While huge corporations and nonprofit organizations rely on advisory boards to guide management through choppy waters, most small-business owners fail to reach out for the same kind of affordable help.
No matter how self-sufficient you like to be, assembling a group of experienced people who care about you and your business is a smart way to ensure your success.
"A good advisory board and regular board meetings push management to be on its toes and organize the company properly," said Robert (Pete) Parsons, founder of Robert Q. Parsons & Co., a mergers and acquisitions consulting firm with offices in San Marino and Brentwood, Calif. "Even though board members may not come up with any bright ideas, they make management think through new ideas, knowing they will come under scrutiny."
PD You may be surprised how easy it is to find experienced advisers
willing to guide you along. Although you probably wouldn't want them on your board of advisers, ask your accountant and your banker to suggest some possible candidates. Seek out successful business people in related industries, respected retired executives and community leaders.
"When entrepreneurs ask, 'Who will do this for me?' I say, 'Nearly everybody would,' " said Stephen Bennett, a partner in the Los Angeles management consulting firm of Schwab, Bennett & Associates.
Bennett specializes in establishing long- and short-term advisory boards for a variety of businesses and organizations. Two and a half years ago, he was hired to professionalize the management of AIDS/Project L.A., a Hollywood-based nonprofit agency dedicated to serving people with AIDS. When he arrived, the organization had a nine-member advisory board. Before Bennett finished his assignment, he created a diverse and experienced rTC 22-member board of directors and an 80-member board of governors.
Whether or not you create an advisory board, Bennett encourages you to create small, ad hoc advisory groups to deal with specific problems for a short period of time.
"Ask the group to meet with you three times for 90 minutes each," Bennett advises. "Be focused, present the problem, the data, identify issues and ask your advisers to do some homework and come up with recommendations."
Every business can benefit from outside, objective opinions. Once when Bennett was working with a company that built custom cabinets for new homes, he invited a few homemakers to tour three model homes and discuss which features appealed to them. The women were happy to share their opinions in exchange for lunch. The builders and carpenters gained valuable insight into how to improve the cabinetwork.
Kent Graham, president of the Los Angeles chapter of the National Association of Corporate Directors and a partner at the law firm of O'Melveny & Myers, recommends bringing in advisers whose skill and experience levels are markedly higher than yours.
He also points out the big difference between advisers and directors. Advisers are generally not held liable for the actions of your business. Directors, on the other hand, have a fiduciary responsibility and can be held legally responsible for your business blunders. That is why most corporate directors insist that you purchase an officers' and directors' insurance policy to protect them.
If you run a public corporation that needs a board of directors, expect to pay for their expertise. According to recent surveys, Graham said mid-size public companies are paying their directors between $7,500 and $20,000 a year. Small, privately held companies generally pay less, in the $5,000- to $10,000-a-year range.
In today's litigious times, don't be surprised if your informal advisers ask for a letter of indemnification promising that your company will protect them against being held personally responsible for any legal disputes arising from the advice they give you.