Why You Need to Screen Business Advisors Carefully

The following is adapted from Takeaways: Secret Truths from Leading a Startup.

Good advisors are the key to success, but choosing them is often a challenge.

I quickly discovered that in Silicon Valley, there is no shortage of people who want to be mentors. They are fellow entrepreneurs, angel, and institutional investors, venture capitalists, corporate executives, lawyers, consultants, engineers, accountants, and academics, to name only a few.

Every pitch day, incubator, meetup, workshop, or after-hours party is a potential introduction to a key relationship. Friends and family make connections, and even distant acquaintances can offer beneficial networking opportunities.

Don’t Be Too Quick to Trust New Friends

When you are launching a new business, everyone wants to be your friend. They can’t resist the allure of the next big idea and being connected to the person who had it. Like entrepreneur groupies, everyone is hoping you might be the next Steve Jobs, Mark Zuckerberg, or Elon Musk.

So how do you sift through the crowd and find quality advisors? Create a filter and screen mercilessly.

As you build your presence by networking and sharing your idea, look for reputable people. Identify individuals who resonate with your concept, give actionable recommendations, and suggest others who might be helpful (prospective employees, business partners, corporate lawyers, investors, etc.).

In my experience, launching a startup makes you vulnerable, and you must develop a strong radar for authenticity.

Along the way, you will meet a variety of people. Some are delightfully supportive with truly valuable insights; others are overly inquisitive with unclear motives; more than a few are sly and greedy, always looking for a quid pro quo (stock or consulting fees). The fear that someone will steal your concept is real, but the greater threat is that too many of these people will simply waste your time.

Framework for Finding the Best Mentors

As I looked for advisors, I had both successes and failures. I learned from both and, as a result, developed a framework for finding the best mentors:

1. Find someone who has walked in your shoes. I met Steve Eidelman (one of the co-founders of Whistle) through some business acquaintances. Steve’s company created a smart dog wearable and data analytics company, and his expertise and experiences have been invaluable to me. From launching a company to daily operations and ultimate merger and acquisition, Steve has helped me form and run my own business and has saved me from more than a few pitfalls. A few years ago, he recommended Jim Camp’s excellent book Start with NO: The Negotiating Tools That the Pros Don’t Want You to Know. Steve used the strategy from this book during Whistle’s successful sale to a large multinational pet food company, and I took a similar approach during my own M&A discussions.
2. Find someone who aligns with your vision. When we hired the brilliant David (Duppy) Proctor to help consult on developing our firmware (software running our badges), we could not have predicted his genuine interest in Loopd. His excitement and shared vision were a happy accident for our business as a whole. With years of hardware engineering experience, Duppy worked closely with us at the outset and even scheduled calls with our engineering team after his official involvement ended. In many ways, he served as an unofficial CTO.
3. Find someone who will offer blunt honesty. Because Mark Goldstein served as a startup portfolio advisor to Marc Benioff (CEO of Salesforce and one of our major investors), he helped evaluate our business trajectory at critical moments. In early 2016, he offered key insights about whether to raise funds or to plan our exit. With his knowledge of other Silicon Valley and San Francisco startups and years of personal experience operating companies of all sizes, Mark served as a fantastic sparring partner. He quickly shot down bloated ideas and enthusiastically supported grounded ones.

Before I had strong filters, I experienced some negative experiences with advisors. I am omitting names for the sake of privacy, but the challenges are worth sharing:

1. Avoid advisors with ulterior motives. I met a former academic with impressive credentials at an event where she was a speaker. With a shared common interest, we arranged a lunch to discuss the original Loopd technology concept. Our lunch ended positively, and I was excited about follow-up conversations. We exchanged a few emails, and then I received a letter from her lawyer a few weeks later to integrate our intellectual property into her patents. This was a shock and a disappointment, as we had never discussed patents. The proposal became a distraction and ultimately soured our relationship.
2. Avoid advisors looking for a free piece of the action. When it comes to giving equity to advisors, it is very easy for things to go sideways even with someone you trust and like. Though I appreciated advisors’ many insights, my experiences colored any discussions about complimentary equity. Consequently, I decided I would only grant stock to advisors if they invested in Loopd.

Should You Grant Stock to Advisors?

Initially, I set work goals for advisors such as three to five hours of consulting a month or three introductions per quarter as a way to earn their equity. Although this was a good concept, it was too complicated to quantify and measure.

In the end, I told my advisors they could receive shares only by investing. No one objected because the excitement of the startup ecosystem hinges on the risk of betting on new companies and ideas. I also found that the best advice came from serious investors whose financial commitment aligned directly with the success of my startup. Active investors offer the best guidance for the overall interest of the company.

As you develop your startup, you’ll undoubtedly meet plenty of knowledgeable individuals who would make qualified, even invaluable, advisors. However, you’ll meet the opposite, too. Approach each potential relationship with a degree of scrutiny, create a filter for qualifications and traits, and screen candidates mercilessly, and you’ll find the advisors worth hearing.

For more advice on business advisors, you can find Takeaways on Amazon.

Brian Friedman is a millennial entrepreneur who went from a blank sheet of paper to a successful multimillion-dollar exit in less than three years. During this time, he secured over $2.5 million in angel and venture capital financing, hired more than ten employees, opened offices in San Francisco and Taiwan, and sold global brands like Intel, Cisco, Castrol, and Box. His ideas about analytics and business practices have been quoted in TechCrunch, Yahoo!, Forbes, and other leading publications. He started the largest Wearable Technology Startup meetup in the US and now serves as VP of digital innovation on the executive team at Aventri, a leading enterprise cloud-based, event management software company.