The Importance of Advisory Boards: Guidance and Support for Small Business Growth

• Advisory boards can provide expert insights and mentorship to help entrepreneurs make informed decisions, avoid pitfalls, and accelerate growth
• A focused team of experienced professionals is like a group of elders whose wisdom fills knowledge gaps to strengthen your business
• An advisory board may open doors to new opportunities and assist in the exit process

The last thing busy small business owners want to do is rope others into the decision-making process. Too many cooks in the kitchen can hinder growth and crimp the agility that makes your company great. But as revenue grows, new challenges arise, and emerging risks appear, it can be helpful to have an experienced team acting as your spotter.

An advisory board is a group of professionals providing strategic guidance, industry insights, and objective feedback to help your business thrive. Think of them as your elders—a team that keeps you, the business owner, in line and serves as a helping hand during stressful times. A key distinction is that an advisory board is not a formal board of directors; its objective feedback is non-binding, which can cut down on regulatory time and costs.

Not all small businesses require an advisory board, but at a certain level, it becomes too difficult to effectively don so many hats. Hence, tapping into the wisdom of experienced advisors can help you course correct and position your company for sustainable growth.

At Clear Harbor, we want all our business owner clients to succeed in every way possible. Some growth paths are only uncovered with outside eyes, though. Let’s go through why forming an advisory board and harnessing the wisdom of the right small crowd can lead you down a more profitable road.

Why Small Businesses Should Consider Advisory Boards

The American entrepreneurial spirit asserts, “I’ve got this.” And maybe you did indeed “build that.” During the growth process, however, a dose of humility not only keeps the owner’s ego in check but also lays the foundation for expansion while steering clear of critical missteps. An advisory board can be just the solution for a burgeoning small business.

Even with rising top and bottom lines, you might not be able to afford a group of industry veterans, seasoned entrepreneurs, CFOs, lawyers, HR leaders, tech experts, and/or marketing specialists. But it’s possible to have this collective on your roster through a board construct. These advisors bring specialized knowledge and an outside perspective, helping you tackle challenges such as cash flow management, tactical expansion, or basic operational inefficiencies.

Depending on the size of your business, your growth ambitions, and how close to an exit you may be, an advisory board can be a good fit.

• For high-growth firms, trusted voices can be your sounding board for new strategies to spark innovation.
• If you have reached an ideal size, a fiduciary team can be your de facto risk management committee to help you secure your economic moat.
• If you’re nearing retirement, strategic guidance can be tailored to your goals during the selling or ownership transition process.

How to Build an Effective Advisory Board

It’s a gaudy list of benefits, but you might be unsure how to actually form this Murderer’s Row of industry heavy hitters. Here’s an action plan:

1. Identify Your Business Needs

Whether your biggest gap is in finance, marketing, operations, or I.T., seek first advisors with expertise in those niches. They can be retired professionals within your field, financial planners, or entrepreneurs who have scaled businesses themselves. Like in sport, you want men and women who improve your weaknesses and allow you to focus on your strengths. In terms of the ideal number of members, a count of 5-7 is often ideal.

• Seek Diversity of Thought

As with your employees and staff, a formidable team comprises players from diverse backgrounds and industries. The right kind of diversity fosters innovation and prevents groupthink. At the same time, you want people who share your values and understand your vision. So, there’s a balancing act to perform here.

• Commitment is Key

Advisory boards only work if members are committed and engaged. This is where you can run into problems—you don’t want to be constantly filling vacated positions or shuffling around schedules. You might find ideal candidates at your church, local professional organizations, or perhaps globally in industry virtual forums. What’s critical is that board members are genuinely interested in your success and are willing to lean in and ask the tough questions. A “yes” committee is not objective.

• Define Roles

An advisory board doesn’t have to fill a conference room; it can start with just a few members. Clarify roles, establish a meeting schedule (perhaps once per quarter), and define compensation terms. (Some prospective members could be pro bono, but some require a retainer.)

Core Functions of an Effective Advisory Board

Maximizing the Value of Your Advisory Board

Once established, leveraging an advisory board for business success is the next challenge. Be sure to prepare meetings that are more like strategic workshops than a series of dry presentations.

• Focus on digging into what’s working well operationally and what’s not.
• Use data and analytics to inform decisions, review the financials, and consider the broader implications of growth and risk management.
• You and the team should come prepared with actionable insights.

Being open to feedback is essential. Constructive criticism and being forced out of your comfort zone can be that slight nudge that takes your company to the next level, so embrace it and be prepared to act on recommendations.

Implementing the board’s suggestions makes them feel valuable in the life of your business, too. Report back on the results at the next meeting, always ensuring that you measure the ROI of the actions taken.

Building Your Network

As listed above, the first-order benefits of an advisory board are intuitive. The second-order benefits are real, too. Reaching out to specialists, authorities, and masters of their crafts may help you grow—simply talking to candidates opens doors to new networks and opportunities. Just like you have connections with your clients, vendors, and customers, elder professionals you tap on the shoulder likely have deep industry roots.

Once on your company’s board, they can connect you to that perfect business wizard to meet some unique need or plug a specific hole. After just a few quarters of holding board meetings and accepting feedback, business credibility grows, and tasks that once seemed daunting can now be laid out as easy.

Common Missteps to Avoid

While technology makes it easier than ever to form such a team, keeping it going might be harder than ever. An advisory board is not a casual gathering or a time to shoot the breeze. You must have a clear purpose for each meeting, specific takeaways, and a focused approach at all times.

That’s why having too many members can be a risk. Many boards fail because there is no agenda at meetings, or someone may feel slighted if their voice is not heard—so keep good minutes, too. Each member should hold others accountable.

Advisory Boards vs. Boards of Directors

Finally, it’s important to call out that an advisory board is not a board of directors. The former is a fiduciary, but not legal, organization that provides guidance and oversight. The latter may be required for larger corporations and publicly traded companies. For most small businesses, an advisory board is a more flexible and accessible option, providing high-level support without the regulatory burdens and headaches.

The Bottom Line

Small business success isn’t just about hard work and your individual prowess. Optimal decisions, new partnerships, and cutting-edge learning methods may only come about through a curated, small network of advisors. Starting a board might seem like a time-consuming task and one that’s outside your usual purview, but the long-term rewards can be huge.

At Clear Harbor, we’ve seen firsthand how advisory boards transform businesses. Ready to take your business to the next level? Consider building a board today—it could be the best investment you make in your company’s future.