Advisors, Board Members, and Consultants — Josh Melick Explores What they can do for your company
Written by Josh Melick. Founder of Broadly.com, ex-Salesforce, Intuit, AT&T, and Demandforce, three time startup founder, raised more than $40M in venture capital
Early founders are often stuck figuring out how to get off the ground. That chicken-egg problem. Friends and random contacts show up offering help in every direction, often with various compensation asks along with it. I hear things like, “I have an idea but I need help to get it done — but I’m not sure what I can pay,” or “A friend has been helping me with advice or knows this market — should I make her an official advisor?” The early days include many of these conundrums. What is an “advisor” anyway? How much are they worth? And when do you add to your “Board” (either “Board of Directors”, which is a very real thing, or maybe your “Board of Advisors”, an unofficial thing that can still add a lot of value). How are either of these roles different from a consultant? Or a contractor? Are they even different?
Let’s look at each of these roles, what they do, and how they get compensated.
Who’s Who: Advisors, Board Members, and Consultants
The best place to start is with some simple definitions.
Board Member — Corporations in the US have a Board of Directors. Their primary job is to hire and fire the CEO, set executive compensation, and provide guidance and decision-making for the biggest decisions (raising capital, mergers & acquisitions, etc). There are often “types” of board members — the Chairman, “Preferred” Directors, Independents, “Common” Directors, etc. Common vs. Preferred refers to which share class they represent, when there are multiple classes of stock (see this and this)
Advisors — A less formal role than a Board Member. Depending on the company, this arrangement could be very ad hoc, or there might be some structure in place. In the early days of a company these people seem really important, and often as the company scales they appear more like friends and peers. There is a very broad definition of the role, time investments, and compensation. Just don’t confuse these people with who are going to do the actual work — advice and implementation are not the same thing.
Consultants — A consultant is a paid service provider to the corporation, often very task oriented. They are not your employees, they have a traditional “contractor”-type relationship with your firm (consultant is just a fancier word than contractor). They are usually paid, often cash, but sometimes more creative payment terms are arranged. As opposed to advisors, consultants are usually hired to complete a specific job and are generally skilled in that area.
What to Know About Advisors
Getting into details, let’s start with advisors.
Compensation. No one really works for free. Even rich people. It’s hard to get people to do much if you aren’t paying them one way or another. But you can’t pay everyone.
When it comes to advisors, you generally do NOT pay these people. That being said, if they are useful, find ways to reward them. Get them in on the deal as investors. Give them advisors’ shares of stock (usually just standard stock options). In Silicon Valley we have an un-official 2.5 meeting rule (see here, big props to Jason Lemkin as a thought leader but I hardly think he came up with this, I’ve seen the “rule” quoted by many people over the years). If an advisor helps you and meets with you more than 2.5 times, you should do something to compensate them. Why 2.5? Because things get fuzzy sometimes!
Doing work. So you got this great advisor. Has some good ideas. It’s early days and you don’t have revenue. Surely your free advisor will help you get it done. Well, probably not. Advisors are usually smart people but lazy. They probably have done it before or have seen it done. They have some thoughts on what’s best. But it’s probably you or someone else that has to do the actual work. Remember, no one works for free. Don’t confuse when you ask people to do work vs. asking for advice. They are different things. Advisors might tell you things they’ve seen work in the past. Here’s some clever tricks I saw another person use. But you’re gonna need to be the one to “log in and make the change” or whatever that actual work might be. Find people who want to do work if that’s what you need. Advisors generally don’t.
The Basics on Board Members
This should probably be an entirely separate article. But, it comes up all the time along with advisors and various smart people you meet — everyone kinda likes the idea of being on a “Board” — so let’s at least cover the basics.
Protect your real Board of Directors fiercely. Board of Advisors is a great way to make something sound official that isn’t. If your business does have complex regulatory, consumer, or government issues then creating a “more real” Advisory Board will be helpful. Otherwise, they are mainly for show, leads, introductions, etc. I’ve rarely seen Boards of Advisors meet directly. Most advisor stuff is 1:1. However, I think entrepreneurs should do more to tap their advisors. It’s a good idea to get these people together. It’s hard to do and has costs, but why not throw an advisor retreat now and again and really dig in? You’ll find the rewards worth it.
Key thing with board members. If you raise capital, you’ll end up with preferred shares and most likely representation on your Board with preferred directors. Counter that with common or independent directors. Find two types of people: people like your mom who will always side with you, and those people who bring real value to the table. Strong knowledge. Deep connections. Have done it before. But. But. Biggest caveat: never put someone on your board who has some reason to like your VC more than you. The biggest sin of an independent director is getting mesmerized by a big name VC or fund and turning into their lap dog. It happens all the time. If this happens and something goes wrong, you’ll lose your company. Be careful.
Where Do Consultants Come In?
Consultants. Contractors. Same thing. People who do work for you. Some very specialized, some not. You’ll always have various consultants and contractors to get things done. In the early days, money will be tight, so pay for tasks. Don’t pay salaries. Break it down. Cheaper, simpler. But remember you get what you pay for. That’s okay, speed and simplicity are what matter most at this stage. Commission only sales (see Josh Melick’s other thoughts on sales structures — here and here). Project based designers. Figure out the tasks you need and get creative to find people willing to do them. Look at Uber drivers. Delivery drivers. Task based compensation is a great way to get going. It can even scale. Hold people accountable.
Hopefully this clears up some of the differences in these terms. Nothing is free. But by being creative, you can get what you need cost effectively. Get stuff from your advisors. But then compensate them when appropriate. Find contractors and consultants that can help get things done. And you need to keep an eye on them — no one is perfect. Learn it. Do it. And that’s how you’ll get off the ground.