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April 15, 2005
MYTH: "Advisory Boards Add Value"
VC's have an interesting rule of thumb:
"The value of a company is INVERSELY proportional to size of its ADVISORY board"
Basically, the mere existence of an advisory board is a red flag as to what is weak in a company.
In our experience, advisory boards are created to shore-up critical weaknesses. Advisory boards are just window dressings. No advisory board ever delivers what it appears to deliver.
That said, there are useful "advisory boards" but these are really misnomers. They are not really "boards" at all. For example, a good medical device company may have a "Medical Advisory Board" but this "Board" is composed of relevant and influential thought leaders who are significantly incented through equity participation, grants, research, etc. to provide significant feedback during the clinical trial phases and who are actively conducting those trials.
These individuals are highly incented to contribute to both to the successful development and to the successful commercial deployment of the companies products. Therefore they are not really advisors at all. They are direct beneficiaries of success. Nor do they ever operate as a board. They have no governance issues and never even meet each other. They are part and parcel of the operations of the company and may not even know each other, except by reputation, and their value to the success of the company does not require them to function in concert or to even meet each other. They are core to the success of the company, not advisory.
Therefore, the use of the term "advisory board", in the one case I can think of as having value, is not even remotely descriptive of their actual role in the company and it's success.
The idea that an advisory board could actually deliver some value "as a board" and in an "advisory" role, is really quite a new concept to me and runs in the face of all of my experience that quite the opposite is true. In fact, if one made an effort to actually run an advisory board it would be like "herding cats" and would be a huge distraction and a waste of resources.
For those who believe that "Advisory Boards" might still provide some value beyond their "Hassle" Cost, Dr. Earl Smith, Managing Director of Longview, has some thoughts on the matter that are worth reading in his article "Dysfunctional Advisory Boards – A Family of Problems" which is available for download at http://www.lngvw.com/pages/3/index.htm
Posted by cmayaud at 11:40 AM | Permalink| Comments (1)
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| Posted to Business Strategy | Entrepreneurship | MYTH of the Week | Political Economy | Venture Capital Process | eHEALTH
Comments
Dear, Dr. Mayaud,
Personally, I think it's blatantly unfair that you would publish this THREE MONTHS AFTER I NEEDED IT!
We pay you good money and...
Oh, that's right, we DON'T pay you!
My bad!
In that case, thanks again, Christian!
Another EXCELLENT blog.
Sacredcowdung keeps getting better and better and richer and richer in content - great fertilizer for networkers!
And your thesis here is borne out by my recent experience in considering whether to reign in my herd of cats or let them just become the stray cats they were before being assembled by me.
-Vincent Wright
My Linkedin Power Forum
5.28.2005
Posted by: Vincent Wright at May 28, 2005 08:37 PM
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