Startup Advisor Guide.

One of the highest-leverage things you when you’re starting up a business is hiring good advisors.

In essence, an advisor is a non-employee person that you compensate (equity, retainer, commission) in exchange for their strategic advice and guidance.

Now bringing on an advisor is not the first thing you should do — you should have some initial validation with your target customer and a roadmap to delivering a solution they’d pay you for first.

But somewhere between there and fundraising/scaling is a good time to think about advisors. For my most recent startup we brought on our first advisor after getting 3 LOI’s signed by prospective customers.

The timing here matters because advisors aren’t generally supposed to validate the problem / solution for you. That’s your job as the founder. Advisors are most helpful for scale things: fundraising, selling, and marketing (they can also be helpful with tech and IP).

In these areas, having advisor(s) can make or break your startup. Having a good one can be the difference between landing that game-changing partnership, securing a lead investor, or designing a scalable infrastructure that saves you millions down the road.

Not having one can mean missing out or significantly delaying those opportunities. It’s something I vastly undervalued when I was launched my first business.

The Good Advisor Checklist

A good advisor should check at least two of three boxes, in the following order:

1. Leverage: Someone with extreme, unique experience / knowledge / connections in an area that’s mission critical for your business.

2. Belief: They should truly believe in your mission and what you’re building, enough to amplify your strengths and challenge you when you’re wrong.

3. Easy: They should be easy to work with, easy to reach, and easy to set terms with. They’re not worth your time / equity / money if not.

Ideally they are all three of these. I’ve made the mistake of bringing on one-legged-stool advisors who believed but had no leverage, who had amazing experience but were impossible to reach and work with. Save yourself the time and money by passing on them.

Advisor Agreement Considerations:

Of course sometimes it’s hard to know until you’ve worked together — so generally I’d say you should never sign a formal advisor contract agreement with someone without having first worked with them for awhile. Generally at least 3 meetings is enough to feel out the vibe and belief.

And then when you do sign them, you should always have a termination clause in the agreement to bake in an opportunity to fire them if they aren’t pulling their weight. Typically this is done by setting a finite term to the agreement (can be 1 or 2 years with an autorenewal) and adding a scope of engagement that they’re expected to deliver (ex: spend X hrs per month on my business, help us fundraise, etc.).

Remember advisors can be great (and they often are) but you must protect yourself in they case they end up not being so great. When you are first starting your business the most valuable thing you have outside your idea is the equity of your company. It’s precious. So you need to be very careful about how you give it out and protect it.

Typically you give an advisor between 0.25-1% equity of your company, vested over a year or two incrementally (so they only get equity if they stick around). This may change depending on the level of involvement, and some advisors will want more equity up front or a cliff. You should always make these decisions with an attorney involved who has your best interests in mind.

Equity is typically the ‘base’ way to compensate an advisor, but you made decide to compensate them with more than just equity. This may be with a referral bonus for any clients they help you bring on (often between 10-20% of deal value) or with a retainer of pay depending how involved they are. Be careful of advisors that are overly adamant about needing a retainer, some may just want an easy path to a paycheck.

Most importantly, you’ll want to outline the scope of their strategic involvement formally — typically a specific ‘lane’ of your business (your technology, your industry, sales/marketing, fundraising, etc.) and a few important aspects of that lane you want their help with. You don’t want jacks of all trades here, you want advisors who are good at their one thing.

And that’s the thing about advisors, is that you should have multiple. Depending on the size of your business, you can have dozens if you want. For me I think the rule of thumb is to generally keep it above 3 and below 10 while you are ‘early stage’ — though you may also consider giving a board of early customers some equity and calling them your customer advisory board (which is different — generally you meet with them as a full group like quarterly).

When it comes to regular advisors, don’t get me wrong having seasoned, veteran insight is typically great, but meeting with advisors and heeding their advice is also a time/resource commitment for yourself.

Too many advisors and it becomes analysis paralysis. You may start receiving a few emails a week “hey did you see this [vague competitor] launched a product like yours 4 months ago? are you doing anything about that?” — so the need to moderate communication expectations is a two-way street.

Typically I’d say an advisor should be involved in your business about 4-10 hours per month, including meetings. Most advisors are worth meeting with monthly, then having them do some work outside of the classroom. Some advisors will be more ‘figureheads’ that are less involved in your strategy and more just big names to drop when you’re fundraising / selling to clients — those are perfectly okay too, but you shouldn’t need to meet with them more than quarterly (they probably won’t want to anyways).

And lastly, generally goes without saying, but you should always have some strict non-disclosure / intellectual property protection baked into your advisor agreements because of course you don’t want people who you’re trusting with precious, sensitive information walking around sharing it without any legal prevention mechanism. All advisors will understand this (and if they don’t — red flag).

For me the most useful advisor has been one we brought on recently, who’s stepped in proactively to help us draft a pitch deck, set-up compliance reviews, reach out to prospective investors, and connect us with other advisors. They aren’t fussy — don’t want a retainer or a steep share of equity — they just want a reasonable commission and some shares and to be a part of the idea. That’s who you want on board.

For now, those are the big top of mind things when it comes to having an early stage advisor. I’m sure I’m missing a few things, in which case I’ll come back and add more notes later.

For now, peace!
Ramsey