Setting Up an Advisory Board for Your Small Business's Success
For small businesses, an advisory board isn’t just an extra layer but is rather a critical asset that complements your management team and drives long-term success.
Imagine you’re a small business owner facing a pivotal decision that could shape the future of your company. You’ve done your research, consulted your management team, and weighed the risks, but something still feels uncertain. In situations like this, having an advisory board could make all the difference.
Unlike your management team, which is focused on daily operations, an advisory board (AB) brings fresh perspectives, industry expertise, and strategic guidance. They help you navigate complex challenges, avoid costly mistakes, and seize growth opportunities. For small businesses, an AB isn’t just an extra layer but is rather a critical asset that complements your management team and drives long-term success.
Advisory boards within an SME context
If you’re wondering whether an advisory board is necessary for a smaller-scale enterprise, we’ve enlisted the help of Stellar’s Senior Consultant Mike Christensen to expound on the top reasons why ABs work for SMEs.
As a working definition, ABs are advisory bodies with members that are drawn from both within the business (e.g. owners, senior management) and from those external to the business (independent advisors with skills or expertise that complement the objectives of the AB).
According to Mike, the principal objective of an AB is to use the collective thinking (or what Mike refers to as the power of “grey hair”) and differentiated thinking (or diversity of skill set and independence from the “day-to-day”) to help formulate the best advice for the business. Critical to this is outlining the activities that the business mostly need advice on, whether that’s in line with entering new markets, developing new products, scaling the business, or other strategies.
Why are advisory boards useful for SMEs?
There are several benefits to having advisory boards that small businesses can appreciate.
1. Advisory boards can be useful enablers to scale a business.
ABs can be powerful enablers for scaling a business, providing guidance and support through every stage of its lifecycle. From navigating periods of accelerated growth to achieving stability in maturity, advisory boards help keep the business accountable and focused on its long-term goals. By offering strategic insights and holding leadership to a higher standard, they ensure that the business remains on track, adapts to challenges, and takes advantage of opportunities as it scales.
2. They can minimise a company’s reliance on the owner.
ABs can assist a business owner to functionally succeed from working in the business to working on the business. This means that they can free up an owner from demands and responsibilities at the operational level, winning back personal time for the owner to explore other ventures.
3. A successful AB helps with the discipline and rhythm of a business.
AB meetings require careful planning and advanced scheduling, ensuring that discussions are well-prepared and focused on key issues. The preparation work involves aligning the agenda with the most pressing challenges and opportunities, allowing for insightful advice that drives the business forward. Additionally, documenting and tracking the agreed actions ensures accountability and continuous progress, making the advisory board an essential component of a thriving business.
4. An advisory board can be a better option for an SME than a governance board.
Some businesses, typically listed companies, opt for governance boards, which is an entirely different concept altogether from ABs.
Members of an AB are not necessarily registered directors of the business. Governance boards, on the other hand, require members to “consent” to be a registered director of the business. This has legal implications for the director and for the business. For example, governance board directors can make decisions that bind the company to act, while AB members can’t. Governance board directors are also obliged to perform their duties consistent with the Corporations Act (or similar), an example of which is to prevent insolvent trading.
Overall, setting up an AB is a much more attractive option compared to having a governance board in terms of cost, control, and dynamics. Governance boards are typically materially more expensive and requires business owners to surrender portion of their control over the decision making. Governance boards also have a material amount of governance agenda items that need to be dealt with, limiting the time these bodies must handle strategic discussions.
How to set an advisory board up for success
A good way to ascertain if your business is ready for an advisory board is by using the Stellar Business Assessment. A score of 60 or higher indicates readiness. This benchmark is crucial because a key precursor for a successful AB is having a business that is sufficiently systematised to allow for functional succession by the owner. At this level, there is typically a strong culture of accountability in place, which is essential for effectively overseeing individual and team performance. This is often managed through “dashboard” style reporting and high-level organisational performance metrics.
In addition to readiness, the structure and setup of the AB are critical. Key factors include ensuring some level of independence among board members, establishing a clear process for selecting and inducting external members, and defining the roles, objectives, and scope of the board. It’s also important to set key measures of success for the AB. These elements are essential to creating a body that genuinely adds value rather than one that detracts from it by misallocating time and resources.
Curious to see if your company is primed for this next step? Take Stellar’s Business Assessment to gauge your internal readiness and prepare to unlock your business’s full potential.
