Startup Advisory Board: Who You Need and Why

A serial entrepreneur already knows that a Startup Advisory Board is a shortcut to experience and more. First-time founders also quickly discover how rocky the transition gets when moving from an idea-person to a CEO. An Advisory Board helps to bypass costly mistakes, source needed introductions to investors, partners, clients, or talent, and get valuable advice based on their institutional knowledge and credibility. 

For instance, CEO Steve El-Hage became a first-time founder at 22 with a product called Massdrop. It successfully exists now as Drop. Yet the first launch, backed by investors, failed. 

The first time went like this: a scrappy website, launch, and the immediate results:

“$12K in revenue [in week 1], and it continued on to do $25K in week two, followed by $50K in week three.” Those results are often a dream-come-true for any founder. 

However, the success story swiftly took a U-turn in week 4. Their revenue didn’t simply drop; it went down to zero for 8 weeks straight until the company folded. And El-Hage recalls: 

“The worst part was that we were working way harder than we were before, but we just couldn’t get anybody to buy anything. After we closed, we basically had to go to this group of investors and say like, ‘We promise we didn’t trick you guys.’” 

And the latter is the worst nightmare for any founder. 

So, the person who went on to become a successful founder through learning lessons the hard way says,

“There’s a problem when you start a company when you’re 22, and the problem is that you don’t know anything.” 

Many seasoned advisors, executives, and serial entrepreneurs describe their first startup experiences as “working in trenches,” and for a good reason. And this is the problem a startup advisory board helps mitigate.

In this blog post, we’ll begin with why it is economically sound to get a startup advisory board. Then, we’ll proceed with outlining different categories of advisors to structure your own Startup Advisory Board. Finally, we’ll answer why having a structured board is better than having startup mentors advising in isolation. 

Economics of a Startup Advisory Board

Today’s context for early-stage startup founders is quite demanding. They are expected to:

• navigate a complex competitive environment,
• develop the product strategy,
• do the hiring, and
• orchestrate a go-to-market strategy, along with all the fundraising and organizational design. 

Having all the necessary skills in a practical sense and at an expert level is unrealistic.

So the next possible solution might be hiring specialist executives. However, executives of this caliber often command a $200k annual salary. This might be too much of an overhead for an early-stage lean startup. 

Then another possible option is finding a co-founder with complementary practical skills and expertise. Yet, looking for a co-founder isn’t an option for everyone either. Entering a partnership entails relinquishing part of the company’s equity, often 50%. This is not something everyone is willing to do. 

So, finally,  advisory board members are generally compensated with 0.25% to 0.5% in equity each. Economically, this is a much more sound plan. Compared to giving away 50% of equity or hiring a $200k a year executive. Though advisors need to be convinced of the high-leverage opportunity your idea is. They need to be sure of the potential before investing time and experience.

Who You Need on Your Startup Advisory Board

Generally, a first-time startup founder needs 2 or 3 startup mentors. Let’s assume that a first-time startup founder comes from a domain where they identified a gap that can be filled with a digital product, or is a solo-preneur with a day job. They do have a great understanding of the real-world realities for their idea, possess the domain expertise, and have the product vision. However, the digital startup landscape is a completely different ball game than where their expertise comes from. They may not know

• the mechanics of tracking user behavior,
• Big Data analytics,
• setting up funnels,
• building feedback loops,
• peculiarities of different business models, or
• legal consequences of product features, and the like.

This is why categories shown below can fill the knowledge gaps and ensure more reliable startup outcomes.

Specialized Knowledge

Setting up proper complex sales funnels, feedback loops, or supply chains may take a founder months of vicious research cycles. Surely, one’s own research is likely to bring a general understanding of this complex topic. But then comes a time of applying it to their startup with its specific conditions and evolving nature. As a result, understanding falls short, things break, and time and money get wasted. 

Overall, the growth mechanics of digital products is a complex field. Startups and mature companies often have advisors for this area. Let’s take the Dropbox example. In the early days, it was Sean Ellis,  an entrepreneur, angel investor, and startup advisor, who set up early user acquisition loops at Dropbox. He also did the same for Lookout and other startups. In addition, Sean Ellis brought in a keen expertise in setting up rapid product experimentation as a key growth mechanism. Product testing and experimentation are quite a specialized advisory area as well. As Dropbox matured, they invited Adam Nash, an advisor and angel investor, too. In 2019, he generated 90% of the company’s revenue by leading growth, product strategy, and analytics.

Industry Startup Mentors

While a startup founder has a specific insight into the problem they aim to solve, the wider understanding of the industry might still be incomplete. For instance, while a founder seeks to automate a certain part of the workflow in enterprise-level processes, an industry veteran has knowledge of wider market nuances, enterprise client psychology, and competitive landscape. 

As an example, Brian Chesky, an Airbnb co-founder, talks about the pivotal advice he received from Paul Graham. It completely changed the company’s early development and was the opposite of what the founders had thought the company needed. While Brian Chesky has a background in industrial engineering and general business knowledge in Silicon Valley, their product idea resided in the service industry. He recalls: 

“The problem is that, in Silicon Valley, the general wisdom is: you need to build this app, it needs to have a viral coefficient, I need to get millions of people to use it…and it is a totally wrong way to think about it. ….. Paul Graham gave us a series of advice that probably changed our business forever… He basically said: ‘It’s better to have 100 customers that love you than a million customers that just sort of like you.“

It illustrates that although general wisdom is generally true, it might not be the right path for your exact idea. Additionally, contrast product development, which aims for millions of people to ‘like’ your product, to building something that 100 people will “LOVE”. In the first path, one would push for a polished and catchy UI/UX look, mass marketing, and building viral loops. In the second path, you’d build a close community of early adopters, interview them a lot, gather a lot of feedback, and iterate till you reach “LOVE” from these 100 early adopters. 

Technology

Geoffrey Arone is an example of an established blockchain investor, advisor, and executive. He helped startup Bloom to make the right strategic technology choices and design scalable architecture. With complex tech solutions, a good technology advisor is a must when it comes to both tech decisions and hiring the right engineering team. 

Regulatory

A regulatory advisor for early-stage startups matters most in healthtech, legal-tech, and fintech. In these niches, the right regulatory advisor can make a difference between a smooth market entry and costly launch delays(up to crashing the business). Stripe, for instance, has been using a regulatory advisor from its early days, and it hires regulatory counsel to this day. 

Fundraising

Reid Hoffman is an example of an advisor in the fundraising field. He has been providing valuable mentorship on aligning a startup’s strategy with the expectations of the VCs that invest big into potentially industry-defining startups. For early-stage startup founders whose startups require heavy investing, a shortcut to knowledge of investor psychology, negotiation of terms, and developing the right pitch is essential.

Introductions from Startup Mentors

Some early-stage startups can benefit greatly from introductions to industry’s prominent players, whether they are potential partners, prospective clients, top-tier service providers, high-ranking talent, or well-established investors. The quote below from Ankur Nagpal, CEO and founder of Teachable, indicates the value of an advisor with a strong network and credibility. Basically, this type of advisor operates as a door-opener and vouches for the founder and their startup idea.

CEO Coaching & Sounding Board

Transitioning from a product visionary to a CEO entails a drastic shift in one’s work. Now, employees, investors, and partners look up to you to make high-stakes decisions under pressure. 

• When there is a prospective enterprise-level client, should the team develop the features for this client even though it will mess up the roadmap? 
• The new features require a higher-skill person: should you fire the engineer whom you hired on Day 1, your founding hire, but whose skills no longer match the new roadmap? 
• You see a landing page for a similar product: should you prioritize speed to market even though it will generate a lot of rework? 
• Internal communications become too dispersed and too casual for the startup you’re becoming – who should structure internal communication workflows and put together standards for these?

The key CEO coaching areas often include:

• Handling people issues;
• Organizational decisions;
• Strategy & leadership;
• External perspectives. 

This advisory role on your startup advisory board is extremely valuable. It helps not to lose vision in the operational quagmire, ensuring that decisions contribute to long-term success and sustainability. This advisor is especially important if there is a feeling that the founder becomes busier than ever, yet the productivity and progress lag behind. Same as in the introduction story, “we were working way harder than we were before, but we just couldn’t get anybody to buy anything”… The internal team and the founder become so overworked and focused on a particular thing that there is a need to step back, hear other perspectives, and, better yet, prevent this deadlock altogether. This is often the most universally present type of advisor on a startup advisory board.

Why is a Startup Advisory Board Better than Individual Startup Mentors?

With individual mentors, you have basically simply a group of people you call. You explain to each of them individually a slice of the context relating to the issue you need advice on. As such, none of the startup mentors have a full-rounded view of your situation, so they advise in silos. Also, it may lead to situations where advice from one advisor is in conflict with the advice of the other, or advice pulls the startup in different directions. 

Unlike the siloed asynchronous nature of individual startup mentors, a startup advisory board meets regularly. There is a clear shift from the reactive nature of a network of individual startup mentors to a structured, accountable approach. Below are the benefits of a startup advisory board.

Cross-Functional Perspective

Real-time discussion with the participation of all advisors prevents finding a great solution in one area that might create a crisis in another. A well-rounded view of the business will let advisors give well-balanced advice, taking into account the entirety of the business context.

Advice Efficiency

Instead of a collection of different meetings, one 90-minute structured session offers comprehensive and high-impact advice. With isolated startup mentors, a founder manages multiple individual mini-sessions, different lines of updates, and fragmented follow-ups. A startup advisory board removes this ‘management tax’ on the founder.

Building the Chairman’s Professionalism

Consulting with mentors on calls might be very casual and not require a founder to prepare, but board meetings do. A founder starts to chair meetings early on and ground presentations in metrics and analytics to have everyone on the same page. This helps the founder to build up a deeper knowledge of the startup’s internal metrics as well as prepare for more formal governance.

Accountability 

Closing the session with a startup advisory board, a founder often narrows down a list of actions to take. Unlike suggestions from mentors, the upcoming session with the Board requires a founder to execute on the commitments made previously. Startup mentors may not track progress on the given advice, while the Board clearly shifts the focus from private advice to public accountability.

Final Words

All in all, assembling a credible startup advisory board for first-time founders is one of the key factors of startup success.  A startup advisory board is a way to ensure that the founder’s idea has a full-rounded expertise, ensure reliable outcomes, and de-risk the business as much as possible. Additionally, the Board adds credibility to the startup, acts as a door-opener, and assists in the transition from the idea to a high-functioning company. 

FAQ: Startup Advisory Board: Who You Need and Why