Advisory Boards have become a chic addition to software and hardware companies over the last decade or so. According to the Industry Association Advisory Board Centre’s 2021 annual report, there has been a 52% increase globally in organizations utilizing advisory boards as part of their governance structure since 2019. It’s a trend. Let’s assume an interest in forming an advisory board for your tech company. What are the key criteria you should use in assembling one? We’ll examine this issue below.
Did you choose your tech firm’s advisory board wisely?A Recent Trend
Before the last decade or two, I found it rare to hear of a company with an advisory board. What’s driven this trend? For public companies in particular, it’s mostly desirable because advisers who formerly would have served on the Board of Directors may shy away because of higher perceived potential liability in that role as laws have evolved. For private companies, I believe it was mostly the recognition that those filling private company board of director seats are in that role primarily because of ownership (VCs, local angels, founders, etc.). These folks don’t always contribute enough collectively in providing all key domain or technology expertise important to the company at the board level.
As a result advisory boards are very much in vogue, sometimes to great effect. But often not. An analogy to this run-up in advisory boards would be the large number of “strategic partnerships” often created in the technology industry. In strategic partnering, you’ll see everything from deals that greatly benefit both companies, to others that start and end with a vague press release. And really, benefit to no one. Many companies seem to put together an advisory board because it’s the trendy “thing to do”. This is usually just a waste of time, of course. Like most anything, if you put little thought and effort into it, little usually comes back.
Let’s take a look at some criteria that could be useful in putting together your particular group of advisers:
Advisory Board domain or technology expertise
This may appear obvious, but I see a lot of advisers placed on boards just because they know or are liked by someone in management. Or maybe possess expertise that isn’t core to the company’s success. A better use for your advisory board is to fill holes in your management team’s knowledge, contacts, or experience.
Access to Capital
This is a common reason that CEOs will recruit an advisory board member. This is especially true in early-stage companies where capital needs are a critical strategic topic. The feeling is that this person is very well-connected and can help raise capital. But I’m not sure this is always the best use of an advisory board seat. Maybe it is in situations where raising capital will be almost a constant need. In most cases, I prefer to see advisory boards filled with more scarce talents specific to the company’s market and technology.
Access to software or hardware distribution channels
Distribution access is another common motivation in seeking advisory board members. I believe this is a legitimate goal for your board. This is especially true if the adviser truly has special access, or if distribution channel expertise is a real weakness within the company.
Honest and straightforward management counsel
It’s important to attract experts who aren’t afraid to challenge the management team’s view of the world and the team’s “common business sense”. Of course, as advisers, they need tact in how they convey their viewpoints. But “Yes Man” panels that make senior management feel good are useless. Advisory Boards of this nature can even be harmful by reinforcing a false sense of reality.
Available advisory board bandwidth
I believe this is a criterion that is very critical and is often overlooked. Companies rejoice when they convince a high-profile, “heavy hitter” to join their advisory board. It does make for a great press release! The name may look great on a company fact sheet or your website. But the reality is that their time may be spread too thin to benefit you. So before adding them to your advisory board, make sure you have a frank discussion with them. Reach agreement on what level of involvement they can have with your company.
Adviser Motivation
This is the most important criterion of all, in my opinion. It is also the one on this list that may be used the least in considering potential advisers. It’s easy to get excited about someone who fits perfectly with what you need on paper. But you will find many folks interested strictly from a self-promotion viewpoint. It’s exposure for them and looks good on their resume.
There’s nothing wrong with this, as long as it’s not the sole or primary motivator. Others may think it will give them an advantage in getting you to use their services. Or they may have some more sinister reason for getting close to your company. Ensure the candidate’s reasons for engaging are above board and that your interests align. I’m not trying to create paranoia in anyone’s mind. Everyone has different interests. But there mustn’t be something that will cause more of a problem than the potential benefits. The adviser’s motivation is the greatest indicator of success or failure in this role, in my opinion. Ignore motivation at your peril.
So there’s some basic advice to consider when assembling your software or hardware technology company advisory board. Many of you have done this as well. Post your advice, successes, or horror stories in the comment section below. Let’s expand this discussion interactively!
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Hello,
It was a good article to have a brief idea of Advisory Board and love the article. Well but i guess if you can give idea of why a advisory should get on board of a company, in return what a company needs to give advisory person, I can say a brief idea of engagement model between a company and an advisor it would be great.
Nischal, thanks for the comments. Unfortunately your questions could form a couple of additional articles. Advisors have numerous reasons for serving with a company: to “give back” to the tech community, gain experience in a particular vertical market, gain broader exposure, get a small amount of equity or other compensation, etc. The most common form of compensation is a stock grant or options, but this also varies a great deal depending upon the owners feelings about giving out stock and how they like to compensate in general.