4. Advisory Boards: why? when? how?

Mike Shannon: 00:00

Alright. Welcome back to opening the c suite. I'm Mike Corey. And we've been on a a bit of a a theme here, a journey. We started with annual planning, we went to board management, and today we're talking about advisory board, which is not the same as a board of directors.

Mike Shannon: 00:17

That's right. And is, is sort of a questionable topic. There's a lot of different viewpoints on it for me at least in startup circles. Sure. When do you have an advisory board?

Mike Shannon: 00:30

Should you have an advisory board? What's their say in things? What's their ownership? And, there's a lot of contrasting opinions. I was just with my founder group the other week talking about this and different viewpoints.

Mike Shannon: 00:41

So now Corey, you've been on board of directors, you've been on advisory boards, I've had advisors, you've had advisors. So start us off with just what is an advisory board? What is different about that from a board of directors?

Corey Ferengul: 00:54

Yeah. And let let's break down and there's different kind of different types. Right? So an advisory board is not, they don't have any fiscal responsibility for the organization. So they're not at all responsible for the finances.

Corey Ferengul: 01:05

They're not responsible for the direction of the company. They're there to offer advice because they've been been invited in for their expertise. And an advisory board, sometimes, is an actual formal board that meets where you bring those experts together to talk. Okay. More regularly, it's called a board, but it's a collection of advisors that you reach out.

Corey Ferengul: 01:23

So they have a formal relationship with the company and you reach out to them. Okay. And you use their expertise. So if someone is on your advisory board, they had better have an expertise that they are bringing to strategic discussions the company is having. Now do they meet in an advisory board meeting cadence?

Corey Ferengul: 01:41

I've only had a couple of instances where that occurred. More times than not, it is 1 on 1 or, you know, you, the advisor with the individuals in the company that are worried about the topic you were there to help them with.

Mike Shannon: 01:53

And for context, I, as a founder of 10 or so years, have not had an advisory board. I have had advisors. Yes. And but never in a structured board. We then had a board of directors.

Mike Shannon: 02:04

Yes. So it's actually, like, I'm on a second venture now. I'm I'm thinking about it. Yeah. And so very genuine conversation here.

Mike Shannon: 02:11

Pros and cons. Like, when does it make sense to form an advisory board? When does

Corey Ferengul: 02:15

it not make sense? In in in part in let's go through stage. Right? Early early on, you may need it to draw credibility. Sure.

Corey Ferengul: 02:22

Absolutely. Stage company and you wanna show others that, hey. There's credible people that believe in what we're doing Yeah. And they're here to help us and we're we're tapping into their expertise. Yep.

Corey Ferengul: 02:31

So that's really valuable. As you go a little further along, you're gonna need, you know and and I'll say the collection of advisers could be referred to as advisory board. That's what I see a lot of companies do. You would need it because what we're trying to solve a problem we don't know how to solve.

Mike Shannon: 02:45

Yeah. Right.

Corey Ferengul: 02:46

Or we're gonna be working we're gonna be great example right now, AI is everywhere.

Mike Shannon: 02:51

Yeah.

Corey Ferengul: 02:51

If you can get a couple of advisors that understand AI Right. That could really help you because it's gonna be a journey you're gonna be on to figure out how to infiltrate AI. Sure. Yeah. Yeah.

Corey Ferengul: 03:02

Yeah. Yeah. Yeah. Yeah. I infiltrate your company.

Corey Ferengul: 03:04

So, you know, what do you do there? As you get even further, bigger companies, if you look at, you know, large pharmaceutical companies, they have advisory boards, but it's specific around a drug and specific around, you know, so they don't go away as the companies get bigger. They just become more focused, more narrow. Sure. But the theme across all of them is subject matter expertise of the adviser.

Corey Ferengul: 03:23

Right. And then it's how the company wants to best leverage that subject matter expertise.

Mike Shannon: 03:28

Yep. Alright. Now what feels counterintuitive is we did an episode on board of directors. Yes. And there's a lot of similarities what you just described.

Mike Shannon: 03:36

Why do you have an advisory board and or an board of directors? Is it because there's not enough seats at the table at the board of directors? Like, why does it expand?

Corey Ferengul: 03:44

100% there's not enough seats

Mike Shannon: 03:45

at the board Okay.

Corey Ferengul: 03:46

Table. And you don't want to expand your board? Yeah. Don't do that.

Mike Shannon: 03:49

You don't want a huge board.

Corey Ferengul: 03:50

Don't do that. A huge board. Expand to more areas of expertise. And maybe it's a lower level. Maybe you need someone who's got really good experience on, building a a sales organization because it's new to your your team.

Corey Ferengul: 04:02

It doesn't need to be a long term board member, but, boy, a couple of years on an advisory board, that would be great. Sure. I did an advisory board for someone, it was 2011 to 2015. Okay. I was an adviser to the company as they were getting formed.

Corey Ferengul: 04:16

They got sold in 2020. Okay. Right? And so, you know, and I hadn't really talked to them much for years. Yeah.

Corey Ferengul: 04:21

You know? And it was just it was it was a point in time. They were doing some strategic work. Yeah. They needed to understand how does this company think in this space.

Corey Ferengul: 04:29

We're competing with them. What do you think about that? Yeah. And my advisory work was regular calls with the CEO.

Mike Shannon: 04:35

Yeah. Okay.

Corey Ferengul: 04:37

And, you know, I I I felt good about it. Yep. He clearly felt good about it. We continued to talk. Yep.

Corey Ferengul: 04:43

But it ran its course. Yep. There was no reason for him to continue to keep me as an adviser. He had tapped in the expertise for what the stage of his company was. Sure.

Corey Ferengul: 04:51

So an advisory board is probably more transient than your board of directors. Agreed. Agreed.

Mike Shannon: 04:56

Alright. So now what I was getting at on some of the founder controversy around

Corey Ferengul: 05:00

this

Mike Shannon: 05:00

notion of adviser boards and advisers is, how the compensation occurs. Absolutely. And at what stage? And so I'll tell a story. Earliest days, my first company, we're right out of college, and we're just networking with whoever we can.

Mike Shannon: 05:15

One of the individuals that we had coffee with presents us with an agreement to be an adviser. And there was some, you know, equity allocation in it. Of course. And we had not had many conversations. But in one of them, that individual introduced another individual who became very helpful long term to the company.

Mike Shannon: 05:33

When the first individual presented the adviser agreement, the other one who he had introduced said, don't sign an adviser agreement this early at least with anything. Don't need to be given out equity. Don't know how this is gonna form.

Corey Ferengul: 05:45

That's right.

Mike Shannon: 05:46

We didn't listen. We went to the meeting, the coffee to sign the the agreement. The individual didn't have time. It didn't show up. We ended up saying, you know what?

Mike Shannon: 05:54

We've been advised otherwise. We're not gonna do it. And they weren't too happy about it. Yeah. But that's, like, always in it.

Mike Shannon: 05:58

There's a hard feeling. But that's in my mind. It's, like, part of the controversy here and obviously that business model pivoted and shifted.

Corey Ferengul: 06:06

Yeah. Yeah. And

Mike Shannon: 06:06

so you don't really know early on what your business is going to become. And so how do you understand how to allocate if it's going to be equity compensation to early advisors that you may need or at least think you need to get the credibility Yep. But you also don't know long term whether it's gonna be relevant or not. This is what founders are talking about right now.

Corey Ferengul: 06:25

Yeah. And I'd say the really important thing is, do you get along with that person and how long do you think they're gonna be around?

Mike Shannon: 06:33

Yeah. Which means you need some time with them.

Corey Ferengul: 06:35

You need a little time with them before. Personal and look, I being a person that talks to companies and, you know, be is asked to be an adviser, I do not walk in and say here's an adviser agreement. As a matter of fact, I'll do the 1st year of Right. One off conversations. Yeah.

Corey Ferengul: 06:49

And if it makes sense, then compensation is discussed. Most advisers will do some amount of engagement without any sort of comp at all. Yeah. What ultimately happens is a company says, jeez. You're really valuable to us.

Corey Ferengul: 07:03

We'd love to give you some equity. Yeah. And I have a couple of really important thoughts on that. I think they're important. One, it should be small amount to start that is time boxed.

Corey Ferengul: 07:12

Okay. A small amount that vest in a year. And if we still like you in a year, we'll give you a little bit more.

Mike Shannon: 07:17

Yeah. Right. Right.

Corey Ferengul: 07:18

Right? So I'm not gonna give you a really big chunk, really early in the company's history, and it's gonna, you know, best over 4 5 years. No. I'm gonna give you a little bit. It's a year best, then we have a renew option in a year.

Corey Ferengul: 07:28

Yeah. Because you don't know And

Mike Shannon: 07:30

what kind of achievables, accompany that? Like, what would you expect as an advisor to be expected to provide?

Corey Ferengul: 07:37

Very specifically, time. To how much time am I going to be giving you. Right? If you're actually asking me for a day a week or something, that's a whole different ballgame. That's not an advisory board.

Corey Ferengul: 07:47

Yeah. That is, you know, quasi employees Yes. Consultants. You need a contract. Right?

Mike Shannon: 07:52

Yeah.

Corey Ferengul: 07:52

If there's And

Mike Shannon: 07:53

that I've had early days, an adviser who was 1 to 2 days a week, and and we make sure there was equity in that scenario.

Corey Ferengul: 07:58

That's

Mike Shannon: 07:58

right. That was a part of

Corey Ferengul: 07:59

the team. Which I don't consider that advisory board. I consider those consultants coming in. Yeah. Right?

Corey Ferengul: 08:03

Part time consultant.

Mike Shannon: 08:04

This is

Corey Ferengul: 08:04

an equity team member, basically. That's right. An advisory board type person or advisor person, I'm assuming I'm gonna be putting in an hour every week, every 2 weeks. Yeah. You know, maybe for a while, we'll do a half day call Yeah.

Corey Ferengul: 08:17

You know, because there's something be going on. We'll be on the phone 2, 3 hours Yeah. You know, longer. But it's it's measured in hours per month Sure. As in as opposed to hours per week.

Mike Shannon: 08:26

Yeah. Let me ask you this question that came up the other day with the founder I was chatting with, and there's not a perfect answer. But is there at all a potential negative signal to the start up or the founder if equity is allocated to an adviser who does not become an angel investor? How do you handle that one?

Corey Ferengul: 08:45

It's their expertise. Look, not everybody has the capital to be an angel investor.

Mike Shannon: 08:48

So you're saying there's a way around it?

Corey Ferengul: 08:49

There's a way around it. Not everybody's got the capital to be an angel investor. Yeah. Okay. So, you know, that should be very clear right away.

Mike Shannon: 08:55

Fair point.

Corey Ferengul: 08:55

Yeah. But they may have expertise that you really need.

Mike Shannon: 08:57

Yeah.

Corey Ferengul: 08:58

And if they can bring value to the company Yep. You know, absolutely. Yeah. I

Mike Shannon: 09:03

The concern the founder I was chatting with, and I had some shared experience with it, brought up as well. We think this person can bring a lot of value. Yeah. We think it would be fair to have some exchange of equity. However, we're then out fundraising, and if we point to them as an advisor and they say well how much did they put in to the round?

Mike Shannon: 09:22

Do I have a challenge?

Corey Ferengul: 09:23

So I have a problem with that. Because if they're asking you how much they put into the round, then they're presupposing this person had to be wealthy enough in order to advise you.

Mike Shannon: 09:30

Yeah. Yeah. Okay.

Corey Ferengul: 09:30

Like, that's the You say

Mike Shannon: 09:32

you're a problem with that investment.

Corey Ferengul: 09:33

Yeah. That investor. Right. I mean, that person's personal wealth shouldn't have anything to do with the expertise that they have to offer.

Mike Shannon: 09:38

But it shouldn't really be a factor in your assessment

Corey Ferengul: 09:40

of the company. Now I will I have had that before where I was an adviser to a company and another investor was doing some due diligence at how much did you put in.

Mike Shannon: 09:48

Yeah. And I said I've gotten the question. Yeah.

Corey Ferengul: 09:50

And I've said, you know, I've only put in, you know, none or I haven't I've only put in very small amount. Well, why not? I said, well, like, you really want me to tell my financial situation.

Mike Shannon: 09:58

Right. Right.

Corey Ferengul: 09:58

Yeah. And they're like, you know, it it look. This is where venture capital funds, private equities, funds, they're very useful but sometimes a little arrogant.

Mike Shannon: 10:07

Yeah.

Corey Ferengul: 10:07

And that's one of the areas that's a little arrogance.

Mike Shannon: 10:09

Yeah. And the reason I'm going in on this is I think this is the most controversial part about advisory boards or compensated assurances. And so opening the c suite, this is kind of the

Corey Ferengul: 10:19

stuff I

Mike Shannon: 10:19

wanna talk about. Let's move past the conference.

Corey Ferengul: 10:21

Let me just say one other thing. You see this a lot of times in CEO roles and especially private equity backed companies where they'll ask a new CEO to invest in the company to get the job as well. Yeah. So it's not uncommon that they do that for c level executives. And I've done that when I joined the company.

Corey Ferengul: 10:34

I've written checks into the company and come in as an exec. Makes sense.

Mike Shannon: 10:37

Makes sense.

Corey Ferengul: 10:37

Right. So that it's not an uncommon thing. I'm not a fan, and I will not it's not, everybody. Yeah. You will find that in pockets, and it's really a preference thing.

Corey Ferengul: 10:47

Yeah.

Mike Shannon: 10:47

Well, wrap wrapping up the conversation I had with the founder I was mentioning. My advice was look at it like a hire.

Corey Ferengul: 10:53

It's just

Mike Shannon: 10:53

a different type of compensation. It's a

Corey Ferengul: 10:54

different type of

Mike Shannon: 10:55

They're not funded yet. So what are the achievable? So let's move past the controversy of it, but now you've got the advisor. Yep. You've been the advisor, I've had the advisors, now how do we make a successful relationship with that team?

Mike Shannon: 11:07

Yeah. Whether you've mentioned there might be a few hours a week, like what's the dynamic? Are they in Slack with team?

Corey Ferengul: 11:14

What It depends on what you're involved with. Okay. Right? So I'm working with a company right now. They're early stage.

Corey Ferengul: 11:18

Their product's just hitting market, and they're about to start fundraising. Okay. So what's my role as an advisor? I am helping them, form their deck

Mike Shannon: 11:26

to go out.

Corey Ferengul: 11:27

I am they're sharing with me the data that they think is important. Alright. And I'm giving them feedback on that and saying, this is good. That's, you know, this won't matter, that won't matter. And then I'll be making introductions to them to investors.

Corey Ferengul: 11:39

Yeah. And and, you know, so my role is pretty clear. That's the best way to get value from an adviser or an advisory board. What is the role and mission? Yeah.

Corey Ferengul: 11:47

One company that I was with that brought in an advisory board and they brought us all together in a room, They had a full day agenda and they had 4 or 5 strategic topics from the company that they wanted us to discuss in front of the executives Okay. And basically have a strategic meeting.

Mike Shannon: 12:01

Yeah.

Corey Ferengul: 12:01

I thought it was incredibly useful, you know, maybe they didn't get as much out of it as I meant. I learned a lot that day from the others, but that's the key. Advisors, advisory boards are only useful if you put in the work to getting the value out of them.

Mike Shannon: 12:13

Yeah. And by

Corey Ferengul: 12:14

the way, this is a theme, everything for the CEO is whatever you put in matters on what you get out. 100%.

Mike Shannon: 12:19

And so we're coming right off of happening episode that we talked about the board of directors. You know, I had for what? A third of my life the last 11, 12 years. You know, between 4 6 board meetings Yeah. A year.

Mike Shannon: 12:32

And and I sorta got into this mental cadence of just operating like that now. Yeah. The board meetings come up. Then for, you know, 9, 12 months, all of a sudden, I don't I mean, I was still doing the Packard kind of things, but I don't have board meetings. So now I'm sorta itching to have the structure of it Yep.

Mike Shannon: 12:48

Even if we're not yet raising capital. Yeah. And so this notion of maybe a structured advisory board is is what I'm just actively I don't know the answer, but I'm actively thinking about, like, I'd like to have the structure. And if we put the work in to having the structure

Corey Ferengul: 13:00

Well, it'll make your life a lot easier later. Yeah. I mean, it's it's a great idea.

Mike Shannon: 13:04

Operating like a funded company even if we're bootstrapping for a period of time. I think

Corey Ferengul: 13:08

it's a great idea and I would highly recommend it. Even if you're just presenting to 2 people. Yeah. There's some accountability, there's a wider team. It also structures your thinking, you know.

Corey Ferengul: 13:20

So what's the value I'm getting together with this company I mentioned before? They have to have put some work into that deck before the next call with me. Right. Right. You know, you know, they have to have made progress because I'll be like, what am I doing here?

Corey Ferengul: 13:31

Yeah.

Mike Shannon: 13:32

Right.

Corey Ferengul: 13:32

And and and it's a waste of your time and mine. Yeah. Right. Right. And I'm gonna give them feedback.

Corey Ferengul: 13:37

I wanna see my feedback next time.

Mike Shannon: 13:38

Right. If

Corey Ferengul: 13:38

if I come the next time and you didn't touch any of that, either you could say, hey, we didn't touch it because this the reason's great, but then you had to do the work to figure out why it didn't, you know, that wasn't useful feedback. Right. So it it it really you can get so distracted and so spread out as a CEO. Some of those advisers and and having those set meetings force you into doing some of the work that you need to that's a bit more strategic. Yeah.

Corey Ferengul: 14:02

Because you can get caught in tactical. Even in really large companies, you can get caught in tactical. Yeah. Right? And and, you know, if I'm the bigger my company gets, what are my advisors doing?

Corey Ferengul: 14:12

It's going to be around a strategic topic. Yeah. And we all know it's easy to talk yourself out of big strategy changes. It's easy to not spend time on it because the day to day is too much. Having some sort of advisory board or key advisors that you're accountable to will push the work forward.

Corey Ferengul: 14:28

Yeah. And make you look better in front of the board of directors. Agreed.

Mike Shannon: 14:31

Right. Right. It's like a good trial. So, alright, last question for you. We got 30 or so seconds.

Mike Shannon: 14:36

We've been speaking to the operators, the CEOs, founders out there. Speak to the potential advisors for a second. You're being pitched, advising a company, or say you've been meeting and now it's like, let's structure it. How does the advisor assess whether this is a good, you know, fit for their time and if they can make an impact? You

Corey Ferengul: 14:52

get along get along with the team.

Mike Shannon: 14:54

Do you

Corey Ferengul: 14:54

think you can make an impact on them? Because if, you know, you don't blend, it's not gonna work, number 1. Number 2, are they asking you things that you truly have value to offer? Okay. You know, they're they're gonna you know, someone's asking me about how to put together a deck for fundraising.

Corey Ferengul: 15:06

Yeah. I've seen a bunch of those. I can help you here. Somebody came and asked me about, you know, structuring their code. I'm like, I got nothing.

Corey Ferengul: 15:12

Yep. You know? I'm not your person. I'm not your person. You know, do they have how do you assess the compensation that goes with it?

Corey Ferengul: 15:21

That is a flip of the coin. Yeah. Because Not

Mike Shannon: 15:24

a perfect science.

Corey Ferengul: 15:24

It is not a perfect science. It's what do you think of the company? Do you think this might be something? Yep. And are you willing to take a lottery ticket?

Mike Shannon: 15:31

Yeah. Alright. Well, that's 15 minutes on adviser voice. Thanks.