APPRECIATION FOR WISE BUSINESS ADVICE Colin Mason
Seeking and providing advice are central to effective leadership and decision making. Yet managers seldom view the exchanges as skills they can learn and improve. Receiving guidance is often seen as a passive intake of wisdom. And advising is typically downplayed as a matter of “good judgment” (you either have it or you don’t) rather than as a capability to be mastered.
When the interchange is done well, people on both sides of the table benefit. Those who are truly open to guidance (and not just looking for self-validation) develop better solutions to problems than they would have on their own. The new perspective adds nuance and texture to individual thinking, and as research shows, this can overcome cognitive biases, self-serving rationales, and other flaws in subjective logic. Those who give advice effectively wield a soft influence - they shape important decisions by empowering others to act.
Overall, the guidelines for both seekers and advisers represent a fundamental shift in approach. Although people typically focus on the content of advice, those advisors who are most skilled attend just as much to how they advise as to what they advise.
Skilled advising is more than the dispensing and accepting of wisdom; it’s a creative, collaborative process - a method of striving, on both sides, to better understand problems and use on-going dialogue to craft promising paths forward. It behooves business leaders to identify a method for routinely incorporating wise and experienced advice into the management decisions of the organization. This series of blogs will illuminate that process.
BEST PERFORMING BUSINESS ADVICE Colin Mason
Success-minded people soon discover that to follow the advice of those who are wise is wiser than the advice itself. It takes a confident and thoughtful person to realize they need some guidance from time to time. Successful business people know that they can learn and grow by listening to those who know what they are talking about.
Most of us have turned to others for advice. There are always enthusiastic sources of ideas, opinions and recommendations. Some are qualified, some not so much:
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Friends, Family, Colleagues
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Lawyers, Bankers, Auditors
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Trade Shows & Conferences
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Peer Group Associations
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LinkedIn & Online Groups
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Boards of Directors
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Advisory Boards
Which of these sources is the best? Has anyone ever measured the relative success of following advice from one source over another? Fortuitously the answer is yes. A recent study by the Business Development Bank of Canada (BDC) surveyed the performance results of over one thousand small and medium sized businesses (SMEs) all operating with advisory boards, versus those without them. The results are quite startling...
SALES TRIPLED: Before taking on an advisory board, the SME companies averaged a sales increase of 22.9% over a three year period, or about 7.3% a year for three years.
After starting their advisory board those same firms averaged sales increases of 66.8% over three years, or about 22.3% a year.
PRODUCTIVITY DOUBLED: Before their advisory board, operational performance increase (ratio of sales revenue to input costs) was 3.2%, or about 1.1% a year.
After adoption of a board, productivity increased to 5.9% or about 2% a year.
MORE BENEFITS: In addition to these astounding performance improvements, CEOs commented that many other benefits accrued from their interaction with their advisory board, including:
“... improved strategic business choices”
“... broadened our universe of knowledge and skills”
“... developed new ideas & innovations”
“... put in place a better management structure”
“... improved company reputation and image“
“... reassured shareholders and investors“
“... avoided costly mistakes“
“... broke down the isolation of company executives”
“... ensured succession of the company”
In its summary of the research, BDC noted the significant difference that advisory boards had made to their clients bottom lines. They concluded that it was enigmatic to them that only 6% of Canadian SMEs had an advisory board. They recommended that firms (of 20-100 employees especially) immediately consider the substantial performance benefits resulting from a well-selected advisory board.
WHAT IS AN ADVISORY BOARD? Owen Sagness
There are many good reasons to form an advisory board. According to the Business Development Bank of Canada, the most common reason is the desire for complementary expertise. But what exactly is an advisory board? At the simplest level, advisory boards have the following characteristics:
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They are a special group of advisors
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They are objective, and independent of management
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They provide insight, counsel and mentorship
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They have knowledge or experience not present among management
For those familiar with a board of directors, this may sound quite a bit like the role of the board. Certainly, advisory boards and boards of directors share the above characteristics. However, there are some very important differentiators between boards of directors and advisory boards. Specifically, advisory boards:
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Do not have fiduciary or legal responsibility
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Have no authority to make changes to the business or management team
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Are accountable to the CEO
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Are easily adapted to the current business situation
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Are very flexible with respect to membership (i.e. additions, changes)
Furthermore, the focus of an advisory board can be quite different from that of a traditional board. A recent Eghon Zehnder study reported than only 28% of CEO’s turn to their board for advice. Similar studies have shown that fiduciary boards spend most of their time on oversight and hindsight, with very little time spent on foresight. One example is the scientific advisory board, which may be very focused on R&D and new product introduction, with skills far beyond those of your board of directors.
Finally, we must ask what make a great advisory board? The answer is very simple: people. Those on the advisory board need to be:
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Committed – they must attend all meetings, read all required material, and be evangelists for the company and its products
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Focused – a good advisory board has 3-6 people who know why they are there and how they add value. Advisory boards larger than 6 generally lack focus, and it’s more difficult to get advice from every member. And remember, the people on the board can be changed easily to suit the situation facing your business
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Diverse – while there has been some progress, it’s no secret that boards of directors in general are woefully lacking in diverse points of view. Recruiting an advisory board with diversity in mind can fill some of the gaps you may have on your board. Even if you have a diverse board of directors, you want to have diversity of opinion and avoid group think with your advisory board
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Subject Matter Experts – in our experience, we see that advisory board members are most valuable when they address very specific areas of expertise - for example, technology, finance or sales. Aligning the board’s expertise to your strategic goals ensures you get relevant advice.
In conclusion, advisory boards fulfill an important role for the CEO. They exist alongside other governance and management structures but have a unique role and can add significant value to an organization.
IS AN ADVISORY BOARD RIGHT FOR YOU? Owen Sagness
You’ve identified a business problem, you’ve done some research, and you’re beginning think you might want to start up an advisory board. But, is it really the right thing to do? Are you ready to form an advisory board? Will you able to get the most value from your advisory appointees?
There are many compelling reasons to form an advisory board, and there also some compelling reasons not to form one. Let’s first look at why you might not be ready to form an advisory board:
1. Time
This is the big one. Advisory boards can deliver massive value, but you, the CEO need to put in the time to make it successful. That means you must have time for:
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Deciding what topics you want to cover
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Preparing and/or reviewing materials
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The meeting and any follow-up
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Ongoing, regular communications with your advisory board members
You can’t delegate too much of this. Your advisors sign up with the expectation of working with the CEO primarily, not the CEO’s executive assistant, chief of staff or anyone else.
2. Candor
In order to get the most from your advisors, you must be candid with them. Your advisors can’t give you their best thinking and advice if they don’t have a good sense of what’s going on in your head and your business. At minimum, you must be ready, willing and able to:
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Confide in others about yourself
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Transparently present your business situation
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Delve deeply into key strategic issues
3. Feedback
Let’s face it – if you’re one of those leaders that has a hard time with feedback, there’s really no point having an advisory board. Advisory boards are all about feedback – that’s why you create one in the first place. You must be open to feedback, and also gracious at accepting it. Nothing will demotivate your advisors faster than the perception that you’re ignoring their feedback.
The bottom line is this: if you have the time, if you are willing to be candid, and you are happy to accept feedback, then you are ready to take the next step in forming an advisory board. If not, put it on the back burner for now and revisit when you’re really ready. It will be better for you and your advisors.
WHEN TO CONSIDER FORMING AN ADVISORY BOARD Owen Sagness
In our previous blog, we discussed the reasons a CEO should not form an advisory board. To recap, we advised not forming an advisory board unless you can:
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Dedicate the time required
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Be candid
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Accept feedback
There are multiple circumstances where you should consider forming an advisory board.
Natural Evolution of Company Governance
As companies evolve, they generally go through several stages in the evolution of their governance model. Small, family-owned businesses generally have no formal board or advisory structure. However, as companies grow and become more complex, they will generally progress through the following stages:
No Board > Family‐Only > Paper Board > Advisory Board > Compliance Board > Fiduciary Board
Hence, advisory boards are in many instances part of the normal evolution of a company. In fact, forming an advisory board may be the first time a family-owned or privately-held company obtains independent, outside advice (if the board is constituted well – we’ll address that in a later blog).
Uncertainty Around Management’s Ability to the Take the Business to the Next Level
Geoffrey Moore’s classic book, Crossing the Chasm, does a wonderful job of describing one of the challenges facing businesses as they scale up a new product or enter a new market (and how to address it). There are many challenges along the way, and some business leaders may not be certain they have the right talent on board, or they may want to help develop that talent.
A well structured and staffed advisory board can help immensely in augmenting the skills of the existing management team. An advisory board can:
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Suggest new approaches to problem solving based on their background and experience
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Use their network to find needed talent
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Provide the CEO with an assessment of current management talent and their ability to continue to scale the business
It is important to remember that even business titans like Steve Jobs used outside advisors. In fact, Jobs said “Great things in business are never done by one person; they’re done by a team of people.” Early in his journey at Apple, Jobs brought on Mike Markkula, first as an advisor and investor, and later as CEO of Apple.
Looming Business Issues
One of the great skills of successful business leaders is their ability to “see around corners” – to anticipate challenges and respond before a crisis or opportunity emerges.
If you anticipate facing a significant challenge in the next 12 months, the time to act is before the situation becomes acute. Advice from outside experts may help to prepare for and weather a coming storm or seize a huge opportunity. Is your business going to be faced with any of the following?
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Emerging from the pandemic
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New competitive forces
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New technologies
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New regulations
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Raising capital
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Changing employee expectations
In summary, accessing outside advice is a normal and necessary part of the success of any business. Yes, it takes commitment and foresight from the CEO. As we have seen, those that recognize the need for outside advice have demonstrably better business results over the long term.
In our next blog, we’ll examine the steps needed to form an advisory board.
STEPS TO FORMING AN ADVISORY BOARD ( Part I ) Owen Sagness
In our previous posts, we’ve discussed what an advisory board is, the benefits of an advisory board, and whether (or not) an advisory board is right for you.
This post outlines what we believe is the best approach to forming your advisory board. We won’t go into a detailed methodology, but we will explain the high-level what steps to get your board up and running.
Broadly speaking, there are four steps:
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Create a charter
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Determine needed skills
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Decide compensation
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Source candidates
Creating a Charter
Also referred to as “terms of reference”, the charter describes the purpose of your advisory board, how it operates and how it relates to the rest of your organization. The charter is a living document – it is not nearly as rigid as the corporate bylaws which may define the structure of your board of directors. However, it should be detailed enough that you can use it as a communications tool internally and externally, and as a guide for the board members to help set expectations and define their scope.
The charter should also be linked to your corporate strategy and define how the advisory board supports the achievement of your strategic objectives.
Your charter should include the following at minimum:
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Mission
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Objectives
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Responsibilities
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Compensation
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Meetings
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Desired Composition
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Expected Time Commitment
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Statements or Disclaimers regarding confidentiality, non-fiduciary nature, etc.
Determining Needed Skills
Getting the right skills on your advisory board is the single most important factor in building a great board.
But how exactly do you do that? It is a two-step process. First is building a skills matrix. Second, is using that skills matrix to recruit the right people for each of the seats on your board (more about that in our next blog).
Let’s start with the skills matrix. Simply put, a skills matrix is chart that outlines each of the three to six seats on your advisory board and itemizes the relevant skills that each member must possess. To create a skills matrix, follow this step-by-step approach:
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Determine the skills/advice you need to hit your strategic priorities.
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Assess the skills of your board and senior management team with respect to these skills.
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Rate each member of your board/senior managers (for example: High, Medium, Low)
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Use the information from the skills matrix to determine any gaps.
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Create a list of three to six roles -- and the skills they will need – to close the gaps you have identified.
Now that you have a skills matrix, you are ready for the next two steps in forming your advisory board: deciding how you will compensate your advisors, and how you will recruit them.
STEPS TO FORMING AN ADVISORY BOARD ( Part II ) Owen Sagness
In our previous article, we discussed what we believe is the best approach to forming your advisory board. To recap, the high-level steps to get your board up and running are:
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Create a charter
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Determine needed skills
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Decide compensation
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Source candidates
We will now focus on steps three and four from the above list:
Decide Compensation
If you want committed and engaged advisory board members, then compensation is key. It is also critical to establish what you’re willing to pay before you begin recruiting. You can then establish a budget (if you’re paying cash), and you are prepared to discuss it during the recruitment phase.
While there are no hard and fast rules around compensation, the following are factors in your decision:
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What stage is your company?
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Early-stage start-up, late-stage (or even unicorn), mature company, publicly traded? Generally speaking, the larger the company, the greater the overall compensation. Furthermore, cash compensation should be greater with a larger, more mature organization. If you’re an early-stage company, there’s no need to use your precious cash resources – stock-based compensation is preferred and expected. We like to use stock options, but there are other mechanisms such as common shares and warrants.
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C-Level Executive Solutions maintains a compensation grid based on our market research and can provide recommendations based on your situation.
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Your relationship with the advisor
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Is the advisor a family friend or relation? What if they’re a significant investor? In these cases, you may not need to pay any compensation, as the advisor already has a vested interest in the success of your company.
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Rare, specialized knowledge
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If you’re trying to attract a very specific and rare skillset, higher compensation may be required. For example, some companies establish scientific advisory boards comprised of experts with specific research, product development or commercialization credentials. If you’re trying to get some highly regarded Key Opinion Leaders on your board, expect to pay more.
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Again, working with an experienced consulting or recruiting firm like C-Level Executive Solutions will be helpful in establishing the right level of compensation for people with a very rare skillset.
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Source Candidates
Sourcing candidates for your advisory board is likely to be the most time-consuming aspect of the setup process. The steps can be described as follows:
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Create position description. Create a description of the position, ideally one for each skillset/person you’ve identified in your skills matrix. Be sure to integrate requirements from both your charter and the skills matrix.
2. Decide on your recruiting strategy. There are a few strategic options for recruitment:
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Get it done now – this involves using a company that will build and staff your advisory board for you. C-Level Executive Solutions can do this, and it brings the benefits of:
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Speed
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Time Saving (yours!)
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Bench Strength
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Flexibility
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Use your network – You’ve likely been in your sector for quite some time and know lots of people you’d like to work more closely with. The caveat here is avoiding the temptation to stack your board with your friends – lack of diversity breeds dangerous group think.
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Implement a traditional recruiting process – If you have a recruiting team or process you use to hire full-time people, that can be used to hire advisors as well. Some examples:
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Post on your company Careers site.
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Use job posting services like LinkedIn and Indeed
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Use a recruiting firm
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Hybrid – A hybrid approach can also work well. An example here may be to use your network to acquire some members of the advisory board (no more than half), then supplement using either a recruiting firm or a firm offering fractional executives to quickly fill the open roles (which can always be switched later).
3. Execute your strategy and sign-up your advisors. Depending upon how formal you want to make it, you should sign a contract and an agreement regarding any grants of stock-based compensation.
Finally, remember to allocate budget for recruiting and/or temporary advisors – these costs will generally require cash compensation, not stock-based compensation.
PLANNING THE FIRST SESSION WITH YOUR ADVISORY BOARD Owen Sagness
Once you’ve finished recruiting your advisory board members, it is time to plan for the first meeting.
This is where you pull everything together and set the stage for your advisors to begin delivering value.
The first meeting is especially important, as it will determine long-term roadmap of the board.
Your advisors are busy people and getting into their agendas may be challenging. The more lead time, the better. Ideally, all the meetings for the next 12 months should be scheduled in advance, with at least 6 weeks’ notice before the first meeting. First impressions and relationship building are important, and while you might want to do virtual meetings, the first meeting should be 100% in person.
At this time, you should also collect and distribute profiles of all members of the advisory board and circulate to the group. Include a copy of the terms of reference and your latest strategy documents.
As you approach the first meeting, there are a few unique items that should be added to the agenda.
First, it is critical that you start with the terms of reference/charter. Why does this board exist, and what is it intended to do? This first meeting sets the tone for all the rest. And don’t be afraid to repeat this at the start of every meeting.
Second, deliver a specific reminder about the governance structure of your organization. Where does the advisory board fit vs. the board of directors and any other governance structure you may have in place.
Third, there should be a standard set of materials for the meeting, i.e. financial statements, etc. Form will follow function. What is needed depends on the terms of reference. Management/owners need to prepare materials for the meeting just like a fiduciary board meeting. This ensures preparation by them, the right information to the advisory board and the discussion is within the terms of reference. It helps ensure accountability by all and puts the focus on the strategic guidance sought.
Finally, plan for a post-mortem follow-up with each member of your advisory board. As noted above, get this in their calendars well in advance, ideally when you schedule the first meeting. In this meeting, ask three questions:
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What did you find most valuable about the meeting?
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What did you find least valuable about the meeting?
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What can I do to make the meeting even more valuable next time?