You may select an advisory board member for her large social following or public persona. If she is a known/respected entity for your buyer, you can build brand awareness and trust through association
- Product/Roadmap Feedback: Customer advisory boards are an entirely different beast, but among standard advisory boards you might turn to them for an objective view on the market and user needs
- Fundraising: Depending on the length of the relationship, an advisor may be a strong reference or help sell the opportunity during a raise
Varying hourly commits
3-12 month term
Equity-based compensation (can be supplemented with cash for increased hourly commitment)
You can engage with individual advisors for 3 main types of engagements. In each case, we recommend agreeing to a time commitment, cadence of meetings, and a relationship owner on the company side - more on who that person should be later.
We also encourage you to identify your specific needs before you kick off the search - for example, “We are looking for a marketing advisor who has built a content-driven strategy in a B2B SaaS company selling to finance.”
- Topical Advice: “We need help establishing a content program”
- Functional/Departmental Support: “We want help defining our 2023 marketing strategy”
- Mentor/Coach: “We have a first-time VP of Sales with a high ceiling - how can we invest in helping her grow into the role?”
Short-term intensive engagement
Cash compensation (can be supplemented with equity to align incentives)
This is probably the type of work you are most familiar with. You’ve likely hired contractors or consultants to augment your team already. We think this is a great way to get exceptional talent engaged with the company for short bursts of work that can dramatically accelerate progress. 2 main types of engagements to consider:
- Project-based: “We need a sales playbook”
- Executive for Rent: “We need an interim head of sales for the next 3-4 months as we hire and ramp a new VP”
Advisors are not just for the CEO, but your executive team as a whole
I recently had a CEO tell me that he was hesitant to bring on an advisor because he didn’t have the time to manage them. I found this interesting for 2 reasons - 1) advisors should be helping YOU and 2) there’s no reason the founder has to be the one interacting with the advisor on a regular basis. In fact, we recommend that you bring on advisors to support your entire exec team.
As a founder, you are not, and should not be, the expert on sales, marketing, product, engineering, finance, etc. That said, you can set the tone for the company and encourage a culture of learning and growth by supporting your leaders with external guidance from advisors.
Agreement structure matters… a lot
As detailed in our Anatomy of an Advisor Agreement, we like to see agreements that set clear expectations, align incentives, and optimize for short term impact. What does that look like in practice?
- Short-Term Contracts: My personal preference for advisory work is 3 months as an initial term, with month-to-month renewal from then on. The only time to see year or 2-year long contracts is for advisory boards and even then, we would recommend limiting to year-long terms. Why? Because the optimal advisor changes at different phases of growth and the person who was critical to getting your content strategy off the ground likely isn’t the absolute best person to help with the next key opportunity your business is facing.
- Compensation Structure: Ultimately, you have 2 levers - cash and equity. It’s a sliding scale to determine how much of each is in play. You need to consider experience, time commitment, duration of the agreement, uniqueness of skill set, stage of business, cash left in the bank, etc. A few quick guidelines:
- Short-term engagements should be cash-only, while strategic advisory work should skew more towards equity to create long-term alignment
- Expect to pay 2-3x the equivalent hourly rate of a full-time employee - for the sake of round numbers, if you are bringing on an exec who has a salary of 500K/year, expect to pay $500-$750/hour for his/her time as an advisor
- Use equity to create long-term alignment
- Flexibility: Either party should have the right to terminate the agreement at any time - if it isn’t working, you should not be paying someone for a year, or worse, meeting with someone because you feel that you have to and have already sunk the cost.
- Extend Term Limits on Equity: Do not hold your advisors to the same 90-day purchase timeline when the agreement comes to a close. This is a retention strategy for employees and should not be applied to advisors - you WANT advisors tied to the business long term.
Ultimately, you get back what you put into advisor relationships. If you want to avoid the dreaded “headshots in a pitch deck” pitfall, follow our tips to build lasting relationships with your advisors:
- It’s on you (or your team!) to drive the time: Don’t wait for the advisor to set the agenda. Set a regular cadence of check-ins and direct what you want your advisors to be focused on. Schedule a planning call (monthly or quarterly) for 30 min to determine:
- What do you expect from the advisor in the coming quarter/month?
- Are there topics or people you would like him/her to focus on each month?
- Is there a big strategic project that could use another set of eyes?
- Communicate regularly: It may feel like you are overcommunicating, but keeping an advisor up to speed on the challenges, opportunities and inner workings of your business means that 1) you are top of mind for them and 2) they can bring your new ideas. Put yourself in the advisor's shoes and imagine parachuting into a business 1x per quarter and being asked a few pointed questions - can you really give great advice? We recommend sharing a weekly or monthly update on what your teams are working on, successes and failures, learnings, and highlighting pointed asks for help. As an advisor, I’ve always found that I give more of my time to the CEOs who keep me in the loop. It’s not even intentional on my end - but I have a lot more of those “ohhh CEO X would really appreciate this” moments when I know current priorities for the company.
- Ask for help: Your advisors are there to help you, and they can do that in between scheduled sessions. Don’t shy away from the one-off questions, figure out who your “go to” people are, who is responsive/engaged/gives great advice and CALL them. Talk about real problems, don’t just share updates. This is how real relationships are formed and how you learn to trust each other.
- Be accountable: This one couldn’t be more simple. Follow through on your stated commitments and hold them to what they’ve committed to
- Express appreciation: This comes down to two things - first, it’s the right thing to do. Second, people who feel valued will work harder for you.
When it works, it just works. For an early-stage business, it’s amazing to see the experience and talent that you can add to your team for a quarter point. When you think of the impact high caliber people have on those around them, these types of advisors are “underpriced.” If we can leave you with one final piece of advice: Get more advisors, sooner.