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More About Company Boards and How to Build Them

Once a month, our panel of mentors answer your practical business questions. Send us your questions!

 

Dear BAM Mentor,

I keep hearing that having an Advisory Board is good idea for a BAM company. How is an advisory board different from other kinds of boards and how should I go about setting one up?

~ Needing Advice

Dear Needing Advice,

We must first determine what type of Board you are inquiring about. Usually, an Advisory Board is used to give strategic advice on a narrow topic. A Board of Directors, on the other hand, is who the CEO is accountable to. They give advice on a broader range of issues. This position has some legal responsibilities and Board members on large companies can wield considerable power since they hire and fire the CEO.  This is highly unlikely in a BAM company, however. 

Let’s talk for a minute about a Board of Directors. You should have such a Board. You, as CEO, need to be accountable to someone outside the company that has direct experience in what you are doing and can likely spot a potential pitfall before you can. Otherwise, it is more likely that you will make a significant mistake – and we all do – and there will be no one to help guide you through a particularly tricky situation.

Large companies have a Board of Directors that is a policy board.  In other words, they don’t give advice on a particular situation because the organization is so complex but instead give guidelines on how certain types of situations should be handled. It is the duty of the CEO to carry out these policies. I have been on such a Board for a local University and it wasn’t much fun – the staff got to do all the interesting stuff!

Small companies tend to have what can be called a working board. Not only do these individuals give policy advice, but they also give advice on specific issues and events. This can be a real help in dealing with situations that you’ve never run into before. One of their most valuable roles – and I’m not kidding here – is for them to figuratively take your hand and say, “there, there, it will all be okay.” Seriously, you need to know when to panic and when to just get on with it. It really helps to know you’re not the first person to face the current issue. 

You can see that in order for either type Board to be of any use, you must not load them up with close relations, etc. If you want to say, “This is my company and I’ll get who I want on my Board,” then you are wasting everyone’s time. A Board should not merely be a legal entity just to keep your shareholders, lenders or bank  happy – or be a group that just agrees with everything you do. This will only get you into trouble. A real Board will help you out in an emergency and help you plot your course.

So, who should these people be? First of all, they need to have broad but direct business experience in the activity you are dealing with (e.g. meeting payroll, sales, operations, personnel issues, etc.). They need to be able to see into the future a bit, and this usually comes with experience, which you are likely lacking in right now. Therefore, it’s usually best to find someone who had started and run their own company in a successful manner, and that can prove it. Ask for frank and honest input about their track record and personality from others.

These two qualifying points, experience and success in your field, ensure that they have likely run into the problems you are about to face or are currently facing. I have found that folks from large corporates sometimes think that they have an all round understanding about running small businesses, but they rarely do. They are usually very knowledgable in a small area of the business and are used to having staff to support them. However, these folks can be very valuable to have on an Advisory Board. They can give you real advice on a specific topic, such as how to develop your sales strategy, how to transition to an ERP system, etc.

How should you remunerate your Board members? This usually can be either through a fee per meeting or a small amount of company shares for a period of helpful service. In the BAM world it may not be necessary to do either of these things. If you are running a coffee house or a coffee roasting company then good coffee may be often all that is required! In other words, a gift of appreciation is always welcome.

Assuming you’ve found a potential Board person, what next? Well, you have to emotionally engage them.  Really valuable Board members are very busy people and won’t join your Board simply because you are a nice person. You have to sell your company and yourself to them. They have to be assured that they won’t be wasting their time and that they can really make a difference to a cause that appeals to them. I have turned down many Board positions because it was clear that all I was needed for was to make money for the company with no regard for what my interests were.

~ Garry

More Responses on this topic:

From Robert Andrews

When we hear the word “board” most of us think of large corporate Boards of Directors. This sort of board has the authority to hire or fire the general manager and is the highest decision making body short of the general assembly of all the owners. But there are other types of boards as well. 

Advisory boards differ from boards of directors primarily in that they do not have the legal authority to enforce their decisions. Advisory Boards are used around the globe for different purposes and can be boards of key customers, boards of technical experts or, as is common for many BAM companies, non-binding management advisory boards. […Read more]

From Mike Baer

The question arises as to the purpose and practicality of an Advisory Board for a small business or a startup. I have had advisory boards for several of the businesses I’ve launched and served on advisory boards for others. Needless to say, I am a big fan.

King Solomon put it like this: “…for by wise guidance you can wage your war, and in abundance of counselors there is victory.”  Proverbs 24:6

The basic premise of an Advisory Board is that, rather than try to figure out everything on your own, you can enlist the wisdom, perspective and experience of others to help you “wage your war.” In addition to advice there is also a healthy element of accountability – something many entrepreneurs don’t want, but something all of them need. […Read more]

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