Entrepreneurship 101: Building and Managing the Team - Advisory Boards, Selecting Advisors, Equity Grants, Roles

What This Is

An Advisory Board is a group of experienced professionals who provide guidance and support to a startup in exchange for equity or other benefits. This matters for entrepreneurs because it can help them navigate complex decisions, access valuable networks, and gain expertise in areas they lack. For example, Airbnb's Advisory Board includes experienced entrepreneurs like Reid Hoffman and Jeff Jordan, who have helped the company scale and navigate regulatory challenges.

Key Frameworks & Metrics

• Advisory Board Composition: A diverse group of 3-5 advisors with complementary skills and expertise.
• Equity Grants: A percentage of equity offered to advisors in exchange for their time and expertise.
• Roles and Responsibilities: Clearly define the scope of work, expectations, and decision-making authority for advisors.
• Unit Economics: Understand the key metrics (CAC, LTV, MRR, Churn) to make informed decisions about resource allocation.
• Business Model Canvas: Map the startup's value proposition, customer segments, channels, and revenue streams to identify areas for improvement.
• Lean Canvas: Prioritize and validate assumptions about the startup's business model and customer needs.
• Customer Discovery: Conduct customer interviews and surveys to validate assumptions and identify product-market fit.
• CAC (Customer Acquisition Cost): Total sales & marketing cost divided by number of new customers – a key unit economics metric.
• LTV (Lifetime Value): The total revenue generated by a customer over their lifetime – a key unit economics metric.
• MRR (Monthly Recurring Revenue): The total revenue generated by a customer on a monthly basis – a key unit economics metric.
• Churn Rate: The percentage of customers who cancel or stop using a product or service – a key unit economics metric.

Step-by-Step Process

1. Define the Advisory Board's Purpose: Clearly articulate the goals and objectives of the Advisory Board, such as providing strategic guidance or accessing expertise.
2. Identify Potential Advisors: Research and identify potential advisors with the desired skills and expertise.
3. Reach Out and Recruit: Reach out to potential advisors and recruit them to join the Advisory Board.
4. Define Roles and Responsibilities: Clearly define the scope of work, expectations, and decision-making authority for advisors.
5. Establish Communication Channels: Establish regular communication channels with advisors, such as monthly meetings or email updates.
6. Evaluate Performance: Regularly evaluate the performance of the Advisory Board and make adjustments as needed.

Common Mistakes

• Mistake: Failing to clearly define the Advisory Board's purpose and roles.
• Correction: Clearly articulate the goals and objectives of the Advisory Board and define the scope of work for advisors.
• Mistake: Not providing adequate compensation or equity grants to advisors.
• Correction: Offer competitive equity grants and compensation to attract and retain top advisors.
• Mistake: Failing to establish clear communication channels with advisors.
• Correction: Establish regular communication channels with advisors to ensure they are informed and engaged.

Investor / Pitch Tips

• Show Traction: Demonstrate progress and traction in the market, such as customer acquisition and revenue growth.
• Know Your Unit Economics: Understand the key metrics (CAC, LTV, MRR, Churn) and be able to explain them clearly.
• Highlight Unique Value Proposition: Clearly articulate the unique value proposition of the startup and how it addresses customer needs.
• Demonstrate Scalability: Show how the startup can scale and grow, such as through partnerships or expansion into new markets.

Quick Practice Scenario

Scenario: Your startup has a 5% monthly churn and CAC of $50 – what is the payback period if LTV is $300?

Answer: Payback period = CAC / (LTV - CAC) = $50 / ($300 - $50) = 0.14 months or approximately 4 days.

Explanation: The payback period is the time it takes for the startup to recover the cost of acquiring a customer.

Last-Minute Cram Sheet

• Advisory Board: A group of experienced professionals who provide guidance and support to a startup in exchange for equity or other benefits.
• Equity Grants: A percentage of equity offered to advisors in exchange for their time and expertise.
• Pivot: A structured change in strategy based on validated learning, not a failure.
• Unit Economics: The key metrics (CAC, LTV, MRR, Churn) that determine a startup's financial health.
• Business Model Canvas: A tool for mapping a startup's value proposition, customer segments, channels, and revenue streams.
• Lean Canvas: A tool for prioritizing and validating assumptions about a startup's business model and customer needs.
• Customer Discovery: The process of conducting customer interviews and surveys to validate assumptions and identify product-market fit.
• CAC (Customer Acquisition Cost): Total sales & marketing cost divided by number of new customers.
• LTV (Lifetime Value): The total revenue generated by a customer over their lifetime.
• MRR (Monthly Recurring Revenue): The total revenue generated by a customer on a monthly basis.
• Churn Rate: The percentage of customers who cancel or stop using a product or service.