Archive for the ‘Financing’ Category

Don’t Go It Alone: Create an Advisory Board

February 1, 2007

We can all benefit from advisers—they’re the friends from the trenches who have been on the business battlefield longer than we have. Or they’re friends from a different industry or field who provide a unique perspective. Or they’re seasoned or high-profile executives who lend you credibility, thus helping you secure customers, financing, or a crucial introduction. You need advisers to bounce ideas off, to provide a reality check, to tell you when you’re about to mess up, to confide in when you’re alone at the top.A board of directors has a fiduciary responsibility to the company. They can be liable for mistakes (accounting and otherwise) that a company makes. So it’s tough and expensive to secure board directors, especially since Sarbanes-Oxley. But advisory board members don’t have fiduciary responsibility, and thus cannot be held liable. Hence their compensation is a fraction of what a board director receives.

Further, board directors have an obligation to the company first, and the CEO second. It’s the opposite with advisers—the CEO/”advisee” comes first. Don’t get me wrong—a good adviser is still looking out for the company, but their aim is to steer the advisee in the right direction to best care for the company.

Here’s a process for getting and keeping advisers on your team. Remember: Life equals the people that you meet plus what you create with them. Let’s start meeting and creating.

1. Define your advisory board member profiles. This is a list of skills and connections you want advisors to have. For instance, I recently mentored a startup in the fashion world. They had two strategic goals: to get a deal with Target and to secure more celebrity endorsements. So, some of the advisers they would need would have experience/connections in the following areas:

a. Cutting favorable and binding deals with mass-market retailers

b. Selecting, managing, assuring quality of outsourced manufacturers, shipping, lines of credit, all aspects of back-end retail infrastructure and operations

c. Securing celebrity endorsements in the music, film, TV worlds

d. Building and motivating a field sales force to ensure that hot boutiques carry their wares and that their merchandise is included in high-profile displays

e. Marketing expertise in building buzz and perception for an exclusive hot brand, and carefully crafting a separate brand for the mass-market retailers that wouldn’t cannibalize their own high-end brand (see, 8/28/06, “Small Company, Big Brand”)

You get the idea. You want advisers who will help you build your business as well as mentor you as an executive. The best size for an advisory board is eight to 10 people. With a group of this size you’ve got plenty of room for diverse skills and contacts.

2. Determine your expectations of each adviser. For some advisers, you will be happy just to have their name on your Web site. For others, you will want to interact with them on a regular basis. For the latter, start out by asking for 15 minutes per quarter. This doesn’t sound like much, whereas one hour per year might scare busy potential advisers away.

You want to develop a mentor/sounding-board relationship with your advisers, so be willing to communicate via the method most convenient for them. Let them invite you to meet in person. Don’t immediately ask for favors—ask their opinion, ask for advice. Don’t be greedy. Do be grateful. Over time, they will gain trust and introduce you to their contacts.

3. Create your pitch and comp package. Why should someone become an adviser to you? What’s in it for them? Getting involved in a developing company in a super-cool field? Access to thought-provoking people, such as your executive team and other advisers?

Focus on the “soft” benefits first, as you likely won’t have tangible financial benefits to offer just yet. You should be able to explain the opportunity to them in five minutes or less. Like your financing pitch, your adviser pitch must be concise and compelling. If you have stock, of course you should offer it. Standard advisory board stock ranges are .25% to 3% of your common stock (vested in equal increments over 24 months), based on the degree of interaction you expect from them and their desire for involvement (from light to intense).

If you have to give away 3% of your common stock to an adviser who could seriously help your company, it may be worth it—just make sure the expectations are set out in advance. If you don’t have stock to give away, what other compensation might you offer? Perhaps volunteering at their favorite non-profit, or helping them with a project at their office, or helping to remove a problem/hassle they may have in their life.

You don’t have to offer specific compensation if you don’t have anything to provide at the moment. You must, however, express appreciation frequently, plus the desire to help them with a project at a later date.

4. Brainstorm your target list. This, my friends, is where you work it! You will be glad you’ve invested time in building your network, because it’s about to pay off. Ask your friends, colleagues, mentors, vendors, and financiers if they know people who meet the profile you seek. Practice your pitch on them to see if they find it compelling. Ask for personal intros to your target advisers. For “cold” pitches, gather all necessary contact info and research the interests of each targeted adviser. What causes do they care about? What are their hobbies? What are their interests?

5. Seek out your targeted advisers and recruit them. Perhaps they’re scheduled to speak on panels, at bookstores, at a conference. I’ve traveled great distances to meet potential advisers, and it has been worth it. Once you give your pitch, they will likely want to know more. A business plan must be concise, compelling, and complete. A pitch must only be concise and compelling in order for the prospect to request more info. That’s the time to then be complete—once they want to know more.

6. Celebrate, incorporate, communicate. After celebrating your great good fortune in securing some rocking advisers, it’s time to incorporate them into your company’s communication flow. Add their names and bios to your Web site, set up an e-mail list for monthly or quarterly high-level advisory-board communication (10 bullet points per message, max), and consider two advisory-board conference calls twice per year.

Keep your requests to a given adviser within the scope of their expertise so you can establish a success pattern from the get-go. As you work together over the coming months and hopefully years, fulfilling relationships and terrific business connections will result.

Some advisers will contribute more than others, and don’t worry if an adviser doesn’t end up working out. Rarely is it worth “firing” one—you will still gain credibility via your association with them.

If you committed a high stock compensation package to an adviser, and after repeated requests and they still don’t give you any time, have a respectful conversation with them and suggest changing their comp package. It’s better to reduce the options you give an adviser than to “fire” them.

Do you have an advisory board or individual advisers? If so, how are they working for you?



The New Entrepreneurial Class

May 25, 2006

Time was, being an entrepreneur in Europe carried a lot more than just economic risk. In countries where social conformity prevailed and many workers sought comfortable lifetime employment, business failure often meant a permanent stigma. Even in the go-go 1990s, venture capitalists had to scour university labs and huge companies for hot technologies to spin off, and coax academics or managers to start their own companies

Now, a new breed of entrepreneur is starting to multiply, from MBA graduates determined to strike out on their own to seasoned executives eager to run their own show. In part, they’re inspired by so-called “serial entrepreneurs” — Dennis Payre, for example, the co-founder of France’s Business Objects — who are grabbing headlines as they launch second or third companies. That hardly ever used to happen in Europe .

“MAD, PASSIONATE ACT.” Business schools, too, are getting in the act of boosting Europe’s entrepreneurial base. In January, Fontainebleau-based management school INSEAD teamed up with Barcelona’s IESE to create what has been dubbed European Entrepreneurship Accelerator, a 10-week elective course that allows students to work side by side with serial entrepreneurs. “More and more students are joining business schools with the intention of becoming entrepreneurs,” says Julia Prats, professor of entrepreneurship at IESE. “In the past, we had to convert them.”

In the pilot course that took place between January and March, 20 students from the two schools joined six companies, where they worked closely with the CEO-founder on projects such as designing a business plan for a second round of venture financing.

“The impact is that in a very limited period of time, students get a fairly honest picture of what starting a company is all about — matching the business school theory with the mad, passionate act of creating and running a company,” says Peter Zabouji, INSEAD entrepreneur-in-residence, who got the idea for the Accelerator while teaching a course on writing business plans. Forty students will participate in September.

RICH IN RESOURCES. Mathieu Carenzo, an IESE graduate who took the accelerator course in January, certainly experienced the harsh reality of managing a fast-growth company. He and three fellow students landed at an Internet-related company that failed three weeks later when a fresh round of financing collapsed. Carenzo and his teammates then joined an information technology company specializing in data storage and helped the CEO write the business plan to help secure a loan from a U.S. bank.

“One thing you learn is that you can’t do everything yourself,” says the 30-year-old Frenchman, who aims to start his own company some day. “You need contacts, and you need a team.”

He should have plenty of people to pick from. At IESE, some 30% to 35% of graduates now begin their own company within five years. Creating European startups may remain tough, but today there’s more capital and talent available than ever before. The years of laying the foundation for a new industry are starting to pay off.