Should your business have a board of advisers?

Read the original post at the Washington Business Journal.

If you were to ask me, I’d say a successful business has at least the following characteristics:

1) Scalable – growing AND is capable of handling greater growth
2) Sustainable – continues to grow and be profitable if the owner/CEO takes a two to four week vacation, if a key person leaves the company, or if the most important customer is lost.
3) Valuable – the sustainability and growth of future free cash flows are reasonably predictable.

Those successful businesses almost always have one or more of the following things in place:

1) A strong board of directors
2) A strong board of advisers,and/ or
3) Participation in a disciplined accountability process (e.g. peer group, business coach, etc.)

Which, if any, do you use? Please take 5 seconds to let me know at my informal poll.

When I sat down with Information Expert’s Marissa Levin a few weeks ago, she walked through the 18-month long process she went through to build her board of advisers. It was worth the effort. Information Expert’s compound annual growth rate (CAGR) was in the mid-20s before the board was implemented and is on target to increase that growth rate by almost a third. Moreover, Marissa has discovered that the board has improved her employee retention as well as recruiting.

That experience helped her formulate her SCALE model, a process she uses in her new venture – Successful Culture – to help clients build their boards:

Select. Considerable thought should go into deciding who you will invite to join your board. Besides opening up new business opportunities, these men and women should have the relevant experience to help you design the organization and the culture to which you aspire. Anyone you invite should have the flexibility to attend meetings and be well recommended by others. Finally, go with your gut. If you don’t think you can work together, don’t do it.

Compensate. Don’t give board members an equity stake in your business. Instead, pay your board members cash. The amount varies based on a number of factors -- and should be closely-held information – but a rough order of magnitude is $500-$5000 per meeting.

Assimilate. An effective board is about the FIRM, not the CEO. Integrate board members into the company so that your employees get access to their skills, their leadership, their industry knowledge, etc. Invite your board members to internal meetings and ask them to serve as mentors to your employees. Properly assimilated, an effective board will also help recruit and retain employees.

Leverage. A well-constructed board will be a huge help with your business development. However, this does not mean that you should exploit your board; in other words, don’t use the fact that someone is serving on your board as a marketing tool (name dropping). It protects the interests of your board members by keeping their engagement with your firm confidential.

Evaluate. Continually evaluate your board members. You need to keep the group small enough to be effective (max of 6), but changing operational and strategic goals will necessitate the need to make changes in the makeup of your board. Making sure that the people you invite are aware of the temporary nature of their service will keep all future break-ups amicable.

The above just scratched the surface. However, Marissa will be speaking Dec. 5 at the National Capital Region Entrepreneur’s Forum. Stop by and take down your own notes from her talk!