How do you go about deciding who should be on an advisory board for a SME business? This is something we frequently get asked, and it is a crucial element because if you get it wrong, then you won’t see the benefits that come from having a good governance framework in place.
Often the first question that comes up when looking to establish a board is how many people should you actually have? Start by analysing the make-up and strengths of your existing directors and management team. Map those against your strategic plan and then ask yourself ‘where are our gaps?’ Is it industry expertise, an international presence, sector specific connections, or in the areas of marketing or finance?
Four positions to have on your advisory board
As a guide, the four positions we typically recommend to clients to begin with are:
- The entrepreneur (usually the owner)
- The technician (understands the industry and the 'coal face')
- The marketer, and
- The numbers person
The above individuals will be able to provide well-rounded advice on all aspects of a business’s functionality, and as the company grows – so too can the board when it is identified that new skill sets would be valuable.
Typically start with one appointment, gauge the return on investment and build from there, as the calibre of the initial person will set the tone for future appointments.
Finding the right people to sit on your advisory board
The Institute of Directors (IoD) mentions on their website that enlisting people for your advisory board can be as easy as asking over a cup of coffee – but that there are a few other ways you can go about it, including advertising the position on their website.
IoD also says that SME owners often fall into the trap of only asking people they know to sit on their boards. Instead, it is important to shop around and meet with as a diverse range of people as possible so that the best decision can be made. Appointing someone you know also comes with the risk that they will not challenge you and the state of the business -– independent, unbiased advice is key.
Of course it isn’t just about finding those willing to be on your board, but ensuring they have the best capabilities to provide thought-leadership and direction on a specific subject is important, so it is best to avoid those who are ‘master of all trades, jack of none’.
You know how they say good builders are still busy in a recession...
Well that also rings true for professionals, and you should always do your due diligence if you find yourself potential board members who don’t have prior experience and/or offer the cheapest fee (because they just want to be on any advisory board). To maximise the passive benefit the person should have as higher profile as possible but remember: substance should always preside over form.
In a recent study by Perceptive Research, Kiwi CEOs and business owners were asked if they had an advisory board or governance structure in place for their business, and a staggering 91 per cent of respondents said they did not. If you’re one of them, then opportunities are being lost because you don’t understand the benefits this leadership discipline brings.
For SMEs, implementing a good governance practices ultimately reduces their exposure to unnecessary risks and leads to opportunities for growth, financing and improved performance. Our FAQ guide provide the practical answers SMEs have been looking for.