Many entrepreneurs I know are confused by the differences between an advisory board and a board of directors.
So, to explain in one sentence: advisory boards are voluntary and have no fiduciary responsibility. I recommend a small one for every startup, starting at inception, prior to a major investor or key business scaling initiative. This board is a good test drive for the more formal board of directors required later, when going public (IPO) or upon the interest of venture capital investors, and can give you plenty of great advice.
For both boards, members should be selected individually for their ability to independently add value to the expertise and experience of the management team, with no obligation or intent to add weight to internal views. The details of these considerations are outlined in The Board Book, the classic written by board expert and founder of The Board Institute, Susan F. Shultz.
Shultz provides a set of considerations that I recommend to every entrepreneur for deciding when and how to create the board that has the most value to a specific CEO and a specific business. These considerations include the following:
- Are you looking for advice or a boss? Most founders and CEOs will not voluntarily establish a formal board of directors unless they are trying to attract a major investor, preparing for an IPO or planning for an acquisition. As an alternative, every CEO needs an advisory board to help them grow, which they can ignore or fire at their pleasure
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Martin Zwilling is the founder and CEO of Startup Professionals, a company that provides products and services to startup founders and small business owners. The author of Do You Have What It Takes to Be an Entrepreneur? and…