What we're talking about

An advisory board is a collaborative way for business owners to get advice and input from external experts. As the name suggests, it's a lot more flexible and informal than a board of directors: advisors don't have responsibility to stakeholders or the ability to vote on topics, so you won't lose any control of your business by setting one up. 

By bringing together a small group of people with skills and know-how in areas that you're lacking, you can add a lot of value to your business. Your advisory board will (ideally) tell it to you straight, informing different aspects of your decision-making process. It's a great way to bring different perspectives to the fore without shelling out the money for expensive senior management hires. 

Why it's important

There are likely many things that you won't be sure about when it comes to starting a business, which only years of experience will provide. That might include technical problem-solving, navigating industry regulation, launching in a new market, exploring new opportunities or growing your team as you scale.

There are loads of benefits to having a well-put-together advisory board. You'll get a fresh outside perspective (avoiding the dangers of groupthink); have an excellent forum to share your ideas; be able to expand your network and get access to the networks of your board members; boost the credibility of your business; and get quick feedback on challenging problems. A study by the Advisory Board Centre, an organization that advises on best practice, found that more than 90% of businesses with an advisory board reported a positive impact, with an average of a 15% increase in financial results and a 30% increase in business confidence.

Things to note 

The structure is up to you. Despite the formal name, it's really up to you how formal you want to make your advisory board and how it works in practice. For small business owners, something more relaxed might make sense, where participation is slightly more informal and ad hoc. At the more formal end of things, governance boards are super structured and disciplined. As a broad guide for small businesses, it's helpful to keep your board to around five members and to meet at least once every three months. 

Curation is everything. You need to make sure you find people who have strengths in areas that you're lacking internally in your business – and which align specifically with where you want your business to go. This will take time. It's important to both set expectations of what you want from advisors and to let them know how you'd like them to contribute specifically, with their expertise or focus in mind. Be aware that people can be on multiple advisory boards and could have a conflict of interest. Finally, it's worth noting that advisory boards aren't forever. As your business matures and grows, you'll want to regularly change who's on your board. 

Payment can vary. How you remunerate advisors can range from simply paying for travel expenses and cups of coffee to cash payments or offering a percentage of your business' equity. This will depend on the size of your business and the formality of your advisory board – but you should make sure that people are compensated properly for their time and advice. The incentive you offer advisors should align with the goals that you're looking to achieve with their input. 

Project advisory boards exist. These are advisory boards for a specific project or goal that you're working towards – like entering a brand-new market or geographical location, raising investment or adjusting your supply chain. You might set one up for anywhere from four to 18 months. 

Don't mention people in your promotional materials unless they approve. A common mistake that business owners make is filling their pitch decks with the names and faces of advisors they supposedly have on board, when nothing has been formally agreed. It's a bit of a reputation ruiner – don't do it.

How to create an advisory board

1. Outline what you want from an advisory board. Make sure that there's a specific need for one. Think about your current business objectives and what you're hoping to achieve in the next one to three years. Do you need help in making that happen? Articulate a super clear purpose. 

2. Clarify the expertise needed. Now that you know your purpose, clarify the talent you need to lean on. What are the knowledge gaps in your business? This could be researchers in product development, financial experts, IP lawyers, your most important customers or senior business consultants. You might even draw up some basic job descriptions of the type of people who could help. 

3. Lay the foundations. Though this may change, it's helpful to get an early outline of what your board will look like and how it'll function. How many members would you ideally include? How can you compensate them? How often will you meet and in what capacity? How will you communicate with them? You need to have a clear, organized plan that people will want to be a part of. 

4. Decide how success will be measured. It's common to think of this as just a sounding board, but the best advisory boards work when there are clear outcomes in mind. Be specific in what you're hoping to achieve and what success will look like. This will also help you to figure out if you're getting what you need out of it and guide you to change things up if it's not working out. 

5. Do some outreach. Look to draw up a shortlist of people who'll add real value to your business. Start with your network and the networks of those in your business – ask around and look for referrals. Then scour platforms like LinkedIn and Twitter for the roles and areas of expertise that you've identified. One tactic suggested by business coach Dan Martell is to look at the past employees of companies that you admire and reach out to them directly.  

6. Set up a first call or meeting. Provided you get some positive replies, this should be framed as an informal, open chat about what you're looking for and your key aims and objectives. Come prepared with any relevant business information and communicate clearly what you want out of the setup. 

7. Make sure they're a good fit. Make sure that the person has the right character traits for this role. They need to be emotionally intelligent, unafraid to give honest and direct opinions, and know their stuff. They also need to respect what you're building and show commitment to your business. 

8. Get clear on the formalities. This will depend on the type of relationship you want to have with your board, but it's pretty helpful to have the terms outlined somewhere. Both sides need to be clear on details like the length of the arrangement, payment, level of input and roles or responsibilities. You might also need to take care of legal details like having them sign a non-disclosure agreement (NDA). Here's a good example of a simple one-pager to set out the terms of the agreement.

9. Set up avenues for ongoing communication. Make sure that both parties are clear on how you'll be communicating on an ongoing basis outside of your regular meetings – for things like company updates or financial reports. That might be in the shape of a bi-weekly email, for example, that details quick wins, financial updates and any preparation that advisors might need to do ahead of the next meeting. Otherwise, things can slip and board members could quickly fall out of the loop. 

Key takeaways 

• Setting up and managing an advisory board takes time. It's only worth pursuing if your business has a definite need – and you have a set purpose in mind.

• Finding the right people to fill the knowledge gaps at your business is the aim – be very specific and intentional with what expertise will most add value. 

• How formal you decide to make your advisory board depends on the size of your business and what you're looking for – but it needs to have a clear structure. 

Learn more 

Perspective. For some bite-size takeaways, check out this article from business magazine Forbes, where a group of CEOs gives one piece of advice for setting up an advisory board. 

Example. In this podcast from Stanford Graduate School of Business, Aashish Agarwaal goes into plenty of detail outlining how he created his advisory board.

Tool. Advisory Board Architects is a great all-round resource on this topic. It has some handy benchmarking tools that let you compare things like process, compensation and structure with companies of a similar size to yours.

A version of this article was published in the Courier Workshop newsletter. For more deep dives into essential business concepts, sign up here.