Startup Therapy Podcast

Episode #72


Ryan Rutan: Welcome back to the Startup Therapy podcast. This is Ryan Rutan joined as always by my friend the Startups.com CEO and Founder, Wil Schroter. Wil, I think a lot of people listen to this podcast because they get tired of talking to themselves as Founders and want to hear two other knuckleheads going through some of the same challenges (or have been through the same challenges). Why don't we talk a little bit about advisory boards today? Which is another way of adding some peers to the room. And having conversations with people who actually know what you're going through — which we both know can be a real challenge as a startup Founder having that peer-to-peer or even a mentor-type relationship where you've got somebody to talk to who actually knows more than you do.

Wil Schroter: Imagine that. Ryan, I'm surprised at how many Founders don't seek out an advisory board. As we talk through it today, if you don't have one, it's going to sound so obvious that you should have one (and frankly, it's not that hard to get one). We've talked to tons of Founders and time and time again, I always say, "Hey, you know, you're early in have you created an advisory board?" and time and time again, they say "No" and I say "Why?" "Well, didn't occur to me that I should." There're a lot of things I think are inherent and obvious when starting a company, and creating an advisory board typically isn't — you know what I mean?

Ryan Rutan: Yeah. It's funny because one of the main challenges (one of the main things that we do here) is that it's lonely or that "I'm not sure what to do." And for some reason, the answer to that typically seems to be do nothing and just continue to have the conversations inside your own head. Which, you know, it's a fantastic place to be — I spent a lot of time in my own head, but there are certain challenges that become infinitely easier when you can talk to somebody who's been there and done it. I'm always shocked at the number of startups that we talked to who don't have one. And, as you said, in a lot of cases didn't even consider that they needed one until they were essentially told or somebody else asked them, "Well, who's your board of advisors?" and then they're like "Shit! We don't have one of those. Let's go get one now, quick!"

Wil Schroter: Right. I think a lot of people think board of advisors means board of directors. They've got this idea of this old version of the 1950s, in a room of people sitting in the circle telling you what you're going to do with your company. That has nothing to do with any of this. A board of advisors answers to you. And they're not even a board, really, we call it a board because it's a group of people. But these are really people you select, you give the terms to, and they're just there to help you out. There's really nothing else to it.

Ryan Rutan: Maybe we should just rename it. Let's just call it "a panel of people who know shit you need to know." How about that? We just won't call it a board of advisors anymore.

Wil Schroter: Yeah, a group of smart, helpful people. I think before we get into all the ways they can be helpful, if you're okay with this, I'd like to just take a minute to talk about, what this composition even looks like. Because, if a lot of people have never had one, they have no idea really what we're talking about, or they have an idea and maybe it's very different than what it actually is. So it might be helpful just to kick this off by saying: there's almost zero reason to not have an advisory board. Okay? And all we're talking about is a handful of people that as the Founder you reach out to (and we can talk about how you reach out to them, because I think that's important) that you select, that you think are going to be particularly helpful in your journey as a startup. These aren't people that were forced upon you, these are people that you went and sought out. And I think one of the first things that people get a misconception of is they think that it has to be a doctor, a lawyer, and a preacher. It has to be people from three very specific, different parts of your business, and they all have to kind of like makeup all the disciplines of your business. Not so whatsoever. It's 3-5 people (usually not more than five) that you select that just have an understanding of what you're about to go through. I think the best way I tend to describe it is: these are people that help you see around corners.

Ryan Rutan: Yeah, that's exactly it, Wil. I mean, they're already standing around the corner from where you are — they've been there, they've done it. Whether you're needing help with preparing a pitch for an investor meeting, structuring your term sheets, trying to figure out what the hell a cap table is and why you need one, to opening up their networks to help you with hiring. There are sort of as many use cases for an advisory board as there are things to do in a startup. It never ever hurts to get that additional perspective on any of the myriad things that we have to do. I think something else worth pointing out, you talked about the composition, I do want to point out that often times the composition changes over time. I think that one of the pieces of pushback that I hear on occasion is "Yeah, well, how do we decide? How do we pick this person? How do we make sure that they're going to be right for the life of the startup?" I'm going "Maybe they're not, but if they know what you need to know right now, that's probably not a bad thing at all." Much in the same way we talk about, even Founders being outgrown by the company and certainly happens with employees — the same thing can happen with advisors. You may need some really early stage stuff like, "How do we go to market? How do we explore early marketing channels and figure out which ones are gonna work the best?" And they may start and stop at that point. This doesn't have to be a forever relationship where this person sits in on a call every quarter whether they have any value to add or not. They're not gonna wanna be there. You're not gonna want them there. They just won't be there — it doesn't have to be set in stone. I think it's important to know.

Wil Schroter: I've gotten called in on a number of boards throughout my career (in all different stages) and I will say this: I'm by far the most helpful at the beginning of your business. When the businesses ramped up, I'm far less helpful. I've been on everything from nonprofit boards to school boards to startup company boards, to public company boards — you name it — and I'll say this: as the advisor, you also tend to know where you're going to be valuable. You kind of know, "Hey, I'm just — it doesn't make sense." I worked with this company that did enterprise consulting and in the formative years of the company (by the way, one of the most buttoned up cos I've ever worked with) I was really helpful at making a lot of those key decisions. But once that company started to hit 100- 200 people, I could have been helpful, but I knew (again this is what I'm saying by the advisors) that there were people way more helpful than me that had much more experience and more reps at that period of the company. But here's what's so cool, to your point, Ryan, your advisory board is interchangeable. It's basically like picking your kickball team, you can kind of pick who you want and if they don't work out so well, or they outgrow, pick somebody else. And a lot of what we'll see is advisors come on for like a 1-2 year term. The nice thing about the 1-2 year term (and you kind of negotiate that upfront) is that you both have a bit of an out. In some of the advisory boards that I got involved with, after two years, I wanted to get out. I couldn't wait till my two-year term was up. I just didn't feel like I was contributing enough value and just wasn't that exciting for me. So you can turn people in and out while you go — and I think that's really valuable. Maybe later in the podcast, we can talk a little bit more about how you recruit those people, how you incentivize those people, how you comp them (obviously you don't really have much money). But before we get into that, I think it would be helpful to talk a little bit about where the biggest bits of value come from these advisors. Because it's a lot. It's a geometric change from what you have now. Ryan, when you sit back and think about it, what are some of the big points that come up in your mind?

Ryan Rutan: Like you said, there's a ton of them, but I think amongst the most important really early on would be just some credibility. The fact that somebody who other people recognize cares enough about what you're doing to attach themselves to your wagon says a lot. Right? That social proof at the early stage, is a really, really big one. And honestly, there's a lot of different ways to generate social proof, but bringing on the right advisor is a fantastic shortcut to having some real credibility at an early stage in one fell swoop.

Wil Schroter: Yeah, and you're gonna need it all over the place. You're gonna need it certainly when you raise capital — because investors are gonna have no idea who you are, so they're gonna need to know who's connected to the deal in order to get in. You'll often use it with your marketing in the early days — you're launching this new product and no one's ever heard of you, so you're saying "By the way, we are supported and advised by some of these really smart people in the industry who you've probably heard of." You're going to use it when you pitch partners and customers. You're going to say, "Hey, here are some of the people that have already kind of blessed what we're doing." And that kind of social proof adds to a little bit of our credibility in the sales process. You're going to use it in recruiting — your people that are all going to get it. Basically, for anybody that doesn't know who you are, you're going to use your social proof to let somebody far more popular than you do the work for you. It's a critical element and there's just no downside in having it. Over time, that burns off a little bit, but in the early stages, why wouldn't you want to have that?

Ryan Rutan: Yeah, it's a huge accelerant. There are plenty of ways to build credibility and social proof, almost all of which take significant amounts of time. This is the shortcut to getting you there and it's not the only reason you're doing it. It comes with a lot of other benefits, ideally, so there's no reason not to do this. As you're thinking about the composition of your board, pick at least one or two names (if you can) that the people you want to talk to next already know. Supercritical to being able to open those doors, add some credibility to what you're doing, and just make the same much shorter process than building your own goodwill in the community.

Wil Schroter: Yeah. In getting those names, this is probably a good time to talk about where and how you can actually find those people. One of the things that entrepreneurs (because they're Founders, they haven't been through this before) one of the places that they get stuck is they say, "Oh my God, I would love to have this one awesome person on my board. I'd love to have Sara Blakely from Spanx on my board, but I'm just starting off and she's a billionaire that could never happen." And maybe that's a big get, but the secret behind all of this — advisors aren't that hard to get. And here's why: at the very worst, they say no, right? But at the very most, what ends up happening, is you pitch Sara Blakely, or you pitch her people, and now you've got an inroad. You'll never offend somebody by saying you'd like them to be part of your advisory board. So aim high. And as it happens, it's a really cool thing to be asked to be part of somebody's advisory board. I'll joke about this, but Ryan and I probably get asked 10 times a week — not because we're so incredibly popular, but because we run a startup platform that has millions and millions of startups, so we just happen to be the first person that's in front of them. But every time I get asked, I'm always appreciative of the ask. I think it's always a very cool ask. Incidentally, I say no to 100% of them — not because I don't think they're great companies, but because I just don't want any advisory board positions. I actually have a blanket answer which is "no to everybody so that I'm not favoring anybody." That said, it's a cool ask and I also think it's an awesome way to build a relationship with someone that you'd really like to get connected with. Ryan, if you're okay with that, let's take just a couple of seconds on a good process to do that.

Ryan Rutan: Do it. Let's go.

Wil Schroter: It starts off with "I need your help with something." We're gonna assume you're talking to somebody that you've never met with before. You somehow get an email or social media intro or however you got an intro — And the ask is always simple and hopefully in few words as possible. Some people send me an ask and it's like nine pages in an email and I appreciate the time it took them to write that, but I have a lot of work to do and you just gave me a homework assignment! And not a great way to start the ask. The ask to be short and punchy and very specific to what you need. But the asks shouldn't start with, "Will you be on my advisory board?" I just want to make that clear. The asked should be, "I need help with this particular problem" and be very specific about the problem. Nonspecific would be, "Can you help review my pitch deck?" Who wants that level of homework?

Ryan Rutan: "I want to raise funds. Can you help me?"

Wil Schroter: (laughter) Very specific would be something like, "I'm trying to do customer acquisition in this channel for these customers. I know you've done a ton of this — what segments do you tend to go after first when you're pitching a similar product?" I mean, whatever it is for you, I just made that up, but it has to be something crazy specific. Just so you're more likely to get an answer.

Ryan Rutan: Yep. Makes it an easy answer for them. Which is nice.

Wil Schroter: And if they like you, if they like the product, that's the ideal time to start leaning in on the, "Hey, I'd like to get you more engaged. Would you be open to joining our advisory board?" Just that simple. It doesn't have to be a long proposal. "Would you be interested in joining the advisory board?" Chances are, whoever you're asking that's important enough to be on an advisory board, it's probably not the first time they've been asked, and if it is, they're smart enough to figure it out. You don't have to build up to it too much. It doesn't have to be a wedding proposal. What I challenge and recommend Founders to do is aim high. Deliberately aim high. People that are well above your weight class, so to speak, compared to where you are in your career or that type of business, etc. Because we'll talk about this many times, Ryan — Founders love to help Founders. Even if they say no, you still have a dialogue in a relationship with that person. So there's just no downside to really asking.

Ryan Rutan: That's a very important point, Wil. In much of the same way, I have to say no to a lot of these things. We are in a position where we get asked so frequently that just even the, the conflict of interest checks, there's so many reasons why it would just be really tough to do this. But it doesn't mean that I don't help these folks, either. I often do. I'm flattered by the ask, (which always is a great tactic) then I feel like, well, "hey, this person likes me, I'll like them too." I end up in some sort of an email dialogue, often jump on the phone with them once or twice, and just give them the help that I think they need in that moment to keep them moving. Maybe even point them to somebody else in my network who might be a better fit or have more time from an advising standpoint. It's a great way to open the door and it often leads to a relationship whether it's as a formal advisor or not. You still have that inroad now, you have a conversation going, and that's just a great way to build that network. I would say in the exercise of building your board of 4 to 5 people, you probably end up building a small network of 20 to 30 just through the exercise of composing the board in the first place.

Wil Schroter: Yeah, it's huge. And also you said 20 to 30 — I mentioned before that a typical advisory board will be 3 to 5 people, but the likelihood that (especially in these days) you'll ever be meeting with all of these people in the same room at the same time is almost zero. Your advisory board can be nothing more than one on one meetings with each person that you need help with when you need help with them. They're kind of your individual guardian angel for that problem at that time. So long as you can manage those relationships, you can have as many as you want, there's no real magic number to this. If you reach out to 10 people and uh oh, 10 people say yes, not the worst thing to ever happen to you. Don't get too worked up on the number, just get worked up on the quality of who you're asking. I'll just touch on this for a minute because this often gets lost. When I was a 19-year-old Founder still in college, the people that were in my network that we're the smartest people I knew — weren't that smart. In retrospect, I had a crappy network, but I didn't know it. If someone had come to me (kind of like listening to this podcast) and had said, "Hey, you should really just take whoever you know and try to level up 2-3 times and go after them." I would at least have had a baseline reference point to be able to say, "Okay, so what you're saying is my college professor who is the smartest person I've ever met up until this point probably isn't the best possible person I could go after." I would have tried to really spend some time to think about how to level that up a bit. I think that's really important in trying to seek out your advisors in that you're trying to find people that have extensively more experience than you have. If they have marginally more experience, kind of a waste of time.

Ryan Rutan: Yeah. It's one of the questions I'd like to ask when people are starting to explain their board of advisors to me, I'll ask why that individual. One of the answers that I get most frequently is that "they were super excited about what we're doing, they really like our product" and it's all feedback about how this person feels about them. I'm like, okay, but why did you choose them? What are they gonna do for you? And you said something to this point earlier, which is that you and I get asked very frequently because those were the first person that's heard about their idea and just said anything nice back to them. That's not a good reason to pick an advisor. Now, Wil and I would be excellent advisors, but not simply because we said, "Cool idea, bro." or "That sounds fantastic." That's not enough to pass muster for you're an advisor now. You like my idea — advisor. You got a seat, let me give you some equity, what else can I do for you, sir?" I love a red carpet rollout but let's make sure we're putting it in the right place.

Wil Schroter: To be fair. Like any relationship, we're gonna pick some winners and some losers. It's part of the process. There's no reward you're gonna get for going five for five on the perfect advisors. And like we said, as the company grows, evolves, changes — a couple of the people who you thought would be really strategic and really important because they had that one bit of advice. A great example is people pick lawyers all the time. Unless you're going to have some extraordinary amount of legal issues, which I always hope you don't, the fact that this person can advise you through the incorporation of your business doesn't qualify them necessarily to be the long-term advisor in your business. The idea is that these people are going to have perennial advice — like marketing or staffing or things that you will always have an issue with — just be mindful that somebody getting you across one lily pad if you will, isn't necessarily the best person to be locking up full time.

Ryan Rutan: Yeah, and we see it happen — you end up with the one-trick pony. That's why we're making this point that these boards are flexible. It's not even really a board, to your point. They are flexible, you can change people in and out as needed. I think that's something else that people misconstrue is that they all have to get together at the same time. I've certainly been on boards where that was the case, everybody is pulled in together, which I would say causes more trouble. Often the personalities butting heads, the logistics, the whole thing can be really problematic. Whereas if you can simply just take the feedback from all of them individually, it allows the Founder to decide rather than having to listen to the children argue about whose perspective is more valid in this case. It is important to remember these things can change over time and to try to stick to the interactions with these individual advisors where they can add the most value. If it turns out to be a one-trick pony, utilize the trick, and move on.

Wil Schroter: Agreed. The other side of it, as far as the long-term value, is that you're not only getting their depth of knowledge, you're also getting their Rolodex. We really have to dig into this part because this is such a huge hack, if you will, in the greatest of ways for most young Founders who don't have Rolodex or Founders who aren't necessary young but just aren't plugged into an area like funding or marketing that they would otherwise need to be. This is such a great way to be able to pick up an entire world of connections that you don't have —immediately. I think that should definitely be part of the decision criteria in trying to find a lot of these advisors, you know what I mean?

Ryan Rutan: Yeah, absolutely, and this is actually one of the very common use cases that I get involved in because of what we do and the connectivity have within the Founder community, within all the support services around that for entrepreneurs — my network is often one of the most valuable things that I can bring to bear. Like I said before, I don't have to be a formal advisor to do that, I can still open the network up to people assuming I've had enough shots on goal with them in some way shape or form to validate. Obviously, you spend time cultivating this, you want to make sure you're not sending a rabbit into the cabbage patch. It's a super important piece of it though and it's such a force multiplier. I haven't ever met a Founder who was like "I've got the network I need" it's almost always a component of it. In the same way, adding in the right advisors, adding an advisor with the right network is a major shortcut to so many other resources that you're gonna need. It represents a huge piece of the value within that advisory board. Even experienced Founders who have a network, or say you've been an executive for 20 years and you've decided to leave and start something in the same field, do you know the people who write the checks? Probably not. You're gonna be at least somewhat siloed into whatever aspect of the business you were involved in running as an executive. I'd say in terms of hierarchy, I'd put network even above the credibility piece because even if you lack credibility, those connections can get you where you need to go.

Wil Schroter: Ryan, you mentioned when you're, even if if you're an executive been around a while, when I was starting I think is like my third or fourth company, I was starting to spend a lot of time in Los Angeles and I was about to move to Los Angeles. When I landed, I didn't know anybody — and I was there for almost an entire year and I hadn't met anybody in technology. I mean it was also just a different time. L.A. was kind of a different ecosystem at the time. I ended up meeting a guy named Jason Nazar, who started doc stock and now runs Comparably — a great guy. And I told Jason, "Hey man, I just don't really know anybody in town. You know, I've been having a hard time connecting with folks." Ironically, this was before social media. He said, "Look, there's like 10 people you need to meet" and just right then Jason introduced me to all of them. I'll never forget this — within 48 hours I had met four super-connected people. I had dinners and lunches and from that point, my Rolodex exploded. Specifically, thanks to Jason. That's really where it clicked for me, where I was like, "Man in the past, I've always just built my Rolodex like so slowly and so painfully" and I realized at that moment, that one person could just fast forward all of it.

Ryan Rutan: It's such a powerful move.

Wil Schroter: It is. And you know what? Where it made the most amount of sense for me, especially at that time, was I was going to go out and raise professional capital for the first time. And prior to that, even though I had been an entrepreneur for at least 10 years, maybe longer at the time, I had never raised capital. I didn't have a reason to know lots of investors. This happens all the time. But Jason had raised capital. He introduced me to all the investors that put money into his company. Overnight (through Jason and through lots of other connections thereafter) I met 10 investors that wanted to put money into my deal — in a week! It was unbelievable. What I'm thinking is: had I tried to come up with some other clever mechanism to try to start my capital raise, it would have never worked. What I also learned at the time was some of the folks that I reached out to, I didn't think would be investors, but I really just needed them to give me advice on how this process worked. What I found was really interesting was I was actually legitimately just reaching out to people around town to try to get advice (and there's an old adage that I learned: if you want to get advice, raise capital and if you wanna raise capital, try to get advice). I wasn't doing it deliberately, but by asking people legitimately for advice, a lot of people leaned in and said, "Hey, by the way, I really like what you're doing, so I'd like to be an advisor, but can I put money into your deal?" And I remember, some of the people that said that I had known for 45 minutes. I've never seen anything like it. I mean, now I'm familiar with the space and I understand how that works, but I just remember being blown away at the time. When Founders say, "How do I start raising money?" The first thing that I say is, "Get people around you that can extend your network. And then in some cases, maybe the ones who put in money because they'll start to spend some time with you and get to know you. You don't have to bring them on the board in order to provide capital or invest — but it does tend to happen quite often." When we talk about these things, we talk about social proof, extending your network, raising capital, all these things — just the number of upsides are just damn near ridiculous.

Ryan Rutan: We're about to wrap up here. Once we do, listen to the outro, go visit Startups.com, of course. And then go start your advisory board. Like, you need to do it. If you don't have one, do it now.

Wil Schroter: Yeah. And you can find advisors at Clarity.fm. I mean, all over Startups.com and it's ridiculous. I don't want to turn into a huge promo, but that's also kind of what we do for a living. Ryan, if you're okay with it, let me wrap by saying this: There's no downside to having an advisory board. If you're not actively seeking one, even if you're not just seeking the first one or two people, it's an enormous miss. If you've got a co-founder, divide the labor, and start going after immediately. Start hitting people up on LinkedIn on Clarity.fm — wherever you can find them. Make this an absolute priority because it's gonna pay dividends throughout the entire life of your startup.

Ryan Rutan: That's a wrap for this episode of the Startup Therapy podcast. This is Ryan Rutan on behalf of my partner, Wil Schroter and all the Startups.com family, thanking you for joining us. And we hope you'll continue to join us. Be sure to subscribe, rate, and comment on iTunes (or wherever you love to listen to Startup Therapy). You can find all of our episodes at Startups.com/podcast.

Ryan Rutan: If you're looking for more amazing resources to launch or grow your startup, be sure to head to Startups.com and check out Startups Unlimited. It's everything we have to offer. From our online university to our amazing community of experts and Founders — and even all the tools we've built like Biz Plan, Fundable, and Launch Rock. It's everything a Founder needs. Visit Startups.com/begin — that's Startups.com/BEGIN. You'll thank me later.

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