4 tips on building an advisory board

June 4, 2010

This week, two UpStart coaching clients told me the same thing:  “It’s great having someone to help me think through tough issues.”  One is based in the middle of Manhattan; the other on a remote Pacific island. But they both effectively said “it’s lonely at the top.” Even the greatest athletes need coaches. The same is true for founders. That’s why I recommend that founders build advisory boards.

1. What an advisory board is, and isn’t. Don’t confuse advisors / a board of advisors with directors / a board of directors. As a CEO, the board of directors is your boss. Directors take a formal role in overseeing the business, often representing shareholders, approving budgets, and deciding who should act as CEO. In contrast, advisors work for the CEO. Advisors provide feedback, advice and introductions to investors, customers, and business partners – as needed.

2. Who to put on your advisory board. To establish an advisory board, start by picking three to five areas where you really need help. Maybe you want a person who has a “golden Rolodex” of industry contacts, another person who is great at sales, and/or a person with expertise in an area where you are weak, like finance or marketing. Then come up with a list of dream advisors in each group, and network your way to them. Make sure each advisor is the kind of person who will enjoy sharing her expertise and helping you build the business from the sidelines as a mentor or coach.

3. How to structure advisory board deals. Be specific about the role you want each advisor to play, and the amount of time and type of assistance you will want from then. I typically tell advisors I’ll need them to put in about one hour per week on average. In exchange for their help, I grant advisors equity options in the range of one percent of the company, vesting over three to four years. As always, run advisory board deals by your lawyer and accountant.

4. How to work with advisors. Advisors can function both as specialists and generalists. Give individual advisors specific requests for assistance (e.g. please see if you can help me get to the CEO of customer X). Then schedule a meeting or call at regular intervals (e.g. once per month or quarter), and use it as an opportunity to get feedback on general issues, like opportunities, threats, and major decisions. Keep in mind, you don’t have to follow their advice (but if you don’t, explain why).


4 reasons not write a 40+ page business plan

May 19, 2010

When I started helping entrepreneurs plan new companies, I discovered something curious—there was a lot of confusion about what, exactly, a business plan should look like. A business plan was once a lengthy, prose-based document written with word processing software like Microsoft Word, similar to a 40+ page college term paper. Sophisticated entrepreneurs and investors moved away from that format, but the typical entrepreneur on Main Street didn’t get the message.[1] That’s no surprise, since many books on business plans still recommended a term-paper-style business plan. Were the books simply out of date?

To make sure, I decided to ask the experts. I surveyed over 50 people, including venture capitalists (VCs) from leading firms like Kleiner, Perkins, Caufield & Byers, noted angel investors such as the backers of Method and serial entrepreneurs like John Osher, creator of the Crest SpinBrush. The results: 95 percent recommend that startups use a presentation format, not a term-paper-style plan.[2], Here’s why the pitch deck has taken the place of the text document:

  1. A term-paper-style business plan takes too long to read. In this age of rampant Attention Deficit Disorder and communications overload, asking someone to read a 40+ page paper is pushing it. Why burden someone whose help you are seeking? And why take the risk that your plan won’t be read at all?
  2. A term-paper-style plan takes too long to write and update. Writing 40+ pages of prose takes months. Plus, a business plan isn’t a static document—startups modify their plan continuously. Updating a page or chapter of text can take hours. Updating a bullet point or graphic in a slide presentation takes minutes.
  3. Pitching in person is far more persuasive than sending a document for people to read. A deck is made for presentations, while a term paper is about as useful in a pitch as a doorstop. When you deliver a presentation in person, you can see how people are reacting, modify your pitch on the fly, address concerns or confusion immediately, and get feedback.
  4. Presentations force startups to set priorities. If you are working with a 40-page  plan, you can drop in every great idea that comes to mind. But when it comes time to explaining your ideas—and to executing those ideas—you’ll have to focus. Culling your ideas down to those worthy of inclusion in a short presentation is a great way to start prioritizing.

Still don’t believe me?  Sequoia Capital is the venture capital firm that backed Google, Yahoo, YouTube, eHarmony, LinkedIn, and PayPal, among many other winners. On their Web site (http://www.sequoiacap.com/ideas), they offer the following advice:  “We like business plans that present a lot of information in as few words as possible …  15-20 slides … is all that’s needed.”  And finally, New York Angels is one of the leading groups of angel investors in the U.S. They’ve invested over $20 million in 65 early-stage, New York-area technology and new media companies. At www.newyorkangels.com you’ll see the following suggestions about the format of business plans:  “Slideshows with under 20 slides are generally most effective … Use the limited time you have for your presentation to emphasize the compelling factors about your investment opportunity and save unnecessary technology details for future meetings…”


[1] There are exceptions, such as requirements from some lending organizations like banks or the SBA, but they typically lend to companies with at least three years of operating history, not to startups.

[2] Most of the others said they like to see a two- to four-page executive summary.


Steve Brotman interview: Why you need a plan.

May 19, 2010

Steve Brotman is a Managing Director of Greenhill & Co., and co-founder and co-head of Greenhill SAVP, a fund that invests in early-stage technology and information services companies. Steve currently sits on the board of four companies and the MIT Enterprise Forum’s New York chapter. Steve founded AdOne Classified Network, one of the nation’s leading classified ad Web sites, which was acquired by Hearst, Scripps, and Advance-Newhouse. Steve is a graduate of Duke University and has a joint JD/MBA from Washington University.

UpStart: “In what ways do you think it benefits a startup team to go through the process of developing a business plan?”

Steve Brotman: “A business without a plan is like a boat without a rudder. You’ve got to have a plan! Developing that plan is the critical first step of business creation. It commits you and your team to an explicit strategy and approach. It ensures that your founding team is aligned behind common goals. It defines both what you will do, and what you won’t do. And it establishes priorities, so startups focus time and resources on what’s most critical for their success. Finally, it allows founders to communicate their vision to investors, advisors, employees, vendors and partners. That doesn’t mean the plan can’t or won’t change. So be flexible, and when a major change needs to happen, circle the wagons, and put together a new plan.”

UpStart: “Would you ever invest in a company without a business plan?”

Steve Brotman: “It’s doubtful. In the earliest stages of a company, founders start with the equivalent of an idea on the back of a napkin. But every startup needs help, even if that’s just from the landlord and lawyer. Getting that help demands more than just what’s on the napkin—it requires a business plan. That said, some entrepreneurs go overboard on their plans and projections, and prefer to write about their plans versus doing something about them. That’s not what a plan is about. The goal is uniting your team behind some shared vision and objectives, and how you will likely meet those objectives, and having some document to show parties you’d like to bring on board that will increase the likelihood of your venture’s success.”


Frances Cole Jones interview: Making persuasive pitches

May 19, 2010

Frances Cole Jones is the founder of Cole Media Management, a consultancy that prepares clients for television and print interviews, IPO road shows, and investor pitches. She’s also the author of How to Wow: Proven Strategies for Selling Your (Brilliant) Self in Any Situation, and The Wow Factor: The 33 Things You Must (and Must Not) Do to Guarantee Your Edge in Today’s Business World. Jones has prepared clients for appearances on Oprah, Good Morning America, The Today Show, ESPN, Larry King Live, The Discovery Channel, Access Hollywood, E! Entertainment, CNN, and BBC News.

UpStart:  “You’ve advised hundreds of clients on how to make effective presentations. What’s the most common mistake you see?”

Frances Cole Jones:  “Reading off of their slides. In my dream world I don’t want anything on a client’s slide coming out of their mouth. We’ve all been reading since we were about six years old—being read to drives us mad. Slides are meant to enhance talking points, not replace them.”

UpStart: “Are there any quick fixes you recommend that can have a big impact?”

Frances Cole Jones:  “55 percent of your impact comes from what your body is doing while you are speaking. Only seven percent comes from the words we say. So body language is critical. Keep your hands where people can see them. We trust you when we can see your hands; we don’t trust you when we can’t. Also, remember the power of storytelling. When you tell a story, filler words like ‘um’ and ‘uh’ magically disappear. Speak from your own experience, and ask yourself why your audience should care.”


Dany Levy interview: A business plan should evolve.

May 19, 2010

Dany Levy is the founder and Editorial Director of DailyCandy, a daily newsletter with insider advice about style, food, fashion, and fun. Dany started DailyCandy in 2000 with a simple vision: one thing in your inbox telling you what to do that day. In 2008, Comcast acquired DailyCandy for a reported $125 million. Today DailyCandy has over three million subscriptions. Prior to founding DailyCandy, Dany worked for New York Magazine and Lucky, and wrote for The New York Times, Martha Stewart, and Vanity Fair. Dany is a graduate of Brown University.

UpStart:  How did you make use of a business plan at DailyCandy?

Dany Levy: “A business plan should evolve depending on the stage of a business and on the audience it’s written for. I started DailyCandy myself, at my kitchen table, with no employees. At that point, my business plan was just for me. It was a two page document describing what DailyCandy was, to help me clarify and narrow down what the product should be. That plan helped me stay focused, but it also left room for flexibility. I just concentrated on writing great editorial, and spreading the word. A year later, I developed a more comprehensive business plan, as I began to sell advertising and court suitors. Still, I kept it short. I figured investors needed to “get it” after the first few minutes. As the business grew, and I took on institutional investors, I needed more detail, like financial projections and strategies for marketing and sales.”

UpStart:  Did developing a business plan provide any other benefits for you?

Dany Levy: “Yes. Most of all, it helped me learn. That was one of the greatest things about building a business – the steep learning curve. And the business plan made that learning explicit. I got a lot of help with my plan from my CEO, Pete Sheinbaum. At the time, I handled editorial, and he handled business matters. I remember learning to measure the cost of acquiring customers, and the value of those customers. I think at the time one customer was worth somewhere around $10.37. The next time I attended a DailyCandy event, I looked around the room and imagined a price tag on every girl’s head reading ‘$10.37’. Understanding the economics of the DailyCandy business gave me a much broader and deeper sense for what we were doing, and that ultimately paid off far beyond my wildest expectations.”


Bo Peabody interview: Business models

May 19, 2010

Bo Peabody is co-founder and Managing General Partner of Village Ventures, an early-stage venture capital firm. Previously, Bo founded / co-founded a string of startups, including: Tripod (one of the first social networks, later acquired by Lycos), Waterfront Media, VoodooVox, FullTurn Media, and UplayMe. He’s also an owner of Mezze, Inc, which consists of three award-winning restaurants. Bo wrote a book for entrepreneurs called Lucky or Smart? published by Random House. He is a graduate of Williams College.

UpStart:  What advice do you have for entrepreneurs pitching investors about their business models?

Bo Peabody:  “Entrepreneurs have the counterintuitive task of having to think big and act small. For any business that is going to attract venture investors, a big vision is important. But that’s the easy part. The much harder job is figuring out how to distill that vision into an actionable plan that has clear, incremental levels of success. Entrepreneurship is like a video game…you need to know what the levels are and then reach each one before going on to the next.”

UpStart:  Are there particular business models that you prefer to invest in?

Bo Peabody: “At Village Ventures, we prefer to invest in business models that are tackling mature markets. We’d rather bet on our ability to back the right team that can knock off existing competition than bet on our ability to see around corners. For instance, this is why we invest in vertical publishers in the interactive media space, rather than social media companies.


Tommy Hilfiger interview: Team, team, team

May 19, 2010

Tommy Hilfiger is the founder of Tommy Hilfiger Corporation. An entrepreneur from his earliest days, Tommy skipped college to run a string of retail stores in upstate New York. He later turned down highly sought-after fashion design job offers to start a company of his own. In 1995, Tommy was named Menswear Designer of the Year by the Council of Fashion Designers of America. Three years later Parsons School of Design named him Designer of the Year. By 2004 Tommy Hilfiger Corporation had over 5,000 employees and revenue of more than $1.8 billion. Private investment company Apax Partners acquired the business in 2006.

UpStart: What does it take to be a great entrepreneur?”

Tommy Hilfiger: “I think skills and personality traits are more important than background. I never went to college or design school, but I had passion, drive, and resourcefulness in droves. When I launched Tommy Hilfiger Corporation, I wasn’t trained in the conventional rules of business, but that worked to my advantage. I experimented. I made bold moves. And I adapted as I learned. I credit much of my success to my drive to win and my fear of losing.”

UpStart:  “To what degree was your team responsible for your success?”

Tommy Hilfiger: “I’ve always been aware of my strengths and also my weaknesses. Because I acknowledge my weaknesses, I’ve been able to surround myself with people whose skills complement mine. Building great teams has been essential to my success.”