Of Boards and Bike Races

For most startups, the path to success is much like the Tour
de France: a lengthy race where endurance is critical, interspersed with
moments at a frenzied pace. Slow down and you lose the race. Push yourself too
hard at any one stage, however, and you run the risk of injury or accident.

To better their chances, cyclists work together in teams.
Every team member serves a specific purpose, usually to provide support to the
teams best riderto increase that athletes chance of winning. Entrepreneurs,
too, can and do benefit from this approach through using a tried and tested
institution: a board of advisers.

When forming a board of advisers, the entrepreneur has a
unique opportunity to choose among successful and seasoned businesspeople with
a variety of perspectives and areas of expertise. Just as the cyclist may
select a hill-climbing specialist to be on his team, the entrepreneur may
select someone with industry expertise to assist her as she climbs the road to
success.

Entrepreneurs must be careful in selecting their advisers.
Needed industry experience or particular skill sets must be identified.
Personality, too, is important. Just as a cyclist may like the idea of filling
his team with friends and well-wishers, the entrepreneur may prefer advisers
who are friendly and familiar. Often, this approach is a mistake. What
entrepreneurs really need is someone who will offer needed perspective while challenging
them to succeed. Filling the advisory board with sycophants will give the
entrepreneur encouragement, but rarely the constructive criticism that may be
necessary to succeed.

Once selected, entrepreneurs must use their advisers
carefully and not waste these important resources. Advisory relationships often
fail when the adviser feels that his or her energies are being wasted or advice
ignored. The entrepreneur must guard against this result.

Clear communication with advisers, at the outset of the relationship,
about the scope of their potential involvement is critical. Entrepreneurs need
advisers who enter the relationship knowing the expected level of commitment,
whether it means meeting for coffee on an ad hoc basis to discuss specific
issues or convening for regularly scheduled and more formal conferences. In
either case, and in all cases in between, entrepreneurs should be fully
prepared for the discussion, present their questions in an organized fashion
and provide the adviser with enough ongoing information about the business to
allow for meaningful analysis and advice.

Important, too, is the need for entrepreneurs to be
respectful of the advice received. Advisers recommendations need not always be
taken, but they should always be considered. And if the recommendations are not
followed, entrepreneurs would do well to explain to the adviser why they are
taking a different path. Timely communication on this point helps prevent
advisers from feeling as if they are being ignoreda sentiment that, more than
any other, may spur them to detach from the entrepreneurs cause.

Last, the entrepreneur must remember one final lesson from
the Tour. When on the podium, a winning rider always thanks his team. Without
the team, his success would be impossible. This outcome isnt entirely true
with entrepreneurs, but success in business is almost always a team effort. If
they have retained a board of advisers, entrepreneurs must remember to share
some of the credit for their success with that broader group. Often, this means
giving the advisory board some small percentage of equity in the company. In
most cases, this is a small price to pay for the chance to draft behind and
learn from seasoned business leaders who have ridden this course before.

This is a sponsored legal report from Lane Powell PC. Brian B. DeFoe is a shareholder at Lane Powell
whose practice focuses on corporation finance, the federal and state
regulation of securities, and product regulatory issues. In the course of his
practice, he has assisted clients in merger, acquisition and corporate finance
transactions. In addition, he has also advised clients on matters of
compliance with state and federal securities laws in connection with public and
private securities offerings, as well as interactions with securities
regulatory authorities. He can be reached at [email protected] or
206.223.7948.