With Advisory board becoming more of a buzz word among SMEs in New Zealand, more businesses with turnover up to $10m are investigating whether the expertise offered by a board is the best way to guide a business to the next stage in its development. To ensure that an Advisory board is the perfect fit for your business, CEOs and business owners should consider the following points:
What is the purpose of an Advisory board?
Throughout our career, we have been involved in many scenarios where companies have implemented a board such as:
- Family Business
Many family-run businesses we have met with will create an Advisory board to help with conflict resolution or assist with decision making. Often an operation agreement was not put in place and different owners may have a different risk profile resulting in indecision which can hinder company performance or growth. We have worked with many family-owned and operated businesses that have not fulfilled their tremendous potential for a variety of reasons. They may not have evolved with the market or an aversion to risk, conflict or time constraints has stifled growth. A board provides the advice, contacts and expertise to help realign the business with its potential in order to achieve greater success.
- Owner Operator
Often the business owner has incredible vision and has demonstrated a huge amount of dedication into building the business from scratch. However, it can require a different skillset to take a business to the next level. An Advisory board can act as a sounding board and framework to support strategic decision making that will support their growth aspirations. In other instances, a board provides insight into areas where the skills of the business leaders may be lacking, providing solutions for technical, digital, legal and accounting challenges.
- Third Party Requirement
Outside investment can propel your business to the next level but investors often require an external board to ensure the company is driving forward in achieving targets and protecting their investment with an optimal return. An Advisory board can also be beneficial when preparing an Exit Strategy, aligning the business for an optimal price point when it comes to finding an investor.
Is your business ready for change? Are you?
One of the major benefits of having an Advisory board is that you unlock a wealth of expertise and your business has access to the highest level of strategic advice. However, an Advisory board can also challenge a business owner’s thinking, play a key role in agreeing business objectives and hold company directors accountable for delivery against said objectives. An Advisory board may expect an element of change and progression in your business to ensure that the company continues to prosper. Some business owners may find this difficult so it is vital to consider whether they are ready for change. After the appointment of an advisory board, a CEO’s workload and daily schedule are likely to change.
It is also vital to consider how the company employees may react to high-level changes. Does the company culture accept and welcome change and personal development? Are you and your employees willing to receive and act on the expertise offered by an outside board member with unique insight?
Can you afford it?
This is a common concern as some businesses may have appointed boards that have failed to deliver the value expected; or owner managed businesses can view it as a large investment taken directly from their pockets. However, the cost should not be a factor. Finding the right blend of expertise and contacts for your board and scaling this for the size of your business should always result in at least 10-fold the cost of the Non-Executive Director fees. The size of the business should always be a consideration, for example, a start-up with just two or three employees may be better suited to a business mentor, whilst a company with annual turnover over $5M may require three or four Non-Executive Directors in addition to the CEO. The need for an Advisory board is also dependent on the current challenges the business is facing and whether this is planned to be a short-term appointment or an ongoing relationship over the next five years.
Every company we have engaged with have gained value from appointing a board, it is more about the make-up of that board that is important. Every Director should add unique value with a diverse perspective. The Directors must align any change programme at the speed that perfectly suits the organisation, business objectives and frequency of meetings.