How to Assemble a World-Class Advisory Team (part 3) - The Structure

This is last of a 3 part series on building an advisory team.

The 1st article was about identifying skill gaps in your business as a way to prepare your ideal advisor shortlist.

The 2nd was about how to reach out and engage advisory candidates to join your advisory board and support your growth.

This post will be about how to structure the relationship to make it maximally beneficial for all.

Please share your feedback. Building an advisory team is an art, not a science, so I'm always looking for ways to improve my process!

How to Structure Comp?

This is BY FAR the most debated part of building an advisory team. So please read more than just this article when deciding on advisor comp . And also remember your stage - my advise below is for early stage (pre-seed to Series A. The numbers will change as your company becomes more valuable / established. So don't get hitched to my numbers... rather, consider the philosophy.

For comp, I tend to have a generous mindset. Many entrepreneurs will tell you the opposite. They are not wrong... it's an art. But I will share some reasons why I tend to the high end of traditional advisory grant ranges, which is 0.1%-0.5%.

First off, if you're selecting good advisors, you are bidding for the time of some SERIOUSLY high caliber people. The top 0.1% of the market. You have to be generous to win and retain people like that. Sure, maybe you could have got them over the line with 0.4% instead of 0.5%... but what if they had another company bidding for their advisory role that offered them 0.5%... and you lost them over 0.1%... would that feel like a worthwhile trade?

The other reason to bid up is that it sets the tone for what you expect from this advisor. A good advisor can be TRANSFORMATIONAL for you business. But if they have 0.1%... do you really believe that? I once spoke to a business with a valuation at the last round of $15M. The founder asked me how much to give an advisor and told me he was thinking of 0.1% vesting over 4 years... that's the equivalent of $3.5K of equity value annually... This advisor was a multi-exited CEO... worth at least 8 figures. Hourly rate for their time is probably $1000.... and you want to offer them $3.5K for the year? Not gonna win that advisors...

All advisory agreements should have a vesting schedule. This means the options you grant them are unlocked over time... not all up front. And they do not vest options if they are ever let go as an advisor (which should be in the CEO's full discretion, no questions). Most advisors will have no issue with this because they know they add real value and will let that speak for itself.

I use a short vesting period, two years usually. You can always renew if there’s still work to be done and something to be gained from the relationship. But shorter is better because it creates urgency to do the work NOW to get value, or to decide very quickly if the relationship just isn't working.

If you want even more protection, you can have a 3 month cliff... but I havent met many advisors who will sign that. They are usually in the power position, and have a track record of success, so they aren't interested in giving you free trials.

The catch to being generous up front is that YOU MUST BE willing to act quickly to breakup with an advisor if things aren't working. It's the only way to stop the bleeding on a bad ROI. And this is extremely hard to do. So make sure you have this conversation up front two to three times. "So you know, this could not work our for a number of reasons, and we should schedule a 3 month check in NOW to have that discussion. The decision will be mine and we should have no hard feelings."

How to Structure Your Time Together

Narrowly, transparently, and regularly.

You’re bringing on an advisor, not a teammate. They’re not going to do the work for you. If you bring in a venture capitalist or angel investor, they’re going to review your deck, not do your fundraising.

You need to be insanely focused on a very narrow area that’s critical to success, where they can give you a major amount of leverage in a short amount of time.?

Be clear on exactly what you want from them and how you’ll be making use of their expertise.

To start, set up a standing, one-hour, weekly or biweekly meeting. I like to start at least bi weekly for the first 3 months to decide quickly if the relationship is working or not. Then, we can drop to bi-weekly and cancel or cut-short if the meeting seems unnecessary that week. I think monthly isn't enough... and if you've been generous up front, you have a right to ask for their time.

Whatever you land on for frequency, the important this is that you get into a regular cadence. Always come prepared with specific questions in mind, prepare a day or two ahead of time on an agenda, and finish every meeting with "to-dos" for you both to review at the next meeting. They are very busy & likely doing many different things in their life. It's your job to ensure the outcome of every meeting feels productive.

Beyond that, make them feel like they’re a part of the team, because they are. Celebrate your wins with them when you can. That’s part of why they sign up. They want to feel the success & see how they're contributing, too.?

Mistakes to Avoid?

Past engagements with advisors have gone badly when I’ve failed to follow my own advice.?

When I brought on someone with too broad of a mandate. When I brought on someone at the wrong time, where their area of expertise wouldn’t actually be needed until years down the line. When I was thinking of an advisor too much like a teammate. When I was too afraid to let an advisor go who I hadn't really spoke with since signing the agreemnt...

When you make these mistakes, you end up in a bad spot where you don’t really have anything specific to ask them, so you don’t really want to talk to them, and they don’t really know how to help you. Nothing gets done. You avoid each other. Months go by. And before you know it, you’ve given away a small part of your company and have nothing to show for it.?

This is the situation you want to avoid.?

And it goes away if you meet regularly. You will quickly determine TOGETHER whether there is something transformational they can do for you or the company.

Do This Instead

Figure out what your company needs to be world class at to win.?

Look in the mirror and be ruthlessly honest about where you’re weak.

Prioritize the most urgent areas and start making a list of potential candidates from day one.?Never stop looking for or approaching good advisors. They will appear along the way.

Reach out to them with every ounce of passion you have. Don’t hold back. Make it clear why you want them specifically and what’s in it for them if they come aboard.?

Focus relentlessly on gaining as much leverage as possible from their specific area of expertise. Use your time with them wisely. Drive urgency to get the most out of the relationship.?

Be generous with compensation. Great advisors are worth every penny.?

That’s how you build the advisory team your startup needs to succeed. And they can become lifelong mentors and even friends. This is one of the most exciting parts of being a founder, so take full advantage!

Conclusion

I've had a lot of fun writing this post. Reflecting on the advisors in my life, past and present, and what we have done to come together successfully. Special thanks to you all - Lumo & Devon would not be what they are without you :)

I'd love to hear feedback on other successful approaches to landing and succeeding with great advisors! Message me.