Words from the Wise: How Startups Can Get the Most Out of Their Advisors
Go to any early-stage startup website, and you’ll likely find a page proudly listing advisors, probably half a dozen or more. Advisors are mentioned in most funding pitches and sometimes even in sales presentations. Having a strong group of well-known advisors has become a quality signal for startups, a proof that Really Important People care enough about this young company to help, volunteering their time and reputation.
But getting advisors is one thing, actually utilizing their expertise, network and clout effectively is quite another. Many startups don’t tap into the full potential of their advisor group, or they get sidetracked with advice that is sometimes less than helpful. I have personally been on the giving and receiving side of startup advice for two decades, and here are some of the things I learned.
First of all, advisors come in several different types, and having a balanced portfolio of them is essential. If, for example, all your advisors are from academia, that immediately signals “ivory tower science project” to potential investors and customers. Different types of advisors have their unique strengths and weaknesses. Understanding those is a crucial first step to get the best advice.
Here are the most important types of advisors and how to best work with them:
The famous academic
It never hurts to have a professor from a name-brand university on your advisor list. It’s of course even better to have them actually involved in a credible way in the development of the startup’s technology, particularly if it’s something that was originally conceived in the professor’s university lab. But typically, the real involvement of academics declines quite rapidly after the very early stages of a startup’s development. The pace and rhythm of startups are rarely a good fit for the demands of academic work. More importantly, the market rarely rewards pure technical brilliance, and academics often hate witnessing how only a small part of their original idea gets traction with real-world customers. Overselling your academic ties is therefore a bit dangerous for startups. Experienced investors know that you have to stand on your own and that university connections rarely translate well into market reality.
The been-there-done-that person
This is typically an experienced former or current entrepreneur who has seen all the typical ups and downs of startup life first-hand. This perspective can be incredibly valuable, since people of this type often have strong pattern recognition and can explain the broader picture (and what is likely going to happen next) to you. The main pitfall is that many people have a hard time abstracting from their own immediate experience and sometimes can overestimate how relevant their practical background is in a given situation. The telecom boom of 1997 was certainly an interesting time, but the market for B2C SaaS in 2018 works very differently. Sorry, but the same sales and marketing lessons don’t apply. Look to these people for general management advice, networking intros and high-level backing more than for specific tactics.
The commiserating peer
Nobody understands the trials and tribulations of a startup entrepreneur better than somebody who is in a similar situation right now. Finding peers you can interact with is therefore very valuable, and not only for moral support. You can probably find somebody in your ecosystem who has recently gone through similar challenges in hiring, building a product, marketing or fundraising. The caveats here are similar to the previous type: Most people can only give you a point of view of their immediate experience with little abstraction. So treat this advice as a data point, not as all-encompassing wisdom.
Some people don’t necessarily bring broad startup experience to the table but are experts in one particular thing — maybe it’s lead generation, maybe it’s hiring or managing development processes or building a scalable cloud infrastructure. If somebody like that volunteers to help your startup as an advisor as opposed to getting paid as a consultant, it’s invaluable for your learning curve on that topic. Needless to say, the challenge here is to keep this type of advisor focused. You should also be crystal clear about what the nature of the relationship is, because many specialists might see this as a gateway to a paid consulting gig. Nothing wrong with that, but clarity helps avoid misunderstandings.
Some people are extremely helpful not because of what they know, but who they know. Being able to tap into the network of a superconnector in your industry is incredibly valuable. Somebody who plays on your side and can open the really big doors might bring unexpected opportunities and can dramatically speed up funding, initial market traction or hiring. While it’s great (and maybe essential) to have a couple of superconnectors associated with your startup, it’s also crucial to keep them focused. Make sure they understand precisely what kind of intro you’re looking for. There is value in serendipity, but too many meetings without a clear connection to your core mission can be very distracting.
The guy with too much time on his hands
(And yes, it’s almost always a guy. Female advisors tend to be more focused in my experience, sorry.) Is there such a thing as unwanted advice? There definitely is in the startup world, where time comes at a premium. “Hot” startups tend to attract a lot of people who volunteer their wisdom, want to meet with the CEO “just over coffee” and dish out advice. But quite often interacting with them might not be the best use of a startup team’s time. Being a startup advisor is prestigious in many circles, so it’s not surprising that people would seek that role. But for startups it’s essential to be selective. Of course, it’s not easy to reject somebody who is just trying to be helpful, but it’s sometimes necessary. Thank people, tell them clearly that you already have filled your advisor board slots, but that you will of course consult them when you think it’s mutually beneficial.
A few tips for advisor handling
1. Have a formal board of advisors, but don’t have formal group meetings
After a certain size of your advisor network it’s typically a good idea to formalize the relationship internally and externally. It adds clarity and helps manage expectations on both sides. Ideally only people who commit a certain amount of time should be on your board of advisors, but there might be exceptions for particularly big names. However, it’s rarely a good idea to set up formal meetings or calls with your entire advisor group. These are busy people, and getting them all together might take months. It’s much better to talk with them one on one or in small groups about focused topics. Still, introducing them to each other is helpful for all involved.
2. Make it worth their while, but don’t spend cash
Most startup advisors are not in it for the money, but it is customary (and polite) to compensate them with a bit of equity so that they can benefit from the stellar upside you’re all expecting. The percentage depends on the stage of the company and the degree of involvement of the advisor, but something in the range of 0.1%-0.25% is fairly typical for early stage startups. Don’t pay cash to advisors. You will need it for more essential things, and any real advisor will understand that. If any cash flows at all, it should be in the other direction. Many highly engaged advisors choose to participate in financing rounds in order to get a bigger share of the upside.
3. Keep them updated and engaged
While it’s OK and expected that you reach out to an advisor when a particular problem arises where she or he might be helpful, it’s important to keep your advisors constantly updated about your progress. Not only will that help to keep your company top of mind, you might also trigger serendipitous ideas. If your advisors don’t hear from you for half a year and then you suddenly show up and expect their help, it’s not only a rude thing to do, it’s also ineffective. Giving them some context with a monthly email or quick call is enough. Also, communicate major victories such as customer wins as they happen. Every advisor likes to brag about her startups, and these milestones are motivating for everyone (and might move things faster).
4. Make sure to update your advisor portfolio
The same advisors who were useful when you were just starting out might not be equally effective after you raise your series C. Most people have expertise at a certain stage of company development. It’s therefore essential to constantly update your advisor network with people who can add value at the current and next stages. Telling an engaged advisor tastefully that you will de-emphasize their engagement due to growth is not easy, but most people in the startup game will get it.
5. Expose your team to advisors
The main point of contact for advisors is typically the CEO, but letting advisors speak with the broader team is an often overlooked opportunity. CEOs sometimes hesitate because they’re afraid to lose control of the message to external parties. But advisors are most effective when they are not fed a whitewashed marketing story, but instead are exposed to the reality of the company, warts and all. Talking to other team members can unearth issues that otherwise would go undetected. Furthermore, it can be very motivating for team members to get exposure to well-known luminaries.
6. Be willing to hear the harsh truth
It’s natural to seek out advisors who cheer you on instead of criticizing you. Being in a startup is hard enough already. But the most valuable advice is often the one you don’t want to hear: Your product pitch is confusing; your revenue traction is not as it should be; that new key hire is less impressive than hoped. It’s much better to get these messages from a well-meaning advisor in a non-threatening setting than from your investors in the next board meeting.
It’s probably an exaggeration to say that great advisors can make or break a startup. But they definitely play a very crucial role. Few things are more important for startup success than focus and speed, and the very best advisors help tremendously with these two things. It’s therefore essential to think about your advisors systematically. Don’t just take any advice that comes your way, but seek out the people who can really add value.
Originally published at innospective.net on November 2, 2018.