DavidVivero.com

I've been to at least a few meetings recently with entrepreneurs where they let me know about some of the progress they're making on their businesses. It's always exciting to hear about someone taking the plunge to get a business started from scratch.

Sometimes, during the course of their update, they'll rattle off names of new people they've signed up to join their advisory board, well before they've developed their first lines of code or tested their ideas with a customer. That's when I get frustrated.

I love getting advice and having advisors, especially if they're the kind who have loads of contacts and their fair share of scar tissue from tackling issues exactly like your own. We have a few at my company, and I depend on them constantly. That said, I despise the idea of the "advisory board" as a concept, and the flimsy credibility crutch it represents for newly minted entrepreneurs.

Here are some of my thoughts about advisory boards:

When should I form an advisory board?

In my opinion, never. In the course of building your business, meet with any people you can. Be passed along to as many customers, experts, potential partners, and future recruits as you can. You'll learn a lot from these people -- especially your prospective customers -- and you'll put a lot of what they say into practice. You're always better off being more open than closed when you know so little at the beginning stages of your company.

But one enlightening conversation and a great resume is no reason to attach someone's name to your company. Meet with the person repeatedly and hint that you want to somehow get her or him more involved. Work with them on specific projects or set up very focused calls to get a sense for their level of commitment. Then, if you believe they are going to be a great contributor, give them a small amount of equity that vests over time if you think they're worth the dilution and their contribution will be ongoing.

That's not an advisory board. That's hiring a smart consultant. And that's what I'd do.

But they give me a lot of credibility, don't they?

Not in my book. If you pad your "team" slide with a slew of advisors, it says that you don't have the core competency on your full-time team. You're far better off getting a product manager from Company X to be your VP of product on your founding team than you are by getting the founder and CEO of Company X, who hasn't been involved with the company for years, to join your advisory board.

Of course, this credibility signal is relative. It's one thing to feature a few advisors when you have a new product in development, with some early customer validation and a core team that's coming together. If you've developed your advisory board in a reactive way, after understanding what will be required of you and where you may need some extra help, the backing of an advisor will be welcome. It's much more of a turn-off if you walk in the door with a roster of advisors who couldn't be advising you on very much if you don't know what your challenges will be.

Finally, you may be doing more harm than good. If you've signed up the founder and CEO of a wildly successful company to be your advisor, that person better be putting up some cash in your next round of financing. This is especially true for seed-stage (or pre-funding) companies. If those advisors, who have the means, are happy to take your equity for a phone call or two but they're not willing to invest some of their own cash, it will be a horrible signal. I always ask if high net worth "advisors" are investing.

Get teammates, investors, and an understanding of your ongoing needs, then you can solicit advisors. If you get the order wrong, you'll seem far less credible than you think.

How do I know if I need an advisor?

You'll need an advisor if you're looking for introductions or insight. Advisors lend their experience to sanity check your process rather than be a teammate that executes for you on tactical issues. That is, don't expect an advisor to make your sales calls or to produce the software code for your product, but they can help you with creating warm leads or vetting talent. Some examples of specific questions that make for great advisor relationships: 

• Can you help me set up our financial model and introduce me to vetted services like good bookkeepers or attorneys? Your experience working with these people will ensure we're in good hands.
• Can you help me find and filter CTO candidates and other top technical talent, since I don't have the ability to know when someone's a great coder or a great bullshitter?
• Can you use your broad network to make warm introductions to key pilot customers? You know all the key buyers we've already identified.
• Can you participate in some marketing strategy discussions so that we know how to establish and interpret some of these metrics? Having an outside opinion would be great.

How should I sign up an advisor if I've identified one?

It's easy. Don't spend money on some formal advisory board charter, since you don't have an advisory board per se. Instead, use a standard consulting agreement -- complete with non-disclosure provisions and the expected commitments of your consultant spelled out. Make sure to get them to commit to some hours every month that you can have a conversation. As compensation for being a valued consultant, give them a small slug of equity (.10-20% is a probably fair ballpark) that vests over the period in which you'd like to have them involved. If you've picked the right advisors, that period will be quite long. Never work with an advisor who will want to extract cash from your brand new company.