Starting a business and building a company is exhilarating. The euphoria an entrepreneur feels from creating something that people are willing to pay for and others can earn a paycheck from is like winning the World Series on a daily basis.
But as great as starting a business can be, it also can be very lonely if you don't have a partner. You don't want to bring your problems home to your spouse, because you want a haven that provides a mental break. And unfortunately, you can't always tell your employees -- even your top ones -- about your fears, concerns and ambitions.
Often an entrepreneur's management team lacks the experience to make informed decisions. In some cases, leadership is too close to a problem to know or clearly see the best path to take. Even if you have a partner, you need input for when the two of you can't agree on a solution.
This is why putting together a group of wise men and women with extensive experience is essential.
Building an advisory board is similar to Noah constructing his ark. You want a variety of people with varied experiences. Let's break down the process into four pieces.
Who You Don't Want on Your Board
Unless your father is Stephen Schwarzman, chairman and founder of the Blackstone Group, or your mother is Oprah Winfrey -- both of whom know more about building and running businesses than do all the professors at Wharton and Harvard -- then you want to stay away from family.
Many entrepreneurs include family members on their boards because they have a greater comfort level with family. Some relatives may have invested in the company, and others may even have some business experience. But it's best to use outsiders, because family members will either feel too inhibited to tell you what they really think or will feel they have to do just the opposite -- be a constant source of irritation.
Friends fall into a similar category as family, but they're worse. You're stuck with family, but friends can end up becoming adversaries.
Don't select people who will tell you what you want to hear. You want people who will be honest and forthcoming.
There are many people who see the downside of everything. Although it is good to have contrary opinions, someone who is consistently negative can bring you down.
Qualities You Want in Board Members
It's good to have someone who understands your industry to provide input and advice about strategy. Right now, I am the CEO of a start-up e-commerce business. One area where I don't have a lot of experience is marketing to media planners and marketing vice presidents to obtain advertising contracts. I immediately went out to meet with and recruit an experienced media planner for my advisory board, and that probably was the smartest thing I have done. He recommended a strategy that reduced our sales costs and shortened the marketing process.
You need someone who has grown your type of business. This person doesn't have to come from your industry, but if you are starting a service business, you are better off having someone who has built a service company, as opposed to someone who has built a manufacturing company.
If you are starting a business from scratch, you want someone who understands the challenges of doing this, such as struggling to make payroll and convincing banks to lend you money. Someone with start-up experience also can be helpful in advising you how to pick low-cost but high-impact professional service providers, such as lawyers and accountants.
Many people forget that just about every business relies on technology to improve its competitive position. Having a board member who understands how to use technology to build a business and service clients can improve both the top and bottom lines. This can also lead to new business ideas.
Many experienced businesspeople will tell you that putting your accountant or lawyer on your board is a bad idea. I disagree, as long as they are more than just mechanics. I would put a person with finance experience on the board to provide advice and insight into the best ways to raise capital and grow your business.
How to Use the Board
Boards are good at providing feedback and clarification about strategic direction. They don't want to be bogged down in the details, but they are valuable in looking at the big picture.
Often board members can make introductions that lead to new business.
Once they understand your business, board members can be very helpful at identifying future stars to add to your team.
Experienced business executives can ask the right questions to determine if you are being efficient and optimizing your operations.
How to Compensate the Board
Many people will be on your board for free, but the best will want something for their time. Here is what I do.
Provide board members with either free stock or cheap options so they can benefit if their advice helps the business grow.
A token amount, such as $100 to $200, for attending each board meeting will create the aura of a bigger company and tell board members that you take their role seriously.
I always serve a nice breakfast, lunch or dinner at board meetings. But I try to stay away from dinner, so I don't impede on board members' personal time.
Hold no more than six meetings a year, and try to meet one-on-one with each board member once a quarter. They may have suggestions and ideas they want to bounce off the leader before sharing with the group. It's also a good way to get to know your board.
Keep in mind, advisory boards don't have fiduciary responsibility, so you don't have to buy liability insurance for directors and officers. Finally, don't hide in your office or be afraid to be challenged. Build a strong board, leverage their knowledge and expertise, and you will enhance your chances of success.
Kramer is the author of five business books on topics related to venture capital, management and consulting. He is a faculty member at the Wharton School of Business at the University of Pennsylvania and the veteran of over 20 startups and four turnarounds.