Does An Advisory Board Deliver Any ROI?

the abplatform blog advisory board roi

Does an advisory board deliver any ROI? The answer is a firm “it depends.”

 

the abplatform blog advisory board roi

Advisory Boards CAN have value

In general, they provide a shortcut to better decisions. Specifically, they can:

  • Open new markets: Trying to enter the test tube market in Poland? Maybe it would be good to have someone who knows the specific test tube customers – and who speaks Polish.
  • Help raise funds: Particularly if you have an advisor who has networks within the specific capital markets that apply to your business, they can short-cut fundraising, which is the most time intensive job you will need to take on.
  • Find talent to fill gaps in the business: Most of us have most of our job experience in one area – Marketing, Sales, Finance, Info Technology, and so on. But if your breakthrough idea requires a sophisticated Cost Accountant, and you are from another function, you likely do not have the network to find the best Cost Accountant. Come to think of it, you may not even know how to differentiate a good Cost Accountant from a great Cost Accountant.
  • Deliver domain expertise: A fancy way to say that Advisors often know stuff that you may not know about how a particular industry or process works. General business strategy can be found in almost any library, physical or virtual. But how to win at a line review with a big box retailer, for example, or what optimal irrigation is required to grow watermelons in South Dakota? You need domain expertise.
  • Provide a true sounding board: This is a term which is bandied about too loosely and has therefore lost value. Everyone should be so lucky as to have my Dad as their advisor. Despite an extensive career in commercial banking, he almost never gives direct advice. Instead, he asks questions, such as, “What options are you considering?”, “Which of your goals are you trying to deliver?”, and “If you do this, what would be the logical next step?”. By doing this, he helps you work your own way through the problem. In contrast, many people just proclaim what you should do based on their own experience, which may be totally different from what the situation needs. (And btw, that’s not a sounding board.) A great advisory board member can do this for you.

the abplatform blog advisory board roi

In point of fact

There are multiple studies which show that having a high performing advisory board delivers statistically significant revenue and market share increases, compared to peer companies without advisory boards, and compared to their performance prior to putting the board in place.

An advisory board is one of the highest ROI actions a CEO can make.

the abplatform blog advisory board roi

Now for the head scratcher

Only 8% of startup CEO’s create advisory boards. And admittedly, most advisory boards are abject failures, in the sense that they provide no useful advice. I even heard a person say, “I’ve been on 26 advisory boards and they were all terrible.”

What’s up with that?

the abplatform blog advisory board roi

The secret is in those two flyover words: “high performing”.

Look again. Studies show that having a high performing advisory board delivers ROI. Said another way, it’s not enough to HAVE an advisory board. The board also needs to be USED to their maximum contribution. In fact, we postulate that 70% of the value of an advisory board comes from how it is used.

In order for an advisory board to have best value, here are some of the requirements:

  • Leadership Commitment: The CEO needs to personally want an advisory board. Seems basic, but it’s not always the case.
  • Clarity of Scope: A definition of why the CEO formed the advisory board.
  • Rules of Engagement: Written information that says how often they will meet, how information will be provided, what documents will be shared, and so on. The basics.
  • Individual Contributions: In baseball, the center fielder doesn’t just decide to pitch an inning. In a high performing advisory board, knowing their specific role makes each person more effective.
  • Leaning In: Members need to show up for the CEO. They should be able to articulate your strategy and what some of the current challenges are. They should be sending articles or thoughts to the CEO proactively.
  • Skin In The Game: Advisory boards need to be paid, either in cash or in equity, or in a combination of the two.
  • Diversity: People who are different from the CEO, and who are different from each other. This is a tale as old as time, to borrow a Disney lyric. Greater diversity provides a greater chance to solve any issue.
  • Proactive Management: An advisory board is more vitamin than medicine, so it can be easy to let communication fall off, which diminishes value. Someone needs to be accountable to manage the advisory board as a community, including deciding what topics will be discussed with each person and building the bonds between the advisory board members themselves.

Now that I know that, what do I do?

As a nation, our track record with startups is not good, to be polite. In fact, more than 90% don’t live to see their 10th year. We believe that high performing advisory boards can change that track record. If you’re a CEO considering an advisory board, we’d like to talk about how we can tailor one just for you. Or, if you have or sit on an advisory board that is not delivering value, we’d like to talk about how we can make it stronger.