Dan Martell - December 13, 2021


How to Build a Board of Advisors for Your Business

Hosted by
Dan Martell
How To Scale Your Team (The Right Way) How to Grow a Business (The Simple Way) - Lowell Rempel @ Dropified Interview

Episode Stats


Length

10 minutes

Words per minute

200.16

Word count

2,037

Sentence count

100


Summary

Summaries generated with gmurro/bart-large-finetuned-filtered-spotify-podcast-summ .

In this episode, I share with you how to leverage or understand the difference between Board of Advisors or Board of Directors, and how to get the most out of each one of them. I've sat on over a dozen boards and have worked with over 100 companies as a formal advisor, so it's important to understand the differences so you don't accidentally use something that you should really go to your directors for.

Transcript

Transcript generated with Whisper (turbo).
Hosts, guests, and mentioned names generated with spaCy (en_core_web_sm), reconciled against Wikidata.
00:00:00.160 What are the experience buckets?
00:00:02.000 Okay, so I call these experience buckets.
00:00:03.440 What's experience?
00:00:04.280 Where I'm going over the next three to five years,
00:00:06.800 what level of experience should I have
00:00:09.080 for areas that are gonna come up?
00:00:23.800 Hey there, I'm Darren Martell,
00:00:24.920 serial entrepreneur, investor, and creator of SaaS company.
00:00:26.720 In this episode, I'm gonna share with you
00:00:28.320 how to leverage or understand the difference
00:00:31.340 between board of advisors or board of directors
00:00:33.700 and be sure to stay till the end room
00:00:35.560 and tell you how to get access to my dream 100 framework,
00:00:38.280 which is the exact same process I use
00:00:40.400 to build multimillion dollar companies in about 16 months
00:00:44.320 by identifying the people
00:00:46.240 that are gonna support you to grow it.
00:00:48.160 So obviously it's gonna help support
00:00:49.720 recruiting board of directors and board of advisors.
00:00:52.140 Be sure to stay at the end, but let's get into it.
00:00:54.900 This topic is one of the most important to me.
00:00:57.520 I mean, when I think of my life
00:00:59.000 and what's been the most valuable,
00:01:00.900 capital, money, or relationships,
00:01:03.460 relationships towers over the amount of investment capital
00:01:07.420 or my own personal capital,
00:01:09.000 EBITDA, I've reinvested in the growth of my business.
00:01:11.640 The reason why is because the right relationship
00:01:14.380 will buy you an answer.
00:01:15.980 They will literally give you an answer
00:01:17.620 through that relationship.
00:01:18.780 Having people that are gonna help you
00:01:20.580 raise your expectations for your own performance,
00:01:23.420 introduce you to people that you're gonna hire
00:01:25.020 to be able to execute strategy
00:01:26.500 and just give you perspective to avoid landmines.
00:01:30.180 You know, that's why I've always had mentors and coaches
00:01:31.800 because I want people to show me where are the faults,
00:01:35.080 where are the things I need to consider,
00:01:36.280 what's appropriate for my size of a business.
00:01:39.140 So it's a topic that's really important to me
00:01:41.780 because I've probably advised over a hundred companies
00:01:44.640 as a formal advisor.
00:01:45.740 I've sat on about a dozen boards as a board director
00:01:48.500 and knowing the difference,
00:01:50.680 understanding what are the pitfalls to look for,
00:01:53.760 why do they exist
00:01:55.060 and how to use them the best way
00:01:57.260 and specifically for you to understand the differences
00:02:00.820 so you don't accidentally use something
00:02:02.800 that you should really go to your advisors for,
00:02:04.380 bring it to your directors and they get upset with you.
00:02:06.880 I wanna show these five different areas
00:02:10.100 that make them different
00:02:11.300 and for you to understand
00:02:12.720 how to get the most out of each one of them.
00:02:14.920 So let's dive into the five areas
00:02:16.980 to get the most leverage out of your BOA,
00:02:19.440 Board of Advisors, or your BOD, Board of Directors.
00:02:22.160 Number one, work focus.
00:02:23.660 So it's really important to understand the different groups,
00:02:27.260 your BOD, your board of directors,
00:02:28.920 or your BOA, your board advisors,
00:02:30.220 who do they work for?
00:02:31.080 Well, here's the deal.
00:02:32.460 Your board of directors, they work for the corporation.
00:02:35.240 They work for the shareholders.
00:02:37.100 They do not work for the CEO
00:02:38.840 because their job is to provide guidance
00:02:41.860 and fiduciary focus of the CEO,
00:02:45.320 but the CEO can come and go of a company.
00:02:47.460 So just so you know that,
00:02:48.620 if you set up a board of directors the right way,
00:02:50.340 They're there to argue for the best interest
00:02:55.320 in the shareholders and the corporation.
00:02:57.480 Yet the board of advisors,
00:02:58.980 this is one that most founders can put together,
00:03:01.060 make it informal kind of thing.
00:03:03.200 They're there to bring you and fight
00:03:05.100 for the management team and the CEO.
00:03:08.600 They're there to bring you ideations,
00:03:10.280 to tell you what to look for.
00:03:11.960 It's informal, it's kind of like, it's fun.
00:03:15.900 I sit on a board of advisors for an incredible company.
00:03:18.520 growing, they're the fastest growing company in Canada rate, not the fast, sorry, they're in the
00:03:22.840 top 10 fastest growing company in Canada. And listening to their roadmap and their strategies
00:03:27.740 and their business development and their partnerships, and then getting them asking
00:03:31.980 other people that are, I think there's like 16 people on the call, these incredible minds to
00:03:36.820 offer up ideas. That is a beautiful thing that's available to all of you. Just understand the
00:03:41.700 differences. Board of directors are there to represent the shareholders in the corporation,
00:03:45.240 Board of Advisors for the CEO and the management.
00:03:48.360 Number two, formalities.
00:03:50.020 Now I have, I will admit that I'm very informal
00:03:54.340 in my approach on boards.
00:03:55.640 Now I follow the bylaws.
00:03:57.080 I understand, you know, how to second motions
00:04:00.040 and I understand that aspect.
00:04:02.180 But the reality of it is,
00:04:04.500 is Board of Advisors are incredibly informal
00:04:07.920 or they should be, or you can make it that way.
00:04:09.680 And Board of Directors are typically formal.
00:04:12.000 they're legally bound as directors
00:04:14.460 to represent the best interests of the shareholders.
00:04:16.940 Whereas an advisor is really there to support,
00:04:20.100 again, the executive team.
00:04:21.040 So just know that there's a different informalities.
00:04:24.380 And if you're kind of more like loosey goosey
00:04:27.160 on how you operate your business
00:04:28.520 and you don't want to add too much like stuffy,
00:04:31.040 you know, tie suits, you know,
00:04:33.020 kind of conversation language,
00:04:34.360 maybe just stay out of the border stuff
00:04:35.680 and just do that with your account,
00:04:37.640 or sorry, your account, your lawyer.
00:04:40.080 And you know, when you got to do your annual stuff,
00:04:41.980 for your AGM, even if you're a small company
00:04:44.040 or you don't have a lot of shareholders,
00:04:46.080 you can do that, keep it formal there,
00:04:47.980 minimize that and spend most of your time
00:04:49.720 on the informal advisory board.
00:04:51.120 But the formalities are completely different in both.
00:04:54.740 Number three, the size, okay?
00:04:56.840 So most board of directors,
00:04:58.760 I think the best ones are three to five people.
00:05:00.880 Some people have huge board of directors and that's fine,
00:05:03.680 but stage appropriately.
00:05:05.360 So three to five on the advisory side,
00:05:07.600 the size can be six to eight, I think is a good number.
00:05:11.020 I've sat on larger ones
00:05:12.400 and it's kind of like a brainstorming meeting,
00:05:14.420 but just understand that usually,
00:05:16.060 I would say as a rule of thumb,
00:05:17.260 probably twice as big than, you know,
00:05:19.760 board of directors versus board of advisors.
00:05:21.700 And that is all I got on that.
00:05:23.860 The size is really gonna depend on
00:05:25.780 what you think you're missing to attract those people,
00:05:29.000 to fill in those knowledge gaps.
00:05:30.360 But, you know, three is an awesome board of directors size,
00:05:33.900 maybe five, and then, you know, six to eight on the advisors.
00:05:37.460 Number four, compensation.
00:05:39.180 Well, this is a fun one because A,
00:05:42.000 if somebody is asking you for cash
00:05:43.360 to sit on the board of directors, you should run away.
00:05:46.040 Cash should be saved in your business
00:05:47.940 to reinvest in acquiring customers
00:05:50.480 because you can't pay to acquire customers with equity.
00:05:52.760 Facebook will not take your equity
00:05:54.620 to run Facebook ads, for example.
00:05:57.420 And the reality of it is, is if somebody is an investor,
00:05:59.980 they're gonna sit on the board to represent their interests
00:06:01.900 because they're shareholders, ideally.
00:06:03.680 And if they ask, and you should give them maybe one,
00:06:06.000 not a whole bunch of investors, a board seat.
00:06:07.760 And then if anybody else is gonna be on there,
00:06:10.100 like an independent or somebody else
00:06:11.980 you wanna invite to participate,
00:06:14.100 typically the equity is gonna be,
00:06:16.380 and I got this from Brad Feld,
00:06:17.600 an incredible startup investor,
00:06:21.000 but he says like whatever you would compensate a VP level,
00:06:23.920 kinda I would say 2.2% in equity to 1% in equity,
00:06:28.920 divide that in half.
00:06:29.920 And that's kind of what you wanna do
00:06:31.600 for a board of directors.
00:06:33.220 And you may even consider doing investing period,
00:06:35.520 kind of like a two year rollout.
00:06:37.500 Same thing for advisors, typically less equity.
00:06:40.760 But the truth is, is for the right advisors,
00:06:43.020 you could just hire them for consulting.
00:06:45.780 So like, maybe you have like a marketing person
00:06:48.460 that you want on there
00:06:49.300 and their hourly rate is 500 bucks for consulting.
00:06:51.880 You just pay them, you know, maybe every two months
00:06:53.960 when you do your board of advisor meetings, 500 bucks.
00:06:56.440 Now you could do that, or you could give out equity, right?
00:07:00.040 I think equity is very valuable
00:07:02.040 and yes, it's good to defer,
00:07:03.220 but certain people might be just best paying them.
00:07:05.840 But that's the way I think about it
00:07:07.000 is just ask them, what's your hourly rate?
00:07:08.640 Some people would be like 50 bucks an hour,
00:07:10.200 80 bucks an hour, great.
00:07:11.500 Lawyers, eh, they're a little crazy sometimes.
00:07:14.080 But they might decide to do the advisory board
00:07:16.180 if you make it fun, you teach them,
00:07:17.760 you involve them in the strategy
00:07:19.200 and the ideation of where you're bringing the business.
00:07:21.820 And then they'll be motivated
00:07:23.940 to be part of that advisory board,
00:07:25.460 but it's usually a little different
00:07:26.620 on the compensation side.
00:07:28.060 Number five, recruiting.
00:07:29.740 So how do you recruit for both parties?
00:07:31.640 The board of directors or the board of advisors?
00:07:33.140 Here's my favorite way is I'll sit down
00:07:36.140 and I'll ask myself, what are the experience buckets?
00:07:40.120 Okay, so I call these experience buckets.
00:07:41.540 What's experience, where I'm going
00:07:43.280 over the next three to five years,
00:07:44.900 what level of experience should I have
00:07:47.180 for areas that are gonna come up?
00:07:49.180 Maybe you're building a big team of 100 people,
00:07:50.900 you've never done that before,
00:07:52.020 and you need somebody that's an HR specialist,
00:07:53.880 or maybe you need to, you know, you're gonna build,
00:07:56.820 you gotta spend 250K a month in ad spend
00:07:59.300 and you've never done that before,
00:08:00.160 you need somebody that's a paid acquisition expert.
00:08:02.180 So think of these experience buckets
00:08:03.840 that you may not need that you wanna fill, right?
00:08:05.700 You wanna fill with advice.
00:08:07.800 And my best strategy for reaching out to people
00:08:11.540 to fill those buckets, eventually build a relationship
00:08:14.120 that feels confident and comfortable enough
00:08:16.580 to ask them to be part of either one of the advisors,
00:08:19.180 the directors, is to just ask for advice.
00:08:21.700 You know, I have this rule in life
00:08:22.680 that you ask for advice, you'll get anything.
00:08:25.260 You literally ask for advice, you'll get a partnership.
00:08:26.940 Ask for advice, get investors.
00:08:28.180 Ask for advice, get a new employee.
00:08:30.160 Ask for advice, get a new board of directors,
00:08:32.140 a board of advisor, and you can decide.
00:08:33.900 but it's a good way to kind of like try before you buy
00:08:36.680 of just like reaching out to somebody on LinkedIn
00:08:38.400 saying, I've got this meaty problem.
00:08:40.260 I'd love to get your perspective.
00:08:41.480 They reply seven minutes, you kind of, you follow up,
00:08:44.460 you get some more, you know,
00:08:45.480 and like that to me just feels right.
00:08:48.080 And that's how I've always recruited for both of those.
00:08:50.960 Obviously for the directors,
00:08:52.440 typically they're investors and they need a board seat,
00:08:55.960 but even the independents,
00:08:57.340 if it's somebody that I know of, but I don't know,
00:09:00.040 that's how I'm gonna start that relationship
00:09:02.640 to recruit them into my board of directors.
00:09:05.060 So quick recap, five aspects of building
00:09:08.900 a world-class board of advisors and directors.
00:09:10.880 Number one, the focus, the work focus.
00:09:14.020 Number two, formalities.
00:09:15.240 Number three, the size.
00:09:16.640 Number four, compensation.
00:09:18.060 And number five, the most important is recruiting.
00:09:20.680 So as I mentioned at the beginning of this episode,
00:09:22.640 I wanna share with you a exclusive training
00:09:25.260 called the Dream 100.
00:09:26.740 And it's what I use to build a network of success
00:09:30.720 before I enter into a new business or a new project.
00:09:34.800 And the way it works at a high level
00:09:36.540 is I'll identify the 10 mentors,
00:09:39.560 the 30 advisors and the 60 peers.
00:09:42.800 And then I'll build that list and approach those people
00:09:45.340 so that over time, you know, your network is your net worth.
00:09:49.520 And if you wanna know that my strategy for reaching out
00:09:51.500 and how to structure that,
00:09:52.340 click the link below to get access
00:09:54.980 to that Dream 100 framework.
00:09:56.880 If you liked this video,
00:09:57.720 be sure to smash the subscribe button,
00:10:00.240 Leave a comment.
00:10:01.000 If there's anybody that you care about
00:10:02.120 that you think this could serve, feel free.
00:10:03.960 And I would encourage you to share it with them directly.
00:10:05.940 But as per usual, I want to challenge you
00:10:07.820 to live a bigger life and a bigger business.
00:10:09.680 And I'll see you next Monday.