G

S I N E S Business Services

ADVISORY BOARDS

A GREAT RESOURCE FOR YOUR SMALL, GREEN BUSINESS

S a n F r a n c i s c o , C A i n f o @ G r e e n B u s i n e s s O w n e r. c o m w w w. G r e e n B u s i n e s s O w n e r. c o m Copyright Green Business Owner 2010

Executive Summary
What Are Advisory Boards? Advisory Boards for Small Green Businesses Document Summary

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Part 1 What Can You Expect from a Board of Advisors?

What a Board Can Do For You Exhibit 1 Roles of the Advisory Board Exhibit 2 Why an Entrepreneur Would Want an Advisory Board

Part 2 How To Set Up and Launch a Board

Who Are the Right Board Members? How To Find Terric Board Members for Your Small Business Exhibit 3 Effective Ways To Find Board Members

Exhibit 4 Example Board of Advisors for a Green Coffee Shop owned by Jill, a ctional eco-entrepreneur 7

Part 3 How To Manage Your Board

So You Have a Board Now What? Exhibit 5 An Illustrative Example of Jills Board Meeting in March Managing the Downsides of Having a Board and Avoiding Common Problems So What Is in It for Them, Exactly? Final Comments

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Appendix 1 Glossary of Terms

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Advisory Boards

Executive Summary
What Are Advisory Boards? Not to be confused with a board of directors, advisory boards are extremely helpful resources for small business owners. A board of advisors is an entity that provides advice to managers and owners of businesses. Boards can help shape your strategic goals, give you invaluable nancial advice, and ensure you stay on track with your values and mission. Perhaps most importantly, however, the board can open doors for an entrepreneur sheerly from the connections board members have. The relationship is actually quite informal a board has no authority, nor any legal or duciary responsibility. Make no mistake, however, having such a board can be the difference between success and failure. Whether you are a solo entrepreneur or a small multi-employee business, a board is useful in providing you much-needed independent advice and helping you avoid common mistakes.

Advisory Boards for Small Green Businesses This may be one area where being green is really easy. People love sustainable businesses, and you may nd that, unless you are careful, you end up with an advisory board that is enormous. Many people will want to volunteer their services, and if you can use this to your businesss advantage, you will gain a crucial competitive edge for your small, green business.

Document Summary This document will introduce you to boards of advisors and discuss how you can effectively utilize them to the advantage of your business. In Part 1, we discuss the benets and drawbacks of creating a board of advisors and discuss the roles that an advisory board may play for your small business. In Part 2, we discuss setting up your board of advisors, including how to nd the right board members that lend complementary skills to your organization. In Part 3, we discuss how to manage your relationship with your board of advisors for long-term success. We discuss various options for engaging your board members, including what you can offer in return for their service. The document closes with a glossary of relevant terms for your reference, both current and future.

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Advisory Boards

Part 1 What Can You Expect from a Board of Advisors?

What a Board Can Do For You Traditional belief holds that having a strong business plan, a committed staff, and a well-developed management style are all you need to run a successful business. Board members bring an element to the table that you may struggle to get anywhere else: a qualied, yet independent perspective. No matter how experienced and knowledgeable you and your staff may be, you will always be constrained by the inherent myopia that comes from running a business day-to-day organizational politics, short-term needs that dictate your role, and the immediate demands of your stakeholders. In other words, seeing the forest for the trees is one of the greatest challenges to running a business. Enter, a board of advisors. The role of the board of advisors (hereafter, the board) is to provide an independent, outside perspective. board Members should be experienced professionals whose opinion is informed and intelligent. A well-managed board can give you strategic direction, help you answer the tough questions, and always ensure you stay true to your business plan and your core values. A recent McKinsey & Company study1 interviewed the directors or board chairs of 32 of the 100 organizations named as top performers by Worth magazine. The survey concluded that high-performing boards play three distinct roles:

Exhibit 1 Roles of the Advisory Board

McKinsey and Company, The Dynamic Board Green Business Owner

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Advisory Boards

1. Shaping Your Direction The rst major task you will have as an entrepreneur is to determine your organizations mission. Sound easy? Think again. Take the Walt Disney Company as an example. A traditional mission statement might read: To make cartoons. In contrast, a powerful and strategic mission statement would read: To make people happy. Do you see the difference? Determining your true mission and packaging it in a compelling sentence that will inspire your staff for years to come is no easy task. A board can be key to helping you determine your true mission and create a compelling story for your organization. Beyond a mission statement, an entrepreneur must develop a strong strategy and a set of long and short-term tactics that will allow employees to implement the strategy. Each of these steps is complex and riddled with risks. Having a board forces you to spend more time on these tasks and helps you develop a well-thought out business plan for your company. 2. Ensure that Leadership, Resources and Finances are in Place Good boards can add critical skill-sets to your organization: from legal skills (e.g., help drafting your legal documents), to nancial prowess (e.g., expertise on the best ways to fund your business), to environmental know-how (e.g., environmental engineering). Moreover, boards can provide access to information and experiences you might not otherwise be privy to. For example, the Deputy Director of the Natural Resources Defense Council notes that For us to be successful, we need the board to open doors and introduce us to policy makers. 3. Monitor Performance and Ensure Corrective Action All companies must keep a close watch on their performance metrics and take corrective action if the business become unprotable or goes in a misguided direction. But this is even more important for mission-based businesses. You will have to make trade-offs in your time as an entrepreneur and difcult decisions will be impossible to avoid. A board can help you navigate those tough choices and keep you on track when you err on the wrong side. A board should continually ask the following questions: Is a rms nancial exposure sustainable? Is the organization structured to deliver the best results? Are employees (including the CEO) compensated fairly? Is the mission and vision of the organization being upheld in all strategic decisions?

A board is the best safety net you will nd to keep you from making mistakes you will later regret.

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Advisory Boards

Exhibit 2 Why an Entrepreneur Would Want an Advisory Board

Why choose to have a board of advisors? I have never operated a coffee shop before and wanted experienced advice on the pitfalls
and opportunities. I am pouring my nancial resources, not to mention my blood, sweat and tears into this business. Ive gotten emotional and a little irrational at times when I think about the gravity of the risks. If I am about to make a terrible mistake, I want someone objective and unattached to be looking over my shoulder with solid advice. I am starting a business with a mission I really believe in. I want to ensure my coffee shop is organic and really lives up to its promise as a green business. My board members know that their biggest mandate is to keep me honest. Honest about the positive impact I am making but also about the times when I might be tempted to sacrice my mission. I dont know that many people in this industry. My board members can help me get into the inside network of coffee distributors and wholesale markets.

Part 2 How To Set Up and Launch a Board

Who Are the Right Board Members? This is the single most important pre-requisite to ensuring your boards success. Getting the right individuals for the job means the difference between extremely valuable advice, and distractions from your business operations. How do you tell who is right for a job? Here are some general guidelines: They should see eye to eye with you on the mission of the company. They should have a specic skill set that you need in your company. This criterium goes a long way toward assuring that they stay on task as well, and not try to overstep their role, which is a crucial success factor we discuss in more detail below. They should be able to tell you the truth - positive AND negative. Their feedback may feel harsh at times. If it never does, they may not be giving you the advice you need for your business to succeed. They must understand and agree on the role you expect them to play. They must have sufcient time to meet your requirements. This may be only a few hours a year, but some high-prole people may not even have the bandwidth for this. If they dont, they will be a distraction to you and take up valuable time and energy in scheduling and rescheduling. They should enjoy the task at hand.

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How To Find Terric Board Members for Your Small Business The difcult task remains where do you nd individuals who meet these requirements? Exhibit 3 includes our main recommendations and guidelines for nding board members.

Exhibit 3 Effective Ways To Find Board Members

Setting up the initial board is the hardest task. Start by creating a list of the skill sets youd like to have on your team that you dont currently have. These can be marketing, legal, nancial, operational, and/or advisory. The bottom line is to nd people who can help your business succeed by supplying experience, knowledge, and skills that you dont, either in yourself or among your staff, already have represented, or that you need bolstered in some way. If you are a solo entrepreneur or a small company, having a board with 4 or 5 members is more than enough. You can scale up as you see t when your company grows down the road. We recommend you start by nding just 1 or 2 people who you think would be terric board members, and secure them as a starting point; the rest will ow far more naturally. The initial board members may recommend additional individuals to join and will help you ensure the culture of your board is strong and supportive of your company.

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Advisory Boards

Exhibit 4 Example Board of Advisors for a Green Coffee Shop owned by Jill, a ctional eco-entrepreneur

Jills board has 4 members - Henry, Tish, Tom and Beth. From Henry, Jill gets the experience of a veteran in the eld, and has learned to manage his desire to be the manager of the new company. While his experience is extremely valuable to Jill, what worked for Henry in Portland may or may not work for Jill in the new company. In addition, Jill wants to do some things differently and have a unique brand for her coffee shop, and therefore she sets well-dened boundaries of control with Henry. From Tish, Jill gets free legal advice and terric business acumen, as well as help with setting up her tax structures and making sure all her legal lings are in place. Tom helps Jill by connecting her to industry players in the coffee business, and educating her about the processing, ordering, and maintenance of her supply chain. From Beth, Jill gets tremendously valuable nancial planning and strategic advice. With all of these people, the things they know and could do in their sleep would take Jill by herself many hours and potentially cost a lot of money in development, research, and mistakes. A logical question might be what these individuals get from the experience. Well cover that in Part 3.

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Advisory Boards

Part 3 How To Manage Your Board

So You Have a Board Now What? The last thing you want to do is to assemble a terric board of advisors and then not know how to leverage their expertise (or worse, to waste their time!). How do you ensure that your boards time is used effectively? How do you leverage the experience and skill sets of your board optimally? Even once you have a strong set of individuals who agree with your vision and are supportive of your cause, you must provide extraordinarily strong leadership in order to get the desired results from your board. That leadership must necessarily come from you or another leader of your business, whether its a partner or a high level manager. A few strategies are recommended: 1. Create a robust agenda for each meeting. A written agenda that is distributed to board members before the meeting ensures that you stay on target and discuss the topics that are most important. Distribute this beforehand, and allow participants to add to the agenda if you have missed an important component. But always be in charge of what you need from your board members and what you hope to get out of the meeting. The agenda can be as simple as a bulleted outline, so long as it covers the major topics that will and, just as importantly, will not (by virtue of their exclusion from a written, pre-distributed agenda) be covered. 2. Run meetings effectively and with a purpose. In some cases, board members may be older or more experienced than you. But as the CEO, it is your responsibility to be in charge of the meetings and to stick to the agenda. Do not allow the board to get derailed by non-relevant discussions, or allow one individual to dominate the discussion. Finally, ensure that the meetings are enjoyable for all members and respect your boards time limits. 3. Communicate with board members regularly outside of meetings. Waiting until a meeting to distribute documents and updates does not allow your board members enough time to form thoughtful perspectives. Send updates regularly as events occur and keep your board members abreast of your companys news. If something is important to the success of the company and its ongoing operations, err on the side of overcommunicating with your board. 4. Meet with board members individually. Periodically schedule a one-on-one meeting with each board member, whether in person or by phone. This will allow you to discuss in-depth topics with the relevant expert at hand (e.g., legal questions with your legal expert) without taking time from all other members. It also allows your board members to voice opinions they might feel uncomfortable discussing in front of others. 5. Ensure social events that revolve around your mission to keep board members passionate. Remember that board members are likely volunteering their time to help you. Make sure you give back to them by providing a fun and collegial social environment, and one in which their passion for sustainability and justice is catered to. Host an organic dinner at your cafe for your board and their families. Plan a hike or camping trip once per year as a corporate retreat. Find out what your board members favorite hobbies are, and plan some activity around one or more of them.

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Exhibit 5 An Illustrative Example of Jills Board Meeting in March

Agenda for Jills Organic Cafe Board Meeting, March 14.

Time Topic Who Jill to present Jill will review practices, discuss solutions. Board recommendations? Beth presents nancial plan Time for comments

5:00-5:30 5:30-6:15 6:15-6:45 6:45-7:00 7:00

* Update on this months results

* Green Business Issues: Check-in on the Corporate Mission * Financial Strategy

* Open debate, suggestions for next meeting * Organic dinner at Jills Cafe, closed to the public

Managing the Downsides of Having a Board and Avoiding Common Problems Though we advocate heavily in favor of having a board, we want to draw your attention to common challenges advisory boards may harbor and how to best protect yourself. A board is not right in every situation and can be detrimental to your business if they are not created and managed effectively. Common risks to consider: Time: As a solo entrepreneur, you should consider the amount of time you have and prioritize whether having a board is the best use of this limited resource. Managing a board is no easy task and will consume at least a few hours per week, and sometimes a lot more. Speed of decision-making: Boards will slow you down mostly this is for the better as your decisions will be more deliberate and thought-through. But in some circumstances, being able and willing to make quick decisions that are controversial and unintuitive to outsiders, is the mark of a successful entrepreneur. Knowing when to ask your boards advice and when to follow your internal compass is key. Disagreement: Though board members offer good advice, you may disagree with them more often than not. As an entrepreneur it is in your nature to be decisive and have a strong sense of what you want your business to be. Managing disagreement and ensuring board members know that their advice will not always be implemented is one of the most important factors of success if you choose to have a board. Condentiality: If your businesses plan is highly condential or proprietary (e.g., new patent, innovation, new market niche), you should choose board members you trust or avoid having a board until you have carved out your position in the market. Though boards are expected to keep condentiality, it is hard to prevent or punish the duplication of your business plan.

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Bad apples: Not all board members you select will turn out to be right for the business. In discussing the initial relationship, you should always mention that you have the right to ask the board member to leave. Board members should be useful to you their criticism and feedback should not become an unwelcome burden. If a certain board member is not pulling his/her weight or is distracting progress through unproductive feedback, you should use your rights as CEO to ask them to abdicate their post.

So What Is in It for Them, Exactly? A good board can be a tremendous asset to a small business owner. However, what is a small business owner to offer a board member to recruit them, keep them engaged, and maximize their interest in the company? Serving on a board has a number of potential benets to the board members themselves that you can leverage to build and retain the best board for your company. 1. There is little to no risk. An advisory panel is looser than a board of directors. A board of directors has greater obligation, liability, and requirements of time than a board of advisors. Therefore, you can make that pitch that theyll have less skin in the game...theyre just giving advice. Theres no legal structure to tie them into, and if the ship goes under, they lose nothing. 2. It is an opportunity to shine. Everyone likes to feel important, and this is a great way to give board members something to put on their resume and tell others about. Most people love to be asked their opinion (and give it). 3. It is a networking opportunity. Part of keeping people engaged is to make it worth their while professionally. If you can connect people professionally, or somehow open a door for them, youre well on your way to having them be indebted to you. 4. It may be a social opportunity. Several of the people we interviewed for this paper said that the top reason they joined a particular board is that there was someone else on the board they knew, trusted, and enjoyed. 5. In some cases, it might make sense to pay someone. For the absolute right person, that board member that can open a critical door for you, you might consider putting them on an annual retainer with your company. 6. Its an opportunity for them to be promoted externally. Promote your board members! In some cases, your board member may be interested in exposure for their own career. For instance, if you are running a small magazine, an author may want to be on your advisory board in exchange for free advertising in the magazine.

Final Comments Many entrepreneurs make the mistake of underestimating the powerful role a board can play. As you see, boards can help you throughout the entire life-cycle of your business. Do not miss this opportunity to enhance your companys success with this extremely inexpensive resource.

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Appendix 1 Glossary of Terms

Myopia Known colloquially as tunnel vision, myopia describes a challenge faced by many small business owners, who cant see the forest for the trees. They and their partners and employees are buried in the business, and therefore having a board of advisors who can provide an independent, outside perspective is extremely valuable for breaking this myopia.

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