When you first start a company, nobody knows or cares about what you're doing.
Everything is harder when you don’t have initial traction. Potential investors, customers and partners all want to see the the external validation of other investors, customers and partners, but how do you get started when you don’t have any of those?
There are lots of tactics for addressing these areas, but one in particular is very powerful and very underused: advisors. Advisors don't invest. Instead, you give them a small number of shares in return for their help. In exchange for a small piece of your company, they can provide advice, introductions, insights, and more.
What do advisors do?
Ideally, an advisor is someone who has been successful at what you're looking to do. If you're targeting enterprise sales, find somebody who knows enterprise sales. If you're targeting mobile gaming, find somebody who has built a mobile gaming company. It's likely worthwhile to bring on several, one who knows sales, another who's been a successful entrepreneur, another who knows your vertical, etc.
The role of advisors is two-fold. First, they are people who can guide you, and who can give you informed advice. People who can answer questions, even dumb ones at times, and help you refine your goals and strategies with the benefit of their experience.
Second, advisors are people who know you and can vouch for you, which can help bridge the external validation gap that early startups face. Advisors can introduce you to potential investors, help you build relationships with customers, or help you recruit important hires. In each case, your advisors can speak meaningful on your behalf because they’ve spent time with you and know your company.
Key things to remember.
There are several things that are very important to remember for making advisor relationships work:
Advisors are busy - Your advisors are likely extremely busy people, so you want to be very respectful of their time. Only reach out when you have specific issues to discuss. Try to stick to email over phone where possible. If it’s something important or detailed that requires a phone call, don't feel bad about reaching out, but stick to the expectations you set at the beginning of the relationship, like one hour or less a month.
You must give equity - It's important to have your advisors vested in your success. I've heard ranges from anywhere from 0.1% to 1%, depending on who it is and how helpful they'll be. If your advisor has founded several successful companies and is an expert in your target field, it'll be at the higher end. If you're not expecting anything other than the occasional reference, it'll be toward the lower end.
Use an official advisor agreement - There are standard agreements floating around, which include an NDA, description of role, and more. Make sure you set this up formally.
Set expectations - Make sure that you clearly convey expectations up front, including expectations about time commitment and ability to use their name on your website or marketing materials.
Keep it limited - You don't want to bring too many advisors on. You won’t be able to use all of them effectively, and you’ll just end up giving away a larger piece of your company without getting more value. I would recommend no more than 5-6.
- Investment is better - Advisors don’t replace good investors. However, when that isn’t an option, bringing somebody onboard as an advisor is a great next option.
Be proactive and bold. Find out who has the expertise you need and reach out to them directly. They'll likely be flattered, and at least willing to discuss. Explain that you’re not looking for an extraordinary time commitment and that you’ll work within their schedules, but that you’re very interested in their advice and that you’d be extremely happy to have them officially become an advisor. In return, you’ll give them some equity and, of course, the chance to be part of an exciting new startup.
A big part of building a company is overcoming the inertia of starting from nothing by getting more and more people to care about your company and have a vested stake in its success. Jumpstarting the process with a few extremely helpful and formidable advisors at the beginning can go a long way!