Should your small business have an advisory board?

Small businesses are increasingly setting up advisory boards. Where major corporations have paid boards of directors to oversee and guide management decision-making, small businesses can get the same kind of expert counsel from an advisory board.

The biggest difference between boards of directors and advisory boards is that advisors, as outside consultants, essentially do not have the legal liability that directors do. Some advisors are compensated for their consulting, while others are strictly volunteers.

Read on to find out how advisory boards work and the pros and cons of setting up a business advisory board for a small business.

How advisory boards work

Much like boards of directors, advisory boards meet regularly—which can be as frequently as monthly or as infrequently as annually—to help the CEO make major decisions or explore new opportunities.

Essentially, advisory boards are sounding boards, since they have little to no stake in the final decision made.

Some advisory boards are small, with two to six members, while others are large, with 10 to 15 advisors. There is no limit on how many you can bring on board, though keep in mind that scheduling becomes more complicated, the more people you're trying to coordinate.

The more opinions you're asking for, the less individual contributors may feel that their voice is being heard. Generally, it's better to have a small but mighty group that serves for a year or two years, to be replaced by new advisors every so often.

Why advisory boards are helpful

Despite not having a major equity stake in a venture, advisors can be beneficial to a smaller business in a number of ways:

Provide expert insights. Alexandre Mahe, CEO of Sküma, has an advisory board consisting of two university professors and two industry leaders, he says. "We had many questions surrounding two areas of development—water and minerals—that could not be answered online. We contacted several professors with published research papers (mostly through ResearchGate.net) in our fields of interest," and two responded.

Sküma advisors are paid per hour ($200-400/hour) for their time, plus a small amount of equity (.5% to .9%) vested over 12 months, Mahe explains. The company contacts its advisors about twice a month for advice, on average.

Offer feedback. Even in businesses where you don't need tech guidance, it's still helpful to hear reactions to future plans. Darlene Tenes, owner of CasaQ By Darlene, meets twice a year with her advisory board and says, "I would give them a presentation about our current status, successes, failures, and future goals. They gave me invaluable feedback and, as an entrepreneur, it helped me to have some sort of accountability."

Captain Experiences took a slightly different approach in forming its advisory board, turning to three founding employees to help guide "the direction of the company and strategies for future growth," says Jonathan Newar, CEO. The advisory board meets monthly, plus during emergencies as needed. Although advisors aren't compensated, they do receive small bonuses for their time.

Become brand champions. Jonathan Mandell, CEO of Teepee, created an advisory board consisting of cybersecurity directors and c-suite leaders that meet monthly. In addition to offering strategy advice and technical guidance, Mandell says, "They are also brand ambassadors who can talk about my company with their peers and promote it on social media."

Advisory board challenges

Valerie Koenig, the owner of The Alternative Board Hawaii—which helps create advisory boards for small business owners—points out several potential limitations that advisory boards bring.

"First you have to know people whose opinion you respect to ask to be on your board," Koenig says. "Then you have to recruit them. Then you need to organize them to come to meetings and share your company materials. Finally, you have to compensate them. All of this takes precious time and effort that most small business owners cannot handle."

Many small business owners who invest the time in identifying, recruiting, organizing, and meeting with an advisory board of experts indicate their input and contacts are well worth any inconvenience.