The Merits of an Advisory Board -- Transforming Your SME Forward

The Merits of an Advisory Board Transforming your SME Forward

James D. Roumeluotis | www.thinkAB4s.com

It is said that no one person can succeed on his/her own as an entrepreneur. Business people are constantly overcome with various adversities and occasionally having to battle fears on their own. Anyone building a business should seek sound advice and guidance through launch stage, into profitability and beyond. Entrepreneurs and executives are faced with many issues and adversities – most notably in this fast paced, uncertain and volatile world. Issues mainly include cash-flow, sales/new sources of revenue, competition, human capital, succession planning, business processes, inflexible strategies and implementation, new product launches and global expansion. However, if they so choose, they don’t have to be alone. Business owners can brainstorm with external seasoned executives, entrepreneurs and thought leaders who share how to tackle existing adversities through impartial advice and on-going peer support to move a company forward. An advisory board can also complement the expertise brought in by traditional consulting.

James D. Roumeluotis

Prologue

The question, therefore, about advisory boards is not whether they are a good idea in principle, but rather if the substantial effort in terms of time and organization provides a sufficient return on the investment.

An opinion poll which was developed by Queen’s Centre for Enterprise Development (QCED Inc.), revealed in its report the consensus of 200 CEOs who responded. They overwhelmingly stated that effective advisory boards can deliver significant returns. One reason for this may be that leaders of fast-growing companies often find their jobs to be somewhat isolating. The pace of change and complexity of issues facing their business make it difficult to promptly respond to all the challenges and opportunities that present themselves. Thus, CEOs have found that an advisory board can offer their opinion, experience and thoughtful advice that even an internal highly competent executive management team can’t provide.

Some of the benefits in consideration include:

• A valuable “resource” normally accessible/reserved to large companies;

• Outside third party perspective from an unbiased sounding board;

• Advice and recommendations that add value to your organization ‒ the “what” and “how”;

• On-going assessment of internal processes;

• Businesspeople have at their disposal a wide range of expertise from a team of seasoned professionals ‒some with mufti-sector global experience,

• Along with sound advice, the board’s actions assist in implementing, as well as monitoring the impact of change.


Activities of the advisory committee

The advisory committee should meet four times a year. Members normally receive a compensation ranging $500 to $700, on average, per meeting. Despite this modest sum, advisory committee members are interested in taking part, seeing an opportunity for sharing and making a difference for the organization.

The activities of the advisory committee partake two aspects. The first part concerns the analysis results in a broad sense. The second part concerns the consultation part. It's possible that the owners of a mid-size enterprise may ask, for example, the members of the advisory committee for advice on certain issues such as help in formulating a strategy or in making specific crucial decisions.


A board versus an advisory committee

An advisory committee established in a SME actually exercises identical functions to those of a board duties in large companies. Due to the legal liability associated with administrator status and occasional difficulties to cover certain risks by appropriate insurance, it is appropriate and more convenient for SMEs to establish an advisory committee. What distinguishes a classic board of directors in good standing of an advisory committee is the enforceability of their decisions. Thus, the CEO is not required to implement the recommendations of the advisory committee, as it would with resolutions passed by the Board. This leaves more room for maneuvering.

Another factor that can be considered in choosing the model of an advisory committee, rather than a formal board of directors, is flexibility. That is, no legal paperwork and no professional liability insurance are required to protect the members of the advisory committee of possible prosecution as is the case for members of boards of directors.


The executive committee versus the advisory committee

If the advisory council replaces a Board, it should not, however, replace a steering committee. The steering committee is an excellent tool for internal coordination among key members of the management team. Typically, in a SME, the executive committee is formed by an entire team which may include, where applicable, the operations manager, purchasing manager, sales manager, production manager, and the administrative director. These heads report directly to the President. Their weekly meetings focus on operational issues and activities, sometimes on matters of short and medium term planning.

The steering committee should be seen as a common management tool, but that certainly does not replace the strategic role of the advisory committee along with the skills of its members. The executive committee will not provide the external vision of people detached from the daily concerns of the company.


Forming internally vs. hiring an independent board

Whether a business decides to hire an external advisory board, whose arm’s length function is readily available for deployment, or sets it up internally, either option serves the same purpose. The former can offer a diverse team of external experts who are able perform in a timely manner, as well as advise and assist in forming an internal permanent board, whereas in the latter choice can take weeks and perhaps months to build the board ‒which will also require occasional revamping (i.e. term limits) to prevent complacency, as well as for the constant need of a fresh perspective.

The size of an advisory board will depend on the size of the business and can vary between 3-8 advisors with diverse competencies, knowledge and industry experiences.

Putting together a board requires:• To find advisors that are a good fit and possess an excellent reputation, search for input and recommendations from industry

contacts, spheres of influence, management consultants you may be working with, and referrals.• Look for varied skills and experience ‒ seek advisors who will challenge your views and who can bring fresh perspectives to the

table.• Give candidates an incentive to join by appealing to their individual wants and needs. Prepare and present a compelling proposal

to attract and retain them.• Keep expectations reasonable by being clear about the board's mandate. Make certain each member is kept on the same page.• Determine how often the board will meet, make certain the members of the board are available to participate and be clear about

their roles.

Although an advisory board does not have the legal responsibilities of a public corporation's board of directors, having one is, nevertheless, good preparation for a possible formal structure of a board of directors in the future.


In the final analysis

Successful entrepreneurs and business experts both recommend that SMEs with at least 10 employees should seriously consider hiring or establishing an advisory board/committee. It's important that entrepreneurs have a sounding board and supported in their strategic approach/decisions.

The objective for an advisory board, whether hired or created internally, is to transform a business through their sound advice and assisting its owners increase performance by improving their bottom lines, optimizing operations and generating new revenue streams, along with tackling business challenges.

Progressive businesspeople constantly ask themselves: How should I increase my revenues, improve business processes, tackle human resource issues, improve my company image/brand ‒ take my business to the next level?

An entrepreneur named David Calabrese, who gets it, made the following clever statement:“Been there, fell on my face because I didn’t do it properly. Why do so many of us think we know it all? Many reasons are given for small business failure rates, but in my opinion being stubborn is the # 1 reason. There are lessons that can be learned by listening and more importantly realizing that no one can be an expert in all of the areas required to make a business successful. Marketing, operations, finance, product, legal… to name a few of the biggies.”There is nothing more valuable than a conversation with an experienced professional. Listen, learn and act accordingly.


Sample Advisory Committee Agenda

Standard agenda

1:00pm Monitoring of latest events

1:30pm Results from last quarter• Balance sheet• Results• Ratios• Cash status• Tables of performance indicators• Capital Budget• Asset Value

3:30pm Review of the strategic plan for the next year• Key issues for the coming year• Budget detailed pro forma• Polling for each of the key positions for the holiday periods, in case of absences or departures• Revision of loans, investments, lines of credit and assessment of different scenarios that could improve the current financial structure• Investment in improvements• Ways to Increase Sales: attracting new customers, increasing sales from existing customers• Innovations briefing -- operations

4:30pm Other topics• Next meeting

5pm End of the meetingJames D. Roumeluotis

For further information

Contact the Advisory Board for [email protected] | +1.514.715.7785

www.thinkab4s.com or www.advisoryboard4success.com