Organizational Structure to the Rescue
Women founders face the uncomfortable reality of sometimes not being viewed as experts or experienced, no matter their credentials or career background.
This is even more poignant for female founders in STEM. Fortunately, we have strength in organizational structure to mitigate such gender bias. All businesses benefit by having a strong advisory board. And for female led enterprises, the benefits are especially enormous.
Most founders are encouraged to seek co-founders and a tech team, to have board of directors’ positions open for angel and VC investors, and to hire sales force once the MVP is up and running. Small business owners get even less advice in terms of setting business structure before going to market. I would like to stress that the team is the most important component of a business, and that team must include expert governance for the win.
So, what is an advisory board, how will this organizational component make a difference, and how does a founder go about creating the best advisory board for long term success?
Advisory boards and the board of directors are not the same.
But they can be complementary. The board of a startup usually comprises the founders, board members who have equity interest in the company (such as an angel or VC investor), and an independent director who is not allowed to be a shareholder, but may be paid sitting fees.Term and equity percentages of all directors must be fully delineated via capitalization table, term sheet and contract. These requirements suggest that the board of directors have a direct stake in governance, which is beneficial for the company, but can skew impartiality of expertise. This is where the advisory board comes in.
Advisory boards, in a nutshell:
- An advisory board may comprise a panel of three to ten noted experts knowledgeable in the fields that most directly pertain to company strategic directions. Advisory board members do not vote at the Board level, and work directly with the CEO on specific needs of expertise. Advisory boards take mentorship to the structural level.
- Advisory boards help with the development of specific internal business processes. So many times the entire team comprises founders and co-founders, tech and sales, and directorship that may not have specific capabilities that are so necessary to address early in business formation. An advisory board helps to impartially fill the knowledge gap in customized ways.
- An advisory board may exist before formalizing the board of directors. There is double benefit here. Founders who have established an advisory board from the get go are much more appealing to angels and financiers when seeking funding. Again, it shows that the founders have painstakingly tapped into a wealth of expertise to weather business challenges! Advisory board members who are very active and effective are prime candidates for independent board of director seats, and also for executive management when the cap fits.
- An advisory board is a great alternative to equity dilution when it comes to capitalization. Many startups dilute equity and Board seats too quickly hoping to achieve what an advisory board does. Many advisory board members make themselves present for pro-bono initially, with a written contract as to any term limits and desired ability to request set fees, equity or directorship for a later stage in startup development. As with any contract, it is necessary to have legal vetting on a case by case basis.
- Mentors make fantastic advisory board members! Founders or small business owners who have may feel free to discuss inviting mentors who have helped shape the company from inception as initial advisory board members, and can even tap into the mentor’s network for other expert advisors.
A startup that has both board of directors and an advisory board showcases a strong foundation.
A healthy advisory board could comprise a mix of gender and geographic backgrounds, with noted experience and expertise in product, research, project, finance, tech and sales to name a few key startup necessities. In this case, warm referrals are very welcome, since there is no formal voting or independent director requirements as in the case of a board of directors. Advisory board members are not required to meet in person with the company’s executive management, so remote and international members are easy to acquire via videoconferencing. The frequency of meetings can be set on a one-on-one basis for each member when a particular expert opinion is needed.