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The
last article on Advisors
stimulated a significant
amount of discussion to
warrant at least one
more shot at the topic.
The
feedback was mainly,
“that’s great
but how do you
effectively make an
advisory committee
work?”
So lets see if we
can explain that.
First
of all as I began to
research this topic, I
went to the Internet and
found 160,000 references
to Small Business
Advisory Committees.
By far the
majority of these were
for governmental
agencies concerned with
the public sector that
have no funds to pay for
good advice.
Chambers of
Commerce were most
frequently mentioned,
but none explained what
the committees did and
how they work
effectively.
I
decided to profile a
working advisory
committee that has had
some good success and
try to show why it has
worked and what
leadership was provided
to the group.
Our
company, VentureMedia,
is a start-up in the
broadcast software
sector.
The two partners
currently own 100% of
the shares, have
invested approximately
$300,000 into product
development and the
business plan; have a
prototype and have
identified a large
Communications company
as its first customer.
One
of the partners has a
degree in software
design and worked for a
large software company
in Seattle for 8 years.
He conceived the
idea and did most of the
architectural work.
The other partner
has an MBA in Marketing,
has worked as a product
manager for a large
accounting software firm
and has strong
credentials in the
marketplace as well as
some mid level contacts
in the communications
industry.
He has held that
position for 9 years.
They are seeking
$2.500,000 in funding as
an angel round.
VentureMedia
has not experienced any
major obstacles at this
point and all is well,
except they are burning
cash far more rapidly
than they expected and
will be facing a cash
flow crisis in 60 days
if they are unable to
raise some money.
There is a great
deal of interest in the
product, it has
performed well in two
Beta sites, but as of
now they have no serious
interest in investment.
The
partners are now faced
with several new
situations, the looming
cash flow shortage, slow
response from potential
customers, little
knowledge of the
seed/start-up capital
market, youth, legal
issues and someone to
bounce ideas off.
What
VentureMedia needs is
the help of some
advisors. Had they asked someone from their past, whom they respected
as business associate
with financial
experience, and/or
someone they knew had
started a company to be
an advisor at the start;
things probably would
have been different.
As
I indicated in the last
article, pick advisors
who have been successful
and who can round out
your talent, be direct
and get them involved.
As an example,
had they built a
relationship with a
financial advisor, and
shared information with
him/her, the cash flow
situation would have
been recognized far
earlier allowing time to
take alternative action.
There’s a fine line
between using and
abusing advisors, but
reviewing financial
statements every so
often (maybe monthly) is
not an abuse.
Getting the
advisor involved in the
accounting process is.
To
deal with a more serious
problem, finding money
is far more difficult
than fixing a cash flow
problem. It takes months
of persistence, patience
and fortitude to find
the right investors for
your company.
It requires an
extensive network of
people to find the right
match.
Here again,
having an advisor or two
who are well respected
in the business
community and have a
successful business
history can open a lot
of doors and lend a
great deal of
credibility to your
presentation
(having
experience in your
industry sector is a
plus, but not a
requirement).
Don’t expect
your advisors to
automatically do this
for you, earn it. Earn it by walking them though your proposed presentation, by
including them in
technology or product
update sessions
periodically.
Show them
progress is being made
and you are moving
forward.
Once the offer is
made to introduce you to
a potential investor,
make the best of it, be
prepared, ask the
advisor for details
about the investor, know
as much as you can.
If
you are fortunate enough
to have advisors to help
you in different areas,
don’t waste their time
by including all of them
in all meetings and
discussions, instead
assign individual
projects slanted towards
their strengths.
Keep the projects
simple and short so that
everyone gets a feeling
of success.
Then, if you have
quarterly Advisory
committee meetings have
each of the advisors
give a report on their
project.
This will allow
them to become an
integral part of the
business and build
relationships with other
advisors. It also shows
that others are
interested in your
success and you have
sought them out.
There
is a great deal of
management involved when
dealing with Advisory
Committees, but from the
above you can get a
sense of how to most
effectively use the
talents and expertise
they bring to the
organization. It is much like operating a not-for-profit organization with
volunteers.
There are some
rules:
-
Don’t
waste Advisors time
-
Use
their talents and
expertise wisely
-
Provide
feedback on a
regular basis
-
Use
a project oriented
approach
-
Compliment
them on their effort
frequently
If
you are lucky, over
time, one or two of your
advisors become more
than that, they become
mentors and confidants
and the value of this
relationship is
immeasurable.
Not only do you
now have a strong
perceived management
team you have a trusted
friend.
There’s
many variations on
advisors and many roles
to fill. As you seek them out, look at your current management team;
identify the main
weaknesses and work on
shoring them up with
advisors until you can
afford to hire someone.
Who knows, maybe
the advisor becomes so
involved in your
company, he/she
becomes the
employee.
I
strongly recommend the
use of advisory
committees, but you must
manage them carefully or
they will be
ineffective.
By
the way, VentureMedia is
a fictitious company,
but the situation is
real.
This is an
Ace-Net client, who did
find $2,500,000 (it took
7 months and the
connection occurred as a
result of an advisor
contact) and is now in
the third year of
business with a revenue
stream close to
$8,000,000.
They still have
their advisory members
on board and have
rewarded them for their
participation.
Dan
Mitchell is the
Executive Director of
ACE-Net. For information
on advisors, contact
Mitchell at dmitchell1@southernct.edu
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