Regardless of a founding team's talent, launching a startup is riddled with challenges that evolve as you progress. In the initial stages, especially when the team remains compact, seeking external perspectives is imperative. This is where startup advisors step in.
Startup advisors are experts with specialised insights, experience, or training within specific industries. They offer guidance, mentorship, and networking opportunities to founders. According to Victor Onyekere, the founder of Talemia, a startup advisory firm, three key elements critical for early-stage success are strategic leadership, product growth strategy, and operational excellence. This is precisely where startup advisors play a pivotal role.
“African startups need advisors because going at startups alone is hard.” Tamara Posibi, Chief Consultant at Irtus Business, a startup advisory and private equity firm. “They need all the professional support they can get; access to networks, partnerships, etc that can scale their startups,” She said.
In the early stages, an advisor can assist with fundamental aspects such as defining your company's articles of association, determining your business's valuation, establishing a share price, structuring an options pool, and selecting the right legal support.
So, what exactly does a startup advisor do? At the outset, their role involves validating fundamental concepts and providing essential business insights. This early-stage guidance ensures you steer clear of common pitfalls encountered by those who've traversed this path before.
“Our advisor was the head of Uber Eats in Europe, the Middle East and Africa, we do two calls monthly for an hour each,” Asif Khan, CEO of Ando Foods told Bendada.com. “He also joins our investor calls when needed, and he also assists in the interview process for top positions,” he said.
As your business expands, you'll eventually outgrow your initial advisors, necessitating more specialised sector-specific advice. Many founders discover advisors through existing networks, be it investment networks, previous affiliations, or academic connections. However, proactive outreach beyond your immediate circle can also yield valuable advisors.
Selecting the right advisor is a crucial decision. It's essential to invest time in understanding their background and ensuring they seamlessly integrate with your team. Compatibility with your team's culture is paramount. Ideally, advisors should be highly knowledgeable subject-matter experts with a positive attitude.
Ultimately, trust forms the bedrock of this partnership. A good advisor demonstrates their value over an extended period, showing a commitment to your company's long-term success. Look for individuals who have achieved success independently multiple times, but exercise caution when dealing with those lacking substantial experience. In an age where advising has become somewhat trendy, the experience remains an invaluable asset.
When asked about how to choose the right advisor, Tamara advised “Look for track record and expertise. How good are these guys at what they do? Try to ask other founders about them as well. Another important thing to check for is their network. Does this advisor (or advisory firm) have the deep network/intros I need to help us scale faster?”
Why you need startup advisors
Startup advisors play an indispensable role as they assist in various facets of business development. Initially, they aid in establishing credibility, fostering connections, facilitating meetings, and providing a fresh outlook during these encounters. They also contribute scientifically, brainstorming innovative approaches to enhance the product and discerning between pertinent and extraneous features.
As the startup matures, the advisor's role evolves into conducting research, delving into market exploration, comprehending the intricacies of sales funnels, and refining sales procedures. This phase demands a more profound understanding of the business landscape, encompassing factors like regulatory compliance, business models, and the intricacies of recruitment.
In essence, startup advisors are not only essential for establishing a strong foundation but also for navigating the multifaceted journey of growth and sustainability. They evolve from being catalysts of initial credibility and strategic insights to becoming partners in steering the startup through complex market dynamics, regulatory challenges, and strategic decision-making.
This multifaceted contribution is essential at every stage of your startup's evolution, providing invaluable support on the path to success.
“Why do it alone when you can go faster with an advisor? For instance, some founders don’t know how to navigate investor relations or fundraising. Having an advisor on board helps make the entire process hitch-free as well as help them avoid mistakes,” Tamara said.
How to compensate startup advisors
Compensation for startup advisors can be highly variable, depending on factors like your startup's stage and the formality of the advisory relationship. Some startups opt for a combination of equity and cash, while others offer equity exclusively, contingent on the advisor's perceived value.
Calculating compensation involves assessing the time commitment and the value advisors bring, which can encompass tasks such as attending board meetings, participating in phone calls, or leading committees like risk or audit committees.
Consider aligning incentives to motivate advisors. Some experienced advisors may prioritize potential equity gains over immediate cash rewards, especially if they believe in your startup's growth prospects. You can outline shared incentives with advisors and use financial projections to illustrate your company's growth trajectory.
“At Ando Foods we pay our advisor a small fee of $750 per month plus equity. Total given out is 2.5%,” Asif Khan said.
Tamara explained that it typically differs from advisor to advisor, most will go for a mix of cash and percentage of total deal and equity. “For instance, if it’s to help with fundraising, most advisors would go for a mix of upfront cash/small percentage fee from the total fundraising. For some, it could be an equity percentage of the business. So it depends and differs. It’s not set in stone,” she added.
For early-stage startups, transparency is key; communicate your limitations, whether it's offering equity only or limited cash compensation. This ensures that advisors come on board genuinely interested in contributing to your venture.
Lastly, don't hesitate to seek assistance. Asking for help isn't a sign of weakness but a smart move. Acknowledging that you can't know everything is a crucial step toward success. Learning from others' experiences and remaining open to new insights can be the difference between thriving and struggling in the startup landscape.