May 2, 2003
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Counselors to the Throne:
Do You Need an Advisory Board? |
By Brian Pelletier
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As the owner of a small business, do you ever find yourself wishing you had someone looking over your shoulder?
While many small business owners take great pleasure in not having a nagging boss, once their business is off and running they often find they have few resources to truly help them run their operation. Employees have vested interests, and bankers, lawyers and other outside consultants tend to want to minimize risks, so they can't always provide the type of advice a business owner needs.
Some small business owners have taken the step of creating an advisory counsel. This small group of confidants can invest time to understand a business and provide counsel to the owner for any number of challenges he or she might face, from the pains of starting from scratch to employee and production issues.
"When I started my business, I was inexperienced in that particular field," explains Natalie Tessler, owner of Spa Space, a day spa in downtown Chicago. "I developed an advisory board to address that concern, to utilize their collective experience and to help prepare answers for questions about where my own personal experience may be lacking."
Tessler had a master's degree in tax law, but wanted to run her own business in the hospitality industry. Opening a spa gave her that opportunity without the challenging hours of a restaurant or catering business.
Tessler started her advisory board close to home - her father, a dermatologist, was the first member. "Once I threw myself into it, I found other people who had experience or knew someone who would be helpful," says Tessler. "Everywhere I went I talked about what I was doing, and found people to be incredibly receptive."
James Watson, CEO of Doculabs, a Chicago-based research and consulting firm, waited a bit longer to form an advisory board for his company. Doculabs began with a board of directors, but Watson eventually found he needed advisors who weren't tied to the formality - and legalities - of a board of directors.
"At the start my advisory board was a little less formal than it is now," says Watson. "We began by selecting people we knew well, who could help us pursue different projects. We've since added a customer or two, a finance guy, someone who understands valuation and capitalization, and a marketing expert. If you want them to help you steer the ship, you need to have a diverse group."
Both Tessler and Watson call on their advisors with questions about introducing a new product or service, or penetrating a new market. Tessler's board was extremely active as she launched her business, advising her on what services to offer, and how to design her shop's space. Now she contacts them individually, on a case-by-case basis.
Watson drives his advisory board more aggressively, flying the group of eight into Chicago twice yearly for a formal daylong meeting. "We prepare quite a bit, starting about a month ahead, looking at the questions we're struggling with and how the advisory board might be able to help," says Watson. "We put together a binder with three or four questions and a lot of background information - we tee it up so they're prepared to talk about things when they get here."
While some businesses assemble an advisory board from scratch, others look to professionals for help. Paul Steger, president of Accurate Custom Cabinets, a commercial cabinetry supplier, at first considered creating his own board before he decided to hire several outside consultants. Then he discovered Chicago-based President's Resource Organization, PRO, which brings business owners together in custom-built peer groups to help address the challenges of running a small business.
"I try to make every meeting, once a month, because it's interesting to hear what the other guys are going through," says Steger. "Over the years, you bring in your questions and problems, and the other members can't help but understand more and more of your business."
Ray Silverstein, president of PRO, has eight different monthly peer groups, each of no more than a dozen people operating in the Chicago area. He connects new members with different groups based on their business type, size, location and the owner's personality type.
"In theory it works to create your own advisory board, but in practice it breaks down," explains Silverstein. "The commitments aren't always there, and your business often plays second fiddle to their own business. Even when you pay someone, they can be reluctant to tell you something you don't want to hear because the payments might stop."
While Tessler's board includes her father, and Watson's board includes his clients, Silverstein recommends taking great care in putting a close friend or relative on your board. "You never want to hire someone you can't fire."
Watson and Tessler don't completely agree with that perspective. "The real reason they participate is because of the personal bond they have with the company, or someone in the business," Watson says. "It's not financial - they want to see us succeed."
"Who else but a a friend or relative is going to put in their time and energy so willingly, especially when there's no guaranteed return?" asks Tessler. "You shouldn't hesitate to ask someone you trust to be on your advisory board - the worst you can do is flatter someone by asking."
How much does it cost to form and operate an advisory board? PRO charges members $550 to $825 per quarter, depending on the size of the company, to participate in the monthly meetings. At Doculabs, in addition to paying travel expenses for the twice-yearly meetings, Watson currently compensates his advisors with stock options, although he is examining more desirable alternatives. "The key thing is making sure there's a real benefit for the members, beyond compensation," adds Watson.
"My advisors aren't compensated at all," says Tessler, "but they certainly do benefit from our relationship. For example, one advisor is a doctor who developed a line of vitamins and saw our store as a sales outlet for his product. You have to make participation appealing to the members of your advisory board."
So how does it really feel to have a group of people watching over your shoulder?
"We always hear about a few things that are new to us, or just enough push to get us moving in the right direction," says Watson.
"I get good comments, but we sometimes do a good job of bashing each other," says Steger. "It's important that people are honest and give their opinion whether you like it or not."
"My advisory board is such a great, inexpensive resource. I deeply value their opinions, but nothing binds me to listen to them," says Tessler. "If you treat people with respect, they know that at the end of the day, you, as the business owner, need to be the one to make the decision."
"The biggest problem with most small business owners is that they don't really think about running their business," concludes Silverstein. "A peer group helps make you work on the business, not necessarily in the business. Business owners are too busy doing, and don't think about the next level without someone challenging them to do it."
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Brian Pelletier is managing editor of CHI1, and president of Green Cardinal Communications
(www.greencardinal.com), a full-service marketing communications agency.
He can be reached at blp@chi1.com.
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