Dan Martell - December 13, 2021


How to Build a Board of Advisors for Your Business


Episode Stats

Length

10 minutes

Words per Minute

200.15721

Word Count

2,037

Sentence Count

100


Summary

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

Transcript

Transcript generated with Whisper (turbo).
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.