Every early startup should have an unpaid senior team
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An unpaid senior team? Starting a company is already hard enough, and now I’m suggesting your senior team should be unpaid? How can you possibly convince senior people to work for you for no salary?
It’s easier than you think. If you haven’t started a company before, you may not have the experience to cover all aspects of running a startup. Do you have a business background and not much technical experience? Or perhaps you are like I was and had a technical background but limited sales and marketing experience. The nice thing about startups being a trendy line of work is it is relatively easy to find experienced executives that are willing to help on an ad-hoc basis. Due to professional or family reasons, many executives aren’t ready or willing to make the full-time jump to a startup, but they can live vicariously through you by being an advisor to your company.
Advisors are my answer to early stage startups that feel weak in certain areas, but aren’t quite ready (or capable) of hiring senior talent to address them. I believe most startups vastly underutilize what they can get out of advisors.
Take my situation prior to starting Automated Insights. I was a Distinguished Engineer at Cisco and completed two Masters degrees at MIT, but I didn’t have much practical sales and marketing experience. I had run large teams and even had budgetary responsibilities, but wasn’t sure if I was able to create a believable financial model.
I could try to learn all of those skills or hire expensive talent to do it for me, but by networking I came across experienced executives that were willing to help me out for free.
There are limits of course. It’s not like an advisor will give you as much as a full-time, paid employee, but you’d be surprised just how far you can get. I’ve been an advisor to over a dozen companies in the last ten years and the vast majority didn’t come close to tapping me out in terms of how much I was willing to help them for nothing in return. Most entrepreneurs dramatically underutilize their advisors.
Advisors are what you make of them
Some entrepreneurs have told me they didn’t get much out of advisors. Their advisors rarely reached out and never proactively helped them. That is the wrong way to think about an advisor. The responsibility of the managing the advisor relationship falls completely on the person being advised. It’s just like mentors. It’s not the mentor’s responsibility to reach out to you — it’s on the person being mentored. Generally, when I hear about advisor relationships not being useful, it’s because the person being advised didn’t make the most of it.
The advisor is doing you a favor, not the other way around. It’s up to you to make the best use of the relationship. Don’t expect them to be proactive.
Don’t be afraid to ask for more help. You might be surprised how much you’ll get. I had early advisors help me develop financial models, sales strategy, marketing strategy, and fundraising approaches. And I didn’t pay them a dime. Each advisor on their own made well into the six figures at their day job. I wouldn’t have been able to pay them close to what they were worth. Fortunately, I was able to get them excited about my fledgling company, and they were nice enough to work with me.
Some advisors were initially interested, but never engaged. That’s ok too. If you aren’t getting feedback from an advisor, move on and put them in your less frequent follow-up rotation. That’s why it is good to have a stable of advisors you can draw on.
A common question that comes up is how much should you pay an advisor. There is no simple rule here, but in general, you shouldn’t pay advisors with cash unless it’s a more formal engagement with someone you have previous experience with. And if you want to go down that path, I suggest you start first working with her in an unpaid capacity and see how it works before signing up for a paid arrangement.
There is a certain element of paying it forward that you get with experienced advisors. They aren’t talking to you to try and make a quick buck, but because they are interested in you, your company, or your market. They want to be involved with a startup without taking the plunge of leaving their day job. That’s the type of person you want. If a potential advisor is talking very early on about being compensated, it’s probably not the right fit.
If you feel a duty to provide compensation because an advisor has been very helpful or you want to entice a well-known person in the community to lend their name, support, or ideas, by all means consider giving them stock options in your company. Stock options provide the right kind of incentive. It’s not immediate gratification but aligns the advisor with your long-term success.
How much equity should you give an advisor? There is no right answer as there are a lot of variables that impact the amount. How clean is your current cap table? How many advisors do you envision having? How involved do you envision this particular advisor being with the company? How long do you think the advisor will be involved with the company?
In general, advisors should be granted a small amount of equity (like less than a half percent at most to 0.1% on the low end). In my experience, advisors tend to fade away over time as a company grows. While you may need help with sales strategy in the first year, as you get into the market and possibly start hiring sales people, you’ll figure it out. You won’t need as much of your advisor’s time evaluating financial models when you have a full-time finance person on staff. If you give a big equity grant to a very promising advisor, it might be something you regret two or three years later when that person is minimally involved.
It’s better to go slow with an advisor. Walk before you run. You can always grant more options later if she’s exceeded your expectations or continues to contribute years later.
Should you have a formal advisory board?
The next question I hear is should you create a formal advisory board. While it is fine to have an advisory board in name, I don’t think it is helpful to get them together as a group.
If you have advisors that have expertise in different areas, getting them together doesn’t deliver more value on top of meeting with them individually. Getting seasoned executives together for a joint meeting is a difficult scheduling task anyway. Save it and meet with them individually. Then you can focus your sales questions on the sales advisor and the technical questions for your technical advisor. In my experience, having a diverse agenda for a diverse advisory board leads to many advisors just sitting around until their section of the agenda comes up. Or worse, the sales advisor feels the need to chime on the technical questions. Don’t waste their time.
There may be certain situations where an advisory board meeting makes sense, just don’t assume that’s the default way to meet with advisors. You are best off to meet them individually and as a group only if you come up with a good reason that having them together is helpful.
Advisors are a good measuring stick
As an early stage startup, should you have advisors? Absolutely. Is there any reason not to have advisors? I can’t think of any. Even if you have all the talent and experience you need, well-known advisors that will associate themselves with your company is a good way to send a signal to the market that respected people like your company.
Some venture capitalists have told me they won’t fund a startup that can’t convince a CTO to join their company prior to funding. I think a better gauge is to look at what advisors are working with the company. If you can’t get some industry veterans excited about what you are doing, I’d question how successful you can be at getting other people interested.
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