In this post, I'll describe the origins of Advisorship, what it takes to run an effective Board of Advisors and the benefits, how to handle conflicts of interest and best practices for disclosure.
Building a Board of Advisors is one of the first tactics any startup should employ. Initially, this construct was used by startups with a high degree of technical complexity with Technical Advisory Boards largely with experts from academia and research. Companies increasingly employed Business Advisory Boards to help them with business development and strategy beyond the activies of the Board of Directors. During the bubble, Technical Advisory Boards also played a role in driving sales and partnership. Telecom was particularly excessive and replete with conflicts of interest (Om could point us to them), such as gaining Advisorship from potential acquirers and customers. Direct conflicts of interest were clear, where vendors gained an advantage over others through the leverage of options and in some cases, cash.
With the rise of social software, Advisors also play a role in the marketing mix of a startup. Advisors have always provided more than advice, but lend credibility to emerging companies. The opportunity today is to let Advisors lend more than their name, but have their participation in the conversation. As with most business ethics, the ethics themselves are not necessarily new, are mostly common sense, and are simply a matter of recognizing and complying with best practices.
Running a Effective Board of Advisors
Startups mistakenly think a BoA is a list of references compensated with stock options. In practice, they can play an active role in the development of a company. Like a Board of Directors, they need to be actively managed to derive business benefits. When I was the CEO of a later failed (praise failure!) Risk Management Software company, I worked with an A-list board of advisors that even included startup guru John Nesheim and a nobel-prize nominee. One of the members, Robert Berger, taught me a structure that participated in at Covad, which was widely recognized for having an effective BoA.
And Advisor should:
- Be made available for a quick questions or introductions by phone or email on an occasional basis from a single point of contact (the founder or CEO)
- Participate in monthly conference calls
- Attend quarterly face-to-face meetings
Calls and meetings follow a simple agenda:
- A presentation by a single strategic issue,
- open discussion.
- Alternate who gives the presentation with each call or meeting, between an executive of the company (e.g. VP of Marketing on entering a new market) and a member of the BoA (e.g. on a trend they are seeing in the market the company should pay attention to).
- Generally, calls should go for an hour, meetings could go for two or three. Meetings can be shorter and complemented by a social gathering.
Since then, I've made a couple of tweaks.
- In the case of Socialtext, we waived the f2f requirement. Initially this was done for sake of budget (the company should cover travel costs for participation).
- The entire company is invited to participate in the call, not just the executives or founding team. It will be interesting to see how this scales, and if employees can follow such practices as "only improve upon silence."
- We use freeconference.com for the conference call, IRC for link sharing and turn taking, and Wiki for notes and presentations.
I'm being eaten by a BoA Constrictor
I liken the role of a BoA as a group with strong ties to the company, playing a role in it's social network as the first degree. Initially, names alone provide credibility or thought leadership, but to really gain advantage, a structure such as above needs to ensure information flow and set expectations. Who to recruit should be fairly obvious for your startup. Look for people who are leaders in their industry, where you can build a foundation of trust and above all make sure you form a diverse group. I think trust is essential, so you won't hold back on sharing what's really going on in your business. So is honest conflict -- your BoA needs to be able to tell you when you are on the wrong path or blind to opportunities.
Some of the benefits of a BoA:
- Thought leadership
- Technical advice
- Strategic advice
- Trusted feedback loop
- Network into customers, partners and VCs
- Increases the perception of scale and maturity
- Properly disclosed influence through blogs and press
- Cash-conservative compensation
BoAs can be effective at scales greater than that of a Board of Directors, because their role isn't to make decisions (where BoDs of 3 or 5 work well). Start with a BoA that is a mix of technical and business advisors, when conversations start bifurcating you will know so too should the BoA. The constraint for expanding the BoA is your time managing and scheduling them and your stock option pool. Compensation for a board of advisors is typically in the form of stock options. Grant sizes are typically on par with that of a new employee. Vesting in accordance with the Employee Stock Option plan, which sets an effective term of service to the company.
Unlike a Board of Directors, they do not have a feduciary duty to act in the best interest of the company and it's shareholders, so as a founder or CEO it's important to watch for and manage potentitial conflicts of interest. Advisors have this duty as well, ethically, not legally. Sometimes an Advisor may work at company of strategic value to a startup. In this case, it is essential for the Advisor to disclose internally, if not gain approval prior to accepting the position. There may also be conditions in which the Advisor needs to excuse themselves.
Disclosure is the meme of the moment. It goes without saying that companies should disclose their Advisory Board openly and with pride. Some of the best advisors these days are also active bloggers. While blogging is informal and conversational, norms have developed for disclosure.
First disclosure is perhaps the most important one. An Advisor should disclose the relationship prior to or at the time of writing about the startup. For example, I have not blogged in mention of Dabble until this post. When I blog specifically about Dabble, perhaps about playing with their alpha, it's important for me to do specifically within the post, but also recall past posts that may be influential in framing their category. In this case, I posted that 2006 is a big year for video on the net, partially influenced by more insider knowledge of video sharing startups. Blogging about companies you advise is natural and should be encouraged given the passion required for affiliation.
Ongoing disclosure, given the nature of blogging, should not be required within each post mentioning or influencing the perception of the startup. The norm today is to list your disclosures on your About page. Unfortunately, Wordpress and other blog tools are breaking the genre when it comes to including an About page on the blog. This oversight fails to encourage other good practices we could borrow from journalism (bylines) and the net (you own your own words, thanks to the Well).
I participate on the following BoAs:
- Dabble -- video sharing (haven't blogged about it)
- Eventful -- event and venue database
- Ookies -- photooki sharing (haven't blogged about it)
- Persuadio -- conversation visualization
- Plazes -- location based social software
- QuantumArt -- content management
Socialtext has an outstanding BoA that includes Tom Gruber, Zack Lynch , Jerry Michalski, Mitch Ratcliffe, Doc Searls, Clay Shirky, David Weinberger and Kevin Werbach. We'll have some announcements in this area soon.
A directly related issue is disclosure of products received from vendors as a blogger. Over the past year, I've witnessed a change where bloggers once got a free book or two a year. Nowadays, an influential blogger is overloaded with everything from free cell phones to toilet seats. I'm a member of the Silicon Valley 100 and get a bunch of free crap, for example.
The norms for disclosure of free crap are fairly well developed. If you blog about a product you got for free, you mention it in the post. The distinction here is you only have a transient attachment to the free crap, as opposed to an Advisory relationship with aligned long-term incentives. However, there is a very big grey area here. Journalists who get free crap are required to return it (one of the secrets of living cheap in the Silicon Valley is you can count on free lunch from journalists or VCs). Bloggers tend to keep free crap. And I'm not sure that's unethical, if the norm for disclosure is further developed.
Instead of the current witch hunt, I hope for more constructive attention by mainstream media to how to pass on practices from journalism. Ethics are central, but there are things you learn in j-school and on the beat that could make us a better complement to the mainstream. I also discount the gatekeeping echo chamber impact of blogging, especially compared to the mainstream. By contrast, the blogosphere celebrates diversity with attention and there is no gate to be kept.