In his final State of the Union address to the nation on January 12, President Barack Obama lauded the spread of entrepreneurship in America.
During his presidency, Obama said, the nation recovered from the Great Recession and produced 14 million jobs, many of them in exciting new technologies that allow people to start their own ventures. "In this new economy, workers and start-ups and small businesses need more of a voice, not less," he said.
Running a business has become a long-term retirement strategy for many people in our post-industrial, tech-oriented economy.
Many business builders tend to be loners and they're temperamentally reluctant to establish a board of advisors. They view meeting with a board as an infringement on their autonomy, if not a complete waste of time.
That's an error in judgment. As an entrepreneur, your initiative is a driving force. But don't go it alone. Just as many large corporations see fit, you should set up a board of advisors.
Boards are an inexpensive way to obtain seasoned advice. A board forces a CEO to step back from daily operations and to think strategically about the company's direction. It allows you to focus on long-term wealth building, as an individual and as a business leader.
What accounts for the self-defeating hesitation on the part of so many entrepreneurs to seek advice?
The personality traits that compel people to launch start-ups in the first place are the same characteristics that make them reluctant to share power and control. These are individuals who are accustomed to calling the shots.
Entrepreneurs tend to hold their cards close to their vests; they often have difficulty trusting management secrets with others. They're at the top of the corporate flow chart; everyone else is far below. It's logical for entrepreneurs to have a board, but entrepreneurs often are ruled by their passions, not logic.
Setting up a board is like putting inexpensive management consultants on retainer. Another major reason to establish a board is to establish continuity. If you're a CEO who's nearing retirement and planning for his or her golden years, it would be irresponsible and selfish to not plan for the future. A company is a living organism, not an appendage of the leader's ego. You need to lay the groundwork for a smooth transition.
Many people in high positions are reluctant to serve on a formal board of directors because of possible legal hassles. Advisory boards, on the other hand, generally carry no legal liabilities. That means experienced, influential people are more willing to serve on them.
Five Tips for Setting Up a Board
If you're an entrepreneur and you don't already have an advisory board, here's how to get started:
1) Tap Your Network
Begin the process of creating an advisory board by reaching out to people you know and completely trust. Few people can give you better advice than your inner circle of friends, colleagues and college buddies. But regardless of how much you trust them, make sure they sign confidentiality agreements.
2) Snag a "Celebrity"
Recruit at least one person for your board who's well known and respected in your industry. Their name will lend cache to your company and validate your judgment. It'll also generate press for you and your activities.
3) Limit the Size
Don't create an unwieldy committee that won't be able to agree on anything. Rule of thumb: retain a minimum of three advisors and a maximum of six.
4) Create Diversity
"Diversity" here doesn't necessarily refer only to race and gender. It also refers to background and skills. Balance a technological expert with someone from, say, the roll-up-your-sleeves manufacturing side.
5) Settle on Reasonable Compensation
If the advisor is an old friend, they'll probably do it for free. But others will want to get paid. Anywhere from $1,000 to $5,000 a year is reasonable for companies with less than $50 million a year in revenue, but it varies according to the company's size and the CEO's willingness to pay. Set a compensation level that's fair and stick to it. To glean context, ask your fellow CEOs what they pay advisors.
The bottom line: The practice of setting up a board, formal or informal, is likely to become a matter of survival. Rapid economic change, globalization and the expanding information base are making entrepreneurs realize that they can't live in their own universe.
Companies run by inexperienced hands and impulse will either see their market share shrink, or lose to their competitors.
For additional advice tailored to the needs of growing small businesses, consult the financial and business advisors at Charles Schwab, TD Ameritrade, or T. Rowe Price.
Are you making the right investment moves for your retirement, or are you blowing it by making all-too-common money mistakes? There are crucial steps that you should be taking now, to build wealth over the long haul. To find out whether you'll have enough money in your later years, download our free report: Your Ultimate Retirement Guide.
John Persinos is editorial manager and investment analyst at Investing Daily. At the time of publication, the author held no positions in the stocks mentioned.