From the Desk of Jeffrey S. Davis

During difficult economic times, many privately-owned businesses search for ways to address the daily challenges they face. This edition of the MagePage outlines the benefits of a Board of Advisors and what they can offer businesses.

Throughout my career as a strategic and organizational advisor, I have had the opportunity to help numerous businesses create Boards of Advisors and Boards of Directors. Many private and family-owned businesses have enjoyed the added benefits strong advisors can bring to their companies, including contacts, potential investment, industry insight and specific functional business experience.

Obviously, creating an advisory board is not for everybody. It can be a time-consuming process, but the benefits can immediately impact a company in a positive way.

In this edition of the MagePage, Mage Senior Consultant Todd Greenberg analyzes the process of deciding when to turn to or create a Board of Advisors. We also identify the specific characteristics one should look for when screening for potential advisors.

It is our hope that this news-letter will answer your questions and ease some of your concerns regarding advisory boards.

-- Jeffrey Davis, Chairman and Founder, Mage, LLC

"To Board or Not to Board"
When should a company consider a Board?

Many executives of privately- held companies see tremendous business opportunities before them. At the same time, they often find themselves alone in death-defying battles to keep the ship running and grow at the same time. For executives living the good fight and wondering how to achieve the growth part of the equation, the question to consider is, "To board or not to board?"

When to Board?
Privately-owned business advisory boards are in vogue today for good reason. Boards provide focus and objectivity in a world of expanding rather than contracting growth options. But let's be realistic. Having competent business advisors makes good sense for some, but boards are not for everyone. Many emerging business leaders shun the practice yet still manage to be profitable. So when does it make sense to have a board?

Board formation matters when specific preconditions exist. Anyone who's led a company knows there comes a time when it feels like you're running on empty. The company is successful, yet the leader finds him or herself in a state of diminishing returns. They still love the business but something is missing. In fact, they feel shortchanged because they want more. Whether it's returns on investment, status, recognition, or satisfaction, it doesn't matter. Filling the void does.

Wanting more is the first precondition for board formation because it signifies deep passion to create, renew and/or grow the business. Leaders who internalize this passion invariably work harder to exceed the status quo of their business. They push for more and consequently require more expertise, knowledge, and wisdom from others. Without the fundamental drive for more, we are talking about lifestyle businesses or what strategists call harvesters who are content with what they have attained. There's nothing wrong with being satisfied and living comfortably. But, the need for a board is less compelling in these circumstances.

Vision is the second pre-condition for board formation because it signifies purpose and direction. Leaders with clear vision have an ideal picture of their company's potential. They know, either intuitively or logically, where they want to go. The uncertainty may be in either how or the best way to get there. As a result, strategic plans may or may not be fully developed and documented. What matters, though, is whether leaders value planning. Forming a board is premature (consultation is not) when executives place little or no value on translating their vision into concrete plans.

A mature ego is the third precondition for board formation because with a board in place you can run but you can't hide from objectivity or truth, that is. Nor should executives want to because effective boards help executives think more deeply about their big ideas or actions. The input is precisely what's needed when investment dollars are on the table. However, without a mature ego to tolerate the scrutiny or different strategic perspectives, there's neither compelling nor worthwhile reason for a board. Why bother? We've had more than our fair share of weak or ineffectual boards of late.

A compelling growth opportunity is the fourth pre-condition for board formation. Growth and boards go together for three specific reasons. For one, growth opportunities are not easy to define. Even experienced leaders are prone to unintentional bias regarding new ideas, which are tricky to sort through under the best circumstances. Growth also requires significant management investment and specialized resources that typically reside outside the company. Finally, growth often means venturing into new product or market areas.

Opportunity definition, specialized resources, and unfamiliar new territory create significant risk for growth-oriented leaders. Board members help leaders manage these risks by applying their diverse experience and specialized knowledge to either strategic or operational issues.

Serious About Growth?
Form a Board Now.
Board formation, like any major strategic decision, requires a significant investment from executives. Up to a year to assemble the right board is not unrealistic and quarterly meetings are generally the norm. Ensuring a solid return from the effort can take up to 5-10% of executives' time. All for the privilege of being supported and challenged by experienced veterans working to accelerate the growth process and minimize risks.

If all this begins to sound like a cost, rather than an investment, then it may be prudent to look in the mirror and sharpen the focus. The passion may be there but the overall vision may be cloudy. Alternatively, the vision may be clear but the ego may not be ready. The same goes for the compelling business opportunity. Is it really compelling? Will it really work? Can you execute? This is pre-board formation work that is best accomplished with the support of competent management consultants.

Executives with some or all of the preconditions should add the "To board or not to board" question to their agenda. They are in a great position to begin the substantive dialogue and actions necessary for strategic business growth. Can't sleep at night because of that compelling vision? Consult your trusted advisors immediately!

Contributed by Todd Greenberg, Senior Consultant, Mage, LLC

Identifying Valuable Advisors
Different Points-of-View Can Help Business Owners Build Value

As companies struggle during this difficult business climate, many are protecting themselves by building a trusted Board of Advisors. Advisors can have a favorable impact on a company without altering the corporate culture or responsibilities currently in place.

Unlike a Board of Directors, most advisory boards can be organized to meet a company's needs without having the legal structure of a formal board. Normally, they offer counsel and advice only - another point-of-view on business issues.

Despite an advisory boards' non-intrusive role, business owners are still wary of creating one, even during difficult economic times. Owners are generally accustomed to making the final decisions on everything. Because of this 'hands-on' approach, many are afraid of losing control. However, owners who understand an advisor's true role can benefit greatly from the additional business contacts and experience a board can offer without losing control.

Unfortunately, finding the right advisors can be tricky. It may require creating a search committee, defining overall roles, interviewing candidates, conducting a selection process and managing the meetings.

What is the first step when looking for candidates?

Ask for help! Clearly, board recruitment and selection can be difficult. For private companies, it can be even more challenging because they rarely have a vast network of contacts and don't understand the best practices in corporate governance.

Emerging companies should consider hiring an experienced outside consultant to help with the process. Although some owners are very reluctant to do this because of cost or control issues, the benefits of outside help are easy to see. Besides bringing objectivity to the process, consultants help companies identify goals and generate a list of names that is more inclusive and detailed than one generated internally. A third party can also manage the screening process, allowing owners to focus on business issues, not on developing a board.

Most owners have specific characteristics they desire in candidates. Their explicit needs can make the selection process very important.

What criteria should an emerging business look for in an advisor?

Obviously, every company has different needs, but in general, most owners should look for advisors who are going to help build the business or add valuable experience the company currently doesn't have. It is important to create a board that can provide strategy and review management, as well as help the company grow. The following are some characteristics many owners look for in candidates:

Financial: A lack of financial resources can be a significant issue for a privately-owned business. During an economic downturn it can prove fatal. Many owners look for advisors who can help secure more favorable investors, connect to non-traditional funding or help select the best financial options available.

Connections: Many owners look for advisors who have an established list of contacts. Private companies often have limited resources and contacts, even within their own industry. Most owners are eager to meet people and expand their business and influence.

An advisor that can introduce management to people not otherwise readily available, including potential partners and clients, is often a wise choice when creating a board.

Specific functional expertise: Emerging businesses often have limited staff, leading to many crucial functions being neglected. Creating a board is a great opportunity to get very talented business people on your team that you could not normally hire.

Therefore, many companies look for candidates that have vast expertise in marketing, law, accounting or another business function. These individuals can improve a specific problem area within the company without a large financial investment.

Objectivity: The objectivity a board can provide often leads to a new way of addressing tough business challenges. It is crucial for a search committee to find candidates that are not affiliated with the current executive team. Hiring family and friends to an advisory board can threaten the functionality of the group.

In order to avoid this, many companies hire outside help to expand their list of candidates and manage the selection process.

Experience: Owners are always looking for people who can guide them through the challenges they face. Many companies look for industry veterans who can immediately understand the issues facing the company. Former business owners within an industry can offer insight on ways to run the company successfully.

Advisors also help motivate companies to streamline efforts and become more efficient, all necessary changes during a demanding business environment. Therefore, many owners look for mentors and motivators when hiring advisors.

Identifying advisors can be a challenging process for every company. However, during a struggling economy, creating a board can add value and help business owners navigate the steady flow of challenges they are sure to face.

Contributed by Jonathan Freedman, President, Mage, LLC

For more information on advisory boards, please contact Mage at (781) 449-8366

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