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Advisory Boards

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

Corporations (including nonprofits) require a legal board of directors with fiduciary and other responsibilities to oversee the operations of the organization. These directors guide day-to-day decisions for a company.

Advisory boards, on the other hand, are not legal entities. They are groups of individuals that a company chooses to ask for advice and support. They may have some contractual obligations to a company (depending on how formal board membership is and if they receive compensation) but they don't have the same statutory oversight that a board of directors would. They can provide a broader, strategic, or unique perspective.

Advisory boards can vary from very informal (an entrepreneur asking a small group of mentors to get together for coffee and reality check) to formal groups with assigned roles and responsibilities.

What kinds of businesses should consider creating an advisory board?

  • Any business owner who is open and willing to listen to outside advice and then act on it should consider an advisory board. Startups can benefit, but so can businesses that have been in operation for years.
  • Businesses that need additional support: Advisory boards can be especially useful to solo entrepreneurs or people running very small companies, who may not have certain kinds of expertise on their staffs.
  • Companies that are trying to solve specific problems or overcome challenges as they seek to grow may find a board of advisors can help define next steps.
  • If you need access to new networks, advisory board members can be a route to investors, business opportunities or other resources.

Tips for choosing an advisory board

  • Begin with a specific reason for assembling the board, to guide your selection of members. The reason may be broad, such as developing a strategic plan, or it could be specific, as in helping you launch a new product line. If you are uncertain if your new board will "gel" or truly benefit you, make the first goal finite, with an end date. If you find that the project was successful, approach them for the next project, or for a long-term commitment.
  • Look to assemble people who have both specific and diverse expertise. Look for skills or knowledge that complement what's available to you internally. Have a strategic reason for each person you invite to be a member of your advisory board. Seek people who may not think the same way you do. Choose the most talent people in their fields whenever possible.
  • Limit the size and terms. In the beginning, ask a few people (likely no more than six, if you are a small business) to join and stay on the board for a succinct period of time. You can always add people and/or extend their terms later (12 is typical, if you are a large organization). A finite start and end date to a member's responsibilities will make them more comfortable accepting the request to join and certain they can fulfill their duties. At the end of their tenure, you can ask them to stay or thank them for their time and infuse the board with new members.
  • Check character: Make sure that the people you are inviting have high integrity, strong loyalty, a strong work ethic, are good decision-makers, are successful, and are committed. Make sure you know them well yourself, or ask multiple trustworthy sources about an individual you're inviting to your board.
  • Choose people who will be candid with you: You may want to think twice before including family, friends, staff or paid professional advisors. The goal is to get an outside perspective from people who will be open with you, even to the point of countering ideas that are not in the interest of your long term success.

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