Finding a Business Advisor for Your Startup
I’ve always been very intentional about building my network, so when I started Draft.dev it was relatively easy for me to pull together a short list of business advisors. I can’t tell you how valuable these experienced mentors have been as I’ve navigated the ups and downs of life as a startup founder.
After talking to dozens of other founders, I’ve realized that not everyone finds it quite so easy to build and cultivate relationships with the right business advisors. Young founders, founders who are moving into an unfamiliar industry, and founders from smaller cities may struggle to meet advisors who can help them move their businesses forward.
So in this guide, I want to share everything I’ve learned about finding and working with a business advisor. You’ll learn about the advantages a business advisor can offer your startup, how you can find one, and whether you should pay them or grant them equity for their help. Finally, I’ll share some tips for getting the most out of your advisor relationships.
Note: If you’re looking for more reading material, check out my list of the best startup books for founders.
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What is a Business Advisor?
Basically, a business advisor is a trusted source for a business owner to turn to as they run their business. For me, the best advisors are great strategists who have both expertise and experience in almost all aspects of a business - in other words, they are probably founders or executives in established companies.
Business advisors should know the best practices of the industries they work in. They should be able to identify areas of concern, understand some of your operational challenges, and be willing to share insights with you. I’ve used my advisors to help with business forecasting, employee management, customer acquisition, accounting, legal compliance, and other critical areas of my business.
Statistics show that 9 out of 10 startups fail in their first year. While all businesses face challenges, startups are especially challenging to get off the ground, so having business advisors is crucial. I believe the right ones significantly increase your chances for long-term success.
Unlike a startup consultant, most advisors aren’t paid to come in and provide help in a specific area of your business, but are more likely someone you meet with monthly or quarterly. They typically provide a much lighter touch than full-on consultants, but obviously, there’s some grey area between the two terms.
How a Business Advisor Can Help Your Startup
During your company’s early days, input from advisors and mentors can make up for your limited experience. As you start scaling, advisors and mentors become even more essential in helping you address unique and challenging problems. Here are some key reasons why I believe startup founders need good advisors:
Even if you took courses on business management prior to founding your startup, it would be challenging for any new founder to navigate through the executive world. A business advisor lends you advice on how to steer through the business landscape. You gain firsthand insights into management, finance, marketing, and business development. You also gain a better understanding of all the elements involved in gearing your startup towards a successful exit.
One of the most common reasons startups fail is their lack of a concrete roadmap. They have a goal in mind but are often unable to clearly plan how to get there. To ensure your startup becomes a success, a business advisor works with you in creating your own roadmap. This roadmap is based on a strategic plan that details milestones, workflows, processes, and everything else you need to reach your business goal. With their years of experience, business advisors will be much more familiar with the best routes to take and even how to prep detours for potential obstacles.
To grow your startup, you will need to thoroughly understand the market you are in to make strategic business decisions. However, this involves meticulous research and data analysis. With a business advisor handling market research and analysis, you can focus more on product development and management. Business advisors know that markets are constantly changing so they keep track of developments in different market sectors. They know how to analyze market trends and spot the best opportunities for your startup.
Whether it’s for early seed funding or next-stage funding, business advisors add professionalism to your fundraising initiatives. They do more than arranging coffee meetups or dinners with potential investors. They help you build financial models and produce investor materials that increase your chances of receiving grants and funding. With their vast connections, they also help boost your reputation in the industry.
What to Look for in an Advisor
Find a business advisor who has an actual interest in your company, someone who believes in what you do and what you stand for. An advisor who shares your excitement and passion for your startup would be much more motivated to work as hard as you do to ensure that your startup becomes a success. Aside from sharing your passion, here are other factors that I believe make a business advisor ideal.
All business advisors will have invaluable experience, but the ideal one for you is someone who has managed similar businesses in your industry. Look for someone who speaks your language and understands the competition in your niche. Better yet, look for someone who has actually founded their own startup and successfully navigated through the challenges you will potentially face in the future.
Your business advisor will have access to your business plan, financial records, and other documents, making it important to get someone you can trust. This is why I recommend that you rely only on those with stellar reputations in the industry or those who are widely recommended by your peers.
A business advisor with a robust network of industry contacts can provide invaluable help in raising capital for your startup. Look for someone with established connections with investors, partners, and other relevant figures in the industry.
There’s no special license or specific degree for business advisors. It’s not even necessary to check for such credentials. However, it still helps if your advisor has a business degree or an MBA.
As a startup, your business advisor should not be on a one-time consulting basis. Look for one who looks at your long-term growth and is willing to stick with you until your successful exit. An advisor who has your best interest in mind will not only help you set your goals but will also help you see them through.
Where to Look for a Business Advisor
Now that you have an idea of what to look for in a business advisor, the hard part begins—finding the best one for your startup. Here are among the best places to find your ideal business advisor.
Look for networking communities where consultants and advisors frequent, and find an advisor working with startups similar to yours. Then check with your peers or own network for feedback on this advisor before reaching out for a potential partnership.
You can also ask your startup investors for recommendations. With the stake they are putting into your company, they are likely to recommend only the best business advisors they know.
Peers and Associates
Ask your fellow entrepreneurs or work associates who they have worked with and would recommend in a business advisory capacity.
Join Facebook groups for entrepreneurs and startups. There’s bound to be a host of advisors within the group as well. You can also use LinkedIn to find industry advisors. Search within your industry to find senior business advisors who have second degree connections with you, and ask your mutual connection to introduce you to them.
Conferences and Events
Another great way is to attend conferences and industry events to widen your network. These are also great venues to connect with industry experts and former founders who have made successful exits.
AngelList is a platform created specifically for startups. It’s a community where you can find key people to form your team, meet investors, and get business advice.
Get free advice on business planning from the experts. SCORE brings together entrepreneurs, founders, and industry experts. This non-profit organization aims to empower small businesses by giving them access to more resources. It is a good place for you to find a small business advisor you can trust.
F6S is a great site that connects founders with advisors and investors. It’s also a wonderful site for you to build your exposure in the startup ecosystem.
Compensating Your Business Advisors
As you start talking to potential advisors, the next question is how you should compensate them for their services. While there’s no fixed industry rate for compensating an advisor, it generally depends on what type of advising they will do and how involved they want to be.
Free Advisors (Mentors)
A mentor typically does not request compensation. Mentors freely give advice to guide new founders through the challenges they are bound to face—not just in their business, but in their lives as well. Mentors focus on you as a person and not just as a businessman. However, they might give you less commitment and be available only when they have time to spare.
Paid Advisors (Consultants)
Unlike mentors, a consultant is more centered on your actual business than on you as an individual. A paid advisor will focus on your product, technology, and business growth. A startup consultant who is committed to your success will most likely ask for a retainer fee rather than bill you on an hourly basis. If your cash is tight, you can try to convince them to take a portion of their fee in equity.
Equity advisors do not receive compensation. Instead, they are awarded a share of the company. These are the ideal advisors to have as their preference for equity over monthly compensation is a sign that they believe in your startup and are willing to take the risk.
Equity advisors are usually given around 0.25% to 1.0%. I found some charts in the updated version of Founder Institute’s FAST Agreement. These might provide helpful guidance in determining the equity share for your own advisors.
|Standard: Monthly Meetings
|Expert: Very Involved
Tips for Working With a Business Advisor
Ideally, you’d want to have a long-term relationship with your advisor. You want to have someone who understands your startup journey and consistently helps you stay on track in achieving your business goals. To foster a lasting relationship, here are some tips for working with a business advisor.
- Keep them updated by giving regular updates on your progress. If you make amendments to your business plans or processes, let them know regularly. This keeps them involved in your startup.
- Offer to help them too. Your relationship with your advisor should be mutually beneficial. If there is any way you can help them, do so.
- Be transparent. Honesty is the key to any lasting relationship, even a business one. Be brutally honest with any issues in your startup so your advisor can guide you accordingly.
- Ask them questions about their personal experience, but remember that not all experts are reliable.
- Involve them in your planning. Business advisors bring a fresh perspective from an external viewpoint. They may be able to spot something you’ve overlooked and identify underlying problems before they worsen.
As a founder, it’s tempting to do everything on your own but having great business advisors is essential to your startup’s longevity. Getting timely and relevant advice from people who have been through this before will make taking your business to the next level much easier.
Want more reading material? Check out my list of startup books for founders to fill your library.