Currently, I am an investor and advisor in a few startup companies actively, and it’s been a lot of fun. It’s reawakened me to the joy of entrepreneurship in a way that as a VC you can sometimes lose sight of.
But it’s also made me think about this "coach" and “advisor” role a bit.
Just like professional athletes, entrepreneurs need a slew of coaches around them to be successful.
Even Mark Zuckerberg had a small group advising him who had more experience than he had, notably starting with Sean Parker, the founder of Napster and Plaxo. Many might see this as a sign of weakness. Others might feel that's its not worth it. But it's the most under appreciated and most important thing an entrepreneur can do to become successful.
Indeed, David Thomson in his book Blueprint to a Billion, concludes after several years of research into high growth companies: without a board member or close advisor that has built a billion dollar company, the chances that an entrepreneur will build a billion dollar company falls dramatically. I think no matter what you are trying to accomplish, not having an advisor who has done precisely what you want to accomplish, diminishes your chances of success.
So--What are the Options?
1/ Rely on Friends and Family
Friends and family are great. You might know them and trust them. It’s a great place to start. But, over the longer haul, friends and family members tend to also not be such great coaches. They too have their own biases and agendas. In a pinch they can help, are often free, but they too often lack training, lack the expertise in many topics and can often become emotionally involved which degrades the value of the coaching. Don't get me wrong, family and spouses and friends are great support networks. But "support" is very different than true coaching.
2/ Lean on your Lawyer or Accountant
After I graduated from law and business school, and started a company, I realized the #1 thing I learned in grad school: hire a good lawyer and good professional financial and tax advisors. I started getting professional advisors (lawyers, accountants, etc) that specialized in certain professional areas almost immediately after starting my first company. They can be expensive, but the alternative is even more expensive.
That said, lawyers and accountants are primarily there to provide very specific legal and accounting work. While they are smart, they are not always the best people to talk about startup or your particular business issues. Definitely good people to have around and bounce things off of, but be leary of leaning on your attorneys or accountants exclusively on issues outside their domain. Some are better than others outside their domain, and some have the experience of a seasoned VC or entrepreneur. Many do not. Often for this advise it's "free" or not on the clock. So while better than friends and family, you still get what you pay for here.
3/ Get an “Advisor”
When I started every one of the businesses I’ve had, one of the first things I’ve done was surround myself with advisors. I tried to surround myself with the smartest and best people I knew. Some weren't as good as I had hoped, but generally you have to do the very best you can, and then upgrade whenever feasible. I believe this is a particularly good way to go for entrepreneurs.
Generally, a team of advisors is best. Each will have their strength. Some might be good on horizontal issues like hiring and firing, marketing, or raising money. Others will be more industry vertical focused on your particular business; for instance, they might have experience in advertising, financial services, ecommerce, etc. The best kind of advisor is a "rewind and play" advisor; someone that's done the exact thing you are looking to do.
The best advisors are more experienced entrepreneurs and successful founders of other companies that are in the same space and sector you are in. Often, they take an angel form, spending a lot of time with the founder(s) and their management teams. They go well beyond making cash contributions.
In a startup situation where cash is at a premium, an advisor will get paid some amount of equity vesting over a number of months or years, anywhere from .05% on up to 1% depending on the amount of effort and period of time, and reputation of the advisor. The amounts are highly negotiated. It’s rare, but some advisors might be so valuable that they should be paid cash, or even more equity that the “standard”. If an advisor can literally put you into business in a big way, raise you capital, recruit staff, make huge introductions, it’s foolish not to consider them. Some advisors can command as much as 10%; it’s a rarity, but if you find an advisor that can bring tremendous value at an early stage, it’s worth contemplating.
That might sound expensive in terms of equity. But using equity is not a bad way to go for early stage companies when cash is short. As long as the compensation vests over time, there shouldn't be much problem.
Indeed, “Accelerators” would argue they are in this last bucket of super value added advisor, so let’s discuss that next.
4/ Join an Accelerator or Incubator
I was fortunate that I came out of Columbia's MBA program which had a nascent entrepreneurship program at the time. I had two professors of entrepreneurship who were active advisors, and eventually one professor even took a part time role at our company. Without that guidance, it would have been virtually impossible for me to start a company much less grow one.
Nowadays, accelerators and incubators are filling a very critical role in the ecosystem, especially to those 99.9% of founders that don't have access to an academic program like Columbia's.
A good amount of the value from accelerators and incubators is from advising and coaching a company founder gets. Some do that better than others, but, by and large, it seems to be working, as these entities can help reduce the friction of finding an appropriate and motivated advisor or set of mentors. Indeed, some of that coaching comes from the other entrepreneurs in those organizations.
In this form, there are some big pluses including potential access to a pool of “advisors” affiliated with the accelerator looking to advise. However, as oftentimes these “mentors” are unpaid, at least directly, so they aren’t as motivated to help your company out over the long hall. In addition, these programs last a couple months. So the entrepreneur is out of luck after the program is over in some respects especially if it isn't a rocketship.
A big sticking point with a lot of entrepreneurs is the upfront cost, typically 6-8% of common stock for an accelerator. Some incubators can command much more. That doesn’t mean these entities are not worth it; just do your diligence and figure out if it’s a right fit for you. Everyone is different. Particularly for younger companies and less experienced entrepreneurs, accelerators and incubators can be a great option to have, and I'd highly recommend. Even the disclipline of applying to programs and going through the process can be quite eye opening.
5/ Get a professional coach
Personally, about a year ago, I retained a professional executive coach as well, who I’ll refrain from mentioning here (unless he comments below), but has really had a great impact on me both professionally and on a personal basis.
The cost of such coaches ranges from $20/hour for a grad student studying entrepreneurship on up to $1000/hour or more for a Jedi Master. Typically, these coaches don't look for equity stakes.
As for amount of time, monthly seems to be plenty.
Last year, I've spent a couple thousand dollars, but over the last year, I’ve made 100X on this investment just making smarter investments, and focusing on the important stuff. If you aren’t getting that type of return you have the wrong coach or advisor most likely.
From the very first hour, I've gotten uncommon value from my coaches and advisors. I don’t think that this type of ROI is extreme, and it could be typical. As work often blends and gets intermingled with the personal, this type of coaching can have a positive dual impact on a founder as well.
6/ Get your VC or angel investor to advise you
Once an entrepreneur gets professional investment or angel backing, I’ve often seen their boards and venture or angel backers take on this advisory role.
However, sometimes the people who have the investment capital don’t make for the best advisors. Usually, they are pretty good as they've been in the business for a while, and they either made the money in your sector, or someone trusted them with it. However, if an investor is not directly compensated or are indirectly motivated the quality, generally, won’t be as good as a dedicated coach or advisor with domain expertise in the area you need.
Hence, board members and investors aren’t always the best “advisors”. They aren’t paid directly by you or your company and while they are thinking about what’s best for the entrepreneur, most of their mindshare is focused on what they think is best for the business. Those directives are often the same, but they diverge from time to time. Most likely outcome, is that VCs are very very busy, and oftentimes don't have the time to mentor all the entrepreneurs they'd like to. Investors prioritize their time, and at any given time, you might not be one of them.
In addition, investors do have an agenda of their own, and have a dual fiduciary role to the company but also to their investors who invested in their fund or co-invested. Some investors that don't have a board seat and are simply shareholders feel they have fiduciary duties to the company that trump the entrepreneur's confidence. Hence, oftentimes, if an entrepreneur is depending on getting capital from an investor in the future, they might not want to express to that investor every single issue they deal with. It's the old, "don't s*$t where you eat" advice.
Best thing to do here is try to do some diligence on your VC or angel. By all means, factor this soft "value add" into you decision on investors. Some investors add a lot, some less, some more.
Hence, if you want independent advise, especially if you want to discuss stuff that might be better said privately and not be a "board matter" immediately, it’s better to retain your own counsel vs rely exclusively on the counsel whose advise is “value added” to the money you raised. Again, go for the advise these investors give, but balance it with other counsel from knowledgeable independents, particularly if it's something you feel odd about, would be my advise.
Without a doubt, no matter what path you choose: get some advisors and a coach. Indeed, relying on all 6 options above isn't a bad strategy.
While it might seem like getting a coach or group of advisors is a weakness, those that seek and, yes, pay, for good advisor and coaches are extremely well served. Do as much diligence as feasible, but realize sometimes you'll make a mistake, so try to make sure your compensation is time based so you don't get too burned.
At times, it might seem like to pay for just “talk” isn’t right. It should be free. If you feel that way, my experience with this is you get what you pay for. I’ve never seen an instance where a founder went “overboard” with "for equity" advisors—if anything founders are extremely risk adverse here and the tendency is to under invest in coaching and advisory, particular for themselves.
However, if you are going “pro” you need a coach.
Think about great professional athletes who don’t or didn't have a coach; the only athlete I can think of that doesn’t have a coach right now is Tiger Woods. Perhaps, he can pull it off, but most of us aren’t Tiger Woods. And, arguably, Tiger Woods isn’t Tiger Woods, right now.
If you want to be a world class anything, particularly an entrepreneur, getting a coach or a series of advisors who have been there, and done that, is critical.
For more quotes on coaching effectiveness check this out. Or check out this 4 minute video on how coaching works: