Early stage businesses can derive huge benefits from the experience of others – but relatively few people have the skills to be good advisors. Unfortunately it isn’t easy to find good advisors, and I have seen a lot of cases of it going wrong. Here are some of the lessons I have learned…
There are a number different ways in which companies can seek advice from people outside the day to day operation of the business.
- Casual Advisors have no formal role but offer advice – these are the people we meet for coffee or who pop into the office from time to time. Very often this group will contain some excellent sources of advice, but as there is no appointment process it may also include some less qualified advice.
- Board of Advisors generally have some formal relationship with the business and may be rewarded with equity. They do not necessarily meet as a board, but are likely to be consulted regularly.
- Board of Directors has a set of legal duties but will usually be able to offer a broad range of advice to the business.
- Appointed Advisors are people who are appointed externally to offer advice. These may be appointed by banks, investors, incubators, chambers of commerce or a government agencies to offer advice. Some of these will be welcome additional expertise for a business, but as they are appointed by others they can also be seen as unwelcome interference.
- Professional Advisors are usually paid for their advice. This may mean they have their own agenda (such as recommending you take more of their advice in the future) and some may have expertise in narrow areas. However, if they are making a living by selling advice they are probably doing something right and this is by far the best way to get legal and financial expertise when it is needed.
One of the best ways to find advisors is through your existing contacts – a personal recommendation can be very valuable. Professional Advisors often have extensive networks and may be able to point in the direction of relevant people (Salient Point has helped a number of clients to find advisors).
It is also surprising how often “aiming high” works out. It is worth contacting people retiring from big companies and trade associations who may like to keep active in the industry…
Criticism vs. Advice
Smart, experienced people tend to find it really easy to identify problems, and this is a very important skill and one that is rightly cherished. It is only through the process of finding problems in a business that they can be solved! However, when advisors to early stage businesses “help” mostly by identifying potential problems, they can have an unintended negative impact.
- Often “problem identification” will feel like “criticism” to the founders of a business who are putting their heart and soul into it.
- Criticism can be very disempowering to people who don’t know what to do to solve the problem.
Criticism is exemplified by statements like “you need a clearer channel to market” or “the business plan isn’t credible”, and may be delivered with great gravitas and be highly credible (not least because it is often correct). This style of response is often heard from investors (not least on Dragons Den) and is common in some board meetings.
Good advisors will focus more on the positive, on suggesting ways of solving problems rather than just identifying them. For example “You need a clearer channel to market” can become a question like “how can we find out how our customers would like to buy?” or a suggestion such as “could we go and talk to some of our customers and find out if they prefer to buy direct or from distributors, and which distributors do they use?”.
Good advisors will be a source of solutions rather than just identifying problems, and tend to open a conversation rather than making a pronouncement.
Areas of Expertise
While some people have a broad experience crossing many industries and disciplines, others will be experts in narrower fields. It is important to understand the areas where advisors can be useful, but also where they are likely to be less so. Not all advisors will know their own limitations, or will necessarily be familiar with the differences between the issues facing start-ups and big business.
It is OK to Ignore Advice
While most advice is well meaning, some of it will be wrong and on complex issues you will almost certainly get conflicting advice. Here’s my advice (and it’s OK to disregard this too!) – always listen to advice and especially the reasoning behind it, but don’t be afraid to go against advice when you have a good reason to do so.
It is OK to sack Advisors
There are many reasons why even highly experienced and well intentioned people may not make good advisors for a particular business – even if it seems like they will be useful at first.
- They consistently provide criticism rather than advice
- They are not able to spend enough time to understand the current status of the business so advice is not well focussed
- The business has moved past the stage where a particular type of advice is relevant
- Personal conflicts
If an advisor isn’t working out, it is OK to very politely decline to work with them in future.