As an advisor to fast-growth companies, I spend a lot of time with entrepreneurs who want to take their businesses to the next level. Given my legal background and experience in raising growth capital, the starting point for these conversations has always been money-until Razor came along.
Razor Suleman is the founder and CEO of I Love Rewards Inc. From its humble beginnings in a dorm at Wilfrid Laurier University, I Love Rewards has grown into a successful Web-based incentive marketing company that ranked on the 2000 PROFIT 100 and is on track to do $10 million in sales this year. It offers a proprietary, points-based online rewards program that helps build customer loyalty and motivate staff. Its client list is a who’s who of corporate Canada that includes GE Canada, KPMG and Research in Motion.
Razor has hired better than himself. He is working on his business, not in his business. He continues his education by reading and participating in events offered by business groups such as the Entrepreneurs’ Organization (EO). Now, with his sights set on running a $100-million-a-year business by 2011, Razor is making another smart move from the entrepreneur’s playbook: recruiting a first-class advisory board. Razor has retained me to help develop the board, which I will chair.
I started by assembling a list of best practices, tapping my own experience with advisory boards, reviewing my own research and consulting my EO colleagues around the world. I also searched the Net for relevant information; one great resource is the Kaufman Foundation’s eVenturing website (www.eventuring.org).
Here are those best board practices and how they’ll play out at I Love Rewards:
1. Carefully consider the type of board you need. A board of directors is a legal entity whose members have fiduciary duties and obligations to shareholders, which can give rise to substantial liabilities. No such worries loom over members of a board of advisors, which is an informal group that meets as determined by the CEO. If you don’t have to answer to external shareholders, you won’t want to limit your decision-making ability with a board of directors. Although I Love Rewards is privately held, we’re looking for advisors who are willing to assume the responsibilities of directors, should the need arise.
2. Recruit advisors who can really help. The makeup of your board should reflect the needs of your company. Apart from some standard positions, such as legal and finance, the board should be filled with people who complement the management and industry expertise of the CEO. In Razor’s case, we are looking for people with expertise in the loyalty industry, marketing to Fortune 1000 companies, IT and doing business in the U.S. I will handle legal and finance issues.
We also want advisors who can contribute at each level of the company’s growth — there’s no point retaining an advisor who knows only how to build a $20-million company when your plan is to go to $100 million.
3. Don’t secure too many cooks. Your board needs enough people to cover off the diverse issues your business will face, but not so many that it can’t react quickly to the issues at hand, and that creativity is impeded.
4. Meet quarterly. I’ve found it difficult to get advisors to commit to more than four meetings per year. Besides, your board should provide input at the 30,000-foot level, which can be accomplished quarterly.
5. Make every meeting matter. Razor is going to distribute an information package at least a week before each meeting, allowing the advisors to prepare. Among its contents should be a comparison of the previous quarter’s financials against budget, as well as projections for the next quarter. There will be a fixed agenda of other issues, including new strategic initiatives. However, we envision allotting time to lateral thinking, which takes advantage of the experience and creativity of the board. Razor is also likely to call upon his advisors individually as needed and have lunch or dinner with each of them between meetings in order to build strong personal bonds.
6. Pay your advisors. Many firms pay little more than a great meal or a small honorarium to their advisors, who contribute as a way to “give back,” apply their skills and build their networks. But my experience suggests that formal remuneration is more likely to attract serious advisors who are prepared to commit their time, energy and expertise to the business. Typically, cash-strapped startups compensate with shares or options in the company. Established, profitable firms tend to pay a quarterly fee (which can range from $500 per meeting to thousands of dollars a year), reimburse expenses and offer some equity, usually in the form of options.
7. Formalize the arrangement. Perhaps the lawyer in me is talking when I recommend that companies and their advisors sign written agreements detailing their respective roles, responsibilities and expectations. This will avoid any miscommunication and will help prevent you, the CEO, from overselling the business to your board.
Entrepreneurs can meaningfully discuss their businesses with very few people. That’s why smart business owners join networking organizations like EO, where they can meet and learn from other entrepreneurs. But the smartest proprietors assemble an advisory board to assist them along the way. That’s why I give Razor a lot of credit — reaching out for help is a sure sign of strength.