Can a good Board make a difference in the enterprise value of a small or mid-sized company in the defense sector? I get asked that question a lot. Obviously, since I have sat on many boards, I hope the answer is yes. And of course, it is. But you need to be deliberate about how you put them together.
For smaller, private companies that are closely held, I tend to stay away from adding outside people to the Board of Directors (BOD). I know that’s against some advice out there, but hear me out. A BOD is a regulatory instrument that represents the shareholders. So, for most small and mid-sized companies that are closely held, it makes sense to use the actual shareholders to make up the board rather than elected delegates. There are cases where the ownership is complex, or partners need additional help managing differing company objectives, that would make an outside director t helpful. In my opinion, those cases are in the minority.
Having an interest in outside expertise does make sense though. People with expertise that are an arm’s length from the operation of the business can be very beneficial to have on your team, and they can add an interesting ingredient to the mix that could very well make the difference in any number of areas.
This is where the Board of Advisors ( BOA ) come in. Unlike a BOD, BOAs are not governing bodies and have no say in how you run your company. This doesn’t dilute your control, which is one of the biggest fears entrepreneurs tend to have when bringing in outsiders. You get the best of both worlds with a BOA.
So how do you go about setting up a successful BOA? I’ll break into three areas: What, Who and How.
First rule of leadership: everything is your fault.
– A Bug’s Life
What should you be considering when putting together your Board of Advisors?
First things first, you need to have a strong strategy foundation set up. That may include Mission and Vision activities. Mostly it means that you need to know where you’re going before you start looking to fill gaps. Make sure you have a foundation that you can share – plan for your current and future state.
When you feel comfortable that your strategy foundation has some meat to it, you can ask yourself “What do I want from this board? Now? Later”. Are you looking at some current strategic obstacles or are you trying to fill longer term gaps?
Identify and document these priorities and prepare context to support your goals. When you bring people on, it will help if they have a clear set of goals and understand the information about your company that feeds the process. Of course, more information will be brought to the conversation when you interact in various meetings with these individuals, but it’s better to start with something prepared in hand.
Identify who on your leadership team will interact with the BOA. Consider personality types. Are they coachable? Do they really get into engaging conversations where people have different opinions? Will they take it poorly to have an external devil’s advocate?
I think each person, if you’re a CEO, the most important thing is to have – to me, is to pick people around you that aren’t like you, that complement you. Because you want to build a puzzle; you don’t want to stack Chiclets up and have everyone be the same. And so I believe in diversity with a capital D
– Tim Cook
Who are you looking for in your BOA?
Start small, maybe two or three. Most well-planned companies can identify many gaps. Don’t try to fill them all at once. Instead, pick a couple and practice on filling them. Consider people who have been, not just where you are, but also where you are going. They will have valuable insights into that next set of road bumps that you want to be prepared for. These types of advisors are looking ahead more often than they are looking at your current operational concerns.
Some examples of gaps where you might want some supercharging help are:
- Seasoned executives – C suite future mentoring or advice for vetting your strategy with a devil’s advocate view. If you and your team are coachable and openminded there is a wealth of other people’s mistakes you can learn from an individual who already has experienced them. .
- Technology expert – If your company has a key technology area as a pillar of business, or plans on moving into an area that heavily depends on a key technology, consider an expert in that technology. Look for someone who is either retired or in a non-competitor organization. It is so easy to drink our own bath water, and it helps to have an outside perspective on our plan.
- Customer expert – In the defense and intel space, it can be invaluable having people that come from the sector with a customer perspective. It doesn’t have to be a retired general. Someone who really knows how to connect what you are trying to accomplish with a totally different perspective from your customer can be valuable asset to your business. Or perhaps your strategy outlines a foray into an adjacent space, in which case a knowledgeable insider could help you eliminate many costly steps.
- Process expert – Maybe your growth is pushing you into some uncomfortable accounting, ISO 9001, DCAA, IRS, CMCC, etc areas. Brining on a senior representative that can help you vet your strategy to get there can be incredibly helpful, BEFORE you start hiring and doing it!
- Exit Planning/M&A/Buy/Sell – Strategies revolving around M&A are an excellent place to bring in an advisor. Whether you are looking to possibly buy companies to join you, or you are looking at understanding various exit paths, even years from now, an external and safe person to talk to can be irreplaceable. The dollars associated with various levels of success ( or failure ) are so high that this is something you should seriously consider, even if the event is far off into the future.
You hear about how many fourth-quarter comebacks that a guy has, and I think it means a guy screwed up in the first three quarters
– Peyton Manning, former NFL quarterback
How to you set up your Board of Advisors?
Once you have identified some strategic gaps and the types of people you want to help fill them, start talking to candidates. I would look first at the network of people you trust, but know are not likely to ever become employees. Reach out to these connections and have a conversation to see if they have an interest. Many people are genuinely flattered by the interest and eager to share advice they have learned during their careers. If you struggle finding the right fits in your own network, or in the networks of people you trust, there are organizations that can assist you finding that right person. High Stakes Partners can assist you, for example.
Start with one-year terms for new advisors. This makes it easy to reevaluate to see if you made the right choices without a long-term commitment. If it’s not helping, don’t be shy about cutting ties in a professional way. One-year terms make that less painful.
Determine the rhythm of conversation. Are you going to meet formally monthly? Quarterly? At a different cadence? What will those conversations look like? Who will be participating? Will you bring all advisors together, or is there a reason to break them out? There are reasons why either of these options are useful choices. In any case, it’s usually best to have one session that introduces your company in some detail to your new advisors. This is where having a somewhat robust strategy and mission plan is useful. This meeting is the time to present that to them and highlight where they fit into it. Having documented minutes and action items can be a useful tool in these more formal meetings for ensuring that everyone is on the same page and no information has been missed.
Plan on informal communication as well. Set expectations for some small amount of time in between meetings for these less formal conversations or meetings. These can be very useful. This may look like a call between one advisor and the CEO every couple of weeks. Or perhaps your Business Development and/or Product manager meet with a customer representative to get feedback on current progress. These informal communication meetings should be whatever you think is most useful, but I recommend putting some thought into it in advance so that you can properly set expectations when you sign this individual on.
Speaking of signing them on, these can be very basic contracts. They should include a strong non-disclosure agreement, as well as the term and any compensation considerations. This is all over the map and very case by case. I’d be happy to talk about my experiences in a call, but it’s difficult to generalize in an article like this.
One last thing to consider if you have a good public relations and branding strategy, is how this could impact that. Take a look at my article about how a good PR strategy and increased brand awareness can increase your enterprise value. Your advisory board may be an excellent opportunity to show the world your thought leadership in an area. If it fits with your strategy, take the opportunity to put out a press release and showcase it in social media posts that show off your new advisor, especially if that person has some cachet in your segment. It’s not useful for everyone, but consider it and if it makes sense to collaborate with your new advisor on wording of the release.
Advisory boards are quite useful and every company with aspirations to grow should at least consider them. They are much more complex that I can relate in a short piece like this. As always, I am happy to discuss some of the more interesting nuances. Send me an email or contact me at High Stakes Partners.