One of the most important elements of a great investment is getting the right people involved. The right people bring innovative ideas, create opportunities and help the company move forward faster toward its stated objectives. In fact, having the right people involved is more important than having capital because good ideas and good companies can attract low cost capital. To be clear, I am referring to an advisory board and not a board of directors, where members are tasked with providing great ideas and advice, challenging the status quo, not merely providing governance.
Challenges to Creating a Great Advisory Board
I believe one of the more challenging experiences as a private equity professional is putting together an effective, engaging and well-organized board of advisors. As I continuously seek advice on this matter, I am always surprised to hear how widespread ineffective boards of advisors (and directors, for that matter) really are. Very few business professionals can point to more than a handful of good experiences.
Most problems come from a lack of engagement and preparation, too much focus on history and detail, and not making the requisite changes in the composition of the advisory board to reflect the evolution of the business. Many papers and articles have been written on this subject and there are many more issues, but I will focus on these three issues and offer a possible solution.
#1 Lack of Engagement and Preparation
This is not evident when a board convenes initially. In the beginning, there is an excitement at the newness of it all. The phenomenon I am referencing generally happens later when everyone is more familiar with each other and the business and the solutions to issues are harder to develop because the low hanging fruit has already been picked. A key element to successful advisory boards is sharing ideas out loud so that others can consider these ideas and possibly build on them. Not having prepared eliminates the opportunity to provide insightful ideas in this creative moment where lots of good ideas can be germinated.
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#2 Too Much Focus on History and Detail
How does that help strategic thinking going forward? I am a firm believer that advisory meetings are for looking forward over the next six months to two years and that looking back, while instructive, should be done in preparation for the meeting and discussed in the first 10% of allotted time. The balance is about the future.
#3 An Evolving Board
Companies evolve and, therefore, the management team needs the source of their advice to evolve. Very few professionals have the breadth of experiences to be specialists in all areas confronted by the company. Advisor composition needs to reflect the domain experience the management team is seeking to benefit from.
A possible solution to manage these concerns lies in the concept of having a series of single engagement strategic meetings with guests invited to discuss the topics most pressing. The newness and freshness of the strategic topic, the opportunity to network with other accomplished professionals and a desire by the guests to do their competitive best in a networking environment, keeps people on their toes and often gets the creative juices flowing. Management would share only the information where they are seeking help and not burdened with the time and energy of creating a comprehensive report. This solution also frees management to change the composition of the guests at any given time to best suit the skill sets required as the company evolves.
Solution: Advisory Board Composition
Now, to address the composition of these guests you invite into your organization, be open and get creative. One of our most successful advisory boards contained customers (yes, I said customers!). For other novel ideas as to where to find diverse and potentially conflicting points of view to add to your advisory board, Jeff DeGraff, Ph.D., the "Dean of Innovation," author and thought leader, joined my partner, Brendan Anderson, to discuss this very subject. DeGraff challenges that you may want to not only look for customers of your current product or services, but one who would represent the emerging product or service you want to offer. Innovation, Innovation, Innovation!
While I certainly recognize that there are many issues that need to come together in a great way in order to have effective and engaging outside advice, know that it is possible and, more importantly, extremely valuable. A novel approach may just be worth trying.