Startups at all stages benefit from the wisdom of advisors. These people typically complement the management team in some meaningful way. They are not on the board, so their advice is merely guidance. Still, if a founder picks the right advisors, she will receive a wealth of benefits. Advisors can serve as:
- A sounding board to discuss product roadmap, partnerships and channel arrangements, personnel issues, and strategies for various departments.
- Qualified eyes to vet opportunities before they go to the board.
- Connectors to talent when it’s time to hire.
- Big names that offer credibility during fundraising.
- Future board members. Time spent advising is a great opportunity for the founder and advisor to audition each other as potential partners.
There are several advisors out there who provide little value. Everyone wants to be a part of — or find — the next big thing. A founder with a good idea and solid strategy will have her pick of potential advisors in exchange for equity. So, how do you decide?
There are three basic types of advisors, each with their own strengths. A good management team will select advisors from all three types and focus on what the startup needs most.
Honchos – The Industry Veterans
Like the name suggests, these are the big dogs. Honchos are the veterans of your industry. They know the ins and outs of your business, and they typically know where you’re headed before you do. They bring credibility to a venture that may be trying to gain momentum, and that credibility could be just what a founder needs to rise above the noise. For this reason, honchos are particularly beneficial pre-funding.
Honchos are found by looking vertically. Who is the best in your industry? Everyone probably knows their names. Ask around and gauge people’s impressions. If having a particular person associated with your company impresses everyone, chase that person down and make it happen.
Unfortunately, honchos are typically the most expensive advisors and will devote the least amount of time to you and your company. Honchos typically require meaningful equity compensation. Plus, it’s possible they may be working with your competition. Remember: When you bring on a honcho, you are paying for her name more than her time.
Ninjas – The Functional Experts
These people are the functional experts who can swoop in and help with particular business challenges. They have the largest variation in compensation, and they may advise long-term or for a set period of time until one particular problem is solved.
Ninjas can help you optimize an aspect of your business that you are struggling with. Founders can find good ninjas by searching for leaders in particular functions. Who has experience finding operational bottlenecks? Who is the best at marketing, finance, or whatever happens to be the most pressing issue? Ninjas can be helpful at all stages of a company. Ask for their advice and offer them equity when their eyes light up with enthusiasm.
Ninjas can add tremendous value to your company, but don’t become too reliant on them. They are still just advisors; they aren’t running the company. Beware of know-it-all ninjas who don’t know when to get on board or how to step out of the way. Ninjas may prefer equity or cash depending on the stage of the company and the length of the engagement.
Agents – The Connectors
The agents are the connectors. They probably don’t know — or care — much about your business model or technology, but they know a lot of people. Because they have a good idea of who will click, they are great for finding a tricky management hire or top-notch developer.
Agents are often investors, journalists, consultants, recruiters, and other cross-company professionals. They could either have big, public reputations or operate under the radar. Some of the best agents don’t maintain LinkedIn profiles. Either way, they probably know some important people you won’t be able to find any other way.
Typically, agents are more beneficial when companies are slightly bigger. They are the ones to help you fill out your employee roster or land key partnerships, so it’s usually good to have financial backing already. You can find them by asking around (and sometimes they find you first). Agents tend to have a big network across industries. They sometimes take equity but may prefer cash compensation.
Every startup should have a variety of advisors. They will point out solutions the founder can’t see, offer credibility, and make connections that couldn’t be made otherwise. Be wise about how much equity you offer; pay an advisor only as much as you believe justifies the value added to your company. Look far and wide for a healthy selection of the three types so you aren’t building the company by yourself.
This article originally appeared in “Up and Running Blog” and a link to the published post is available at: http://upandrunning.bplans.com/2013/04/30/agents-ninjas-honchos-which-advisor-is-best-for-you/.