As an inexperienced entrepreneur sailing in uncharted water, Government Contracting Academy founder, Randy Wimmer, was terrified and desperately wanted some advice and guidance on more than just a few occasions. He realized that he had created something with the potential to provide for his family for generations, assuming he didn’t screw it up.
Despite researching this option ad nauseum, he ultimately did not do it. Instead, he erroneously believed that entering a Federal Government Mentor-Protégé Program would provide “advisory” services. Oddly, mentoring is not part of a Mentor-Protégé Program.
Since an advisory board has no real power or fiduciary responsibilities, the two main variables to consider are composition and compensation. Composition is the easy part. What do you need? Do you need access to a specific market? If so, then hire a branded, marquis board member who can make a phone call and have the phone picked up on the other end. If you are seeking an expert in a specific field, then hire the “guru” who has done it all before. If you need business expertise, then find a serial entrepreneur who can help you navigate your company to success. If you’re considering the world of mergers and acquisitions, then hire an attorney or a no-kidding financial person. Who wouldn’t want all this expertise at their fingertips? Sounds too good to be true, doesn’t it? Unfortunately, it probably is.
This is the perfect segue to the next variable, compensation. How do you incentivize these power players to help you and your company? The people that you’d want on your board are the kind of people who place tremendous value on their time. This time must be purchased. There are two ways to purchase this time. You can either pay these folks with cold, hard cash or with equity in your company. You’ll have to make the judgement call regarding how much you can afford to pay for their services. Regarding giving away your equity, here is some very simple advice. Don’t do it.
Here’s a litmus test to put you in the right perspective. While still being responsible for paying your full mortgage payment, would you give away a percentage of your home? It’s the same thing with your company. In fact, you have a reasonable estimate of what your home will be worth in five years. Your company is a completely different situation. With equity, you could be paying pennies or millions of dollars for advice.
Nevertheless, sometimes you may have to give away some equity to achieve success. If you are ever in a situation where you feel the need to give away part of your company, then ensure that you are receiving guaranteed value, such as money, contracts, access to equipment, etc. “Advice” is not guaranteed value.
This begs the question, “what do you get from an Advisory Board?” If you have done a good job, then you get valuable advice and an occasional introduction to a potential partner or customer. They may advise you about strategic decisions or markets. For example, your board may advise you to expand into the Intel Community market.
Let’s explore and an example to illustrate the value and limits of an effective Advisory Board. If one of your board members is a “marquis” name in a specific community, then they may introduce you to a Senior Vice President of a major contractor in that industry. The Senior Vice President, as a courtesy to your marquis board member, will arrange a meeting between you and his capture manager who may be leading a large pursuit.
In summary, an advisory board is only as effective as you make it. You control the membership, as well their duties, compensation, and term duration. However, you must first fully know what you need in an advisory board to ensure it adds value to your company!