7 Little Strategies that Equal Big Success

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It is often practicing the simple habits that result in running a successful business. There are proven leadership methods that can make the difference between a growing and profitable business that stays afloat, and one that sinks. You’ve heard it before: Work smarter, not harder.

Here are 7 tips to do just that in this new year:

  1. Watch cash flow. Poor finances can ruin any business, so it is imperative that a small business owner understands how to keep the cash flow steady, spend intelligently, and grow the business intentionally. Regular cash flow projections are an important ingredient to ensure you don’t run out of cash.
  2. Follow the leader. It’s key to learn from people who have achieved goals like yours. It’s lonely at the top, but having a mentor, or being in a business leader program, are smart and simple options.
  3. Track spending! It’s easy to go overboard on certain areas of your business, such as marketing. Pay close attention and track spending to determine what spend activities work and why.
  4. Know your strengths and hire for your weaknesses. Hire people who can complement your skills and help fill in your blind spots. Think efficient use of energy and resources.
  5. Take a minute to plan. Strategizing and planning can oftentimes be easier said than done. However, spending time on this activity up front will lead to greater successes and less risk in the long run. Successful companies have vision and execution.
  6. Get in the right mindset. Having confidence in your ability and knowing you can achieve success matters. Don’t underestimate your subconscious’ s ability to impact goals. Visualization techniques and the use of mantras you can live by can drive that impact. “Slow is smooth, and smooth is fast” is a mantra used by the Navy SEALS when they are under pressure situations.
  7. Delegate, delegate, delegate. There are people who can do it as well, if not better, than you can. Hiring the right people and clearly outlining their responsibilities will make your job easier and your company more effective. Micromanaging can be detrimental to your success.

Some successes in life are owed to good luck and good timing, but the majority are the result of good leadership, efficient use of resources, and seeing opportunities to take. The strategic habits we implement in our business are an important part of its success.

Do You Need to Check Your Vision This Year?

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I often get confused on what makes up a good vision.  My finance background does not exactly lend itself to visionary thinking—we are trained to look at the present and history.  I know one underlying trait of a good vision is that it should be timeless.

One of the great examples of this notion is the vision that Walt Disney wrote himself over a half century ago and still remains true today for the Disney company:

“Physically, Disneyland is to be a small world in itself.  Encompassing the things that were good and true in American life…. dedicated to the ideals, the dreams, and the hard facts that have created America.  I don’t want the public to see or think about the world they live in when they are inside our world created for them.  Beyond the physical places, we want to bring people along into an entirely different world, with our philosophies and idea, our characters, our stories, our past, present, and future, so they are part of it and never want to leave it.  At age 12 or at age 62, we want them to feel curiosity, wonder, awe, fascination, joy, and attachment.  Within this world, we want them to experience discovery and adventure, fun and entertainment, education, participation, and recognition. They will not just come to visit our places or to the theater to see our films. They will bring us into their homes and into their hearts.  We will never settle for having customers or fans – they will be Disney people.  This world will never be completed, it will always be under construction; expanding, diversifying, playing more and more roles in peoples’ lives.”

 

When I read this vision statement and think about the time I visited Disney World with my young kids, I am awestruck with how this so closely aligns with my family’s experience.  Walt Disney built his visionary idea in such a manner that it strikes emotion into many who have experienced Disney films, theme parks, and books.  I did leave my world behind and entered the world of Disney when we visited…it was truly magical.So, what can we do to create a vision that can elicit a similar type of feeling and experience?  Start with asking yourself these questions:

  • Is your vision written in a manner that evokes emotion, or does it just feel like cold facts?
  • Is it about your customers’ experience with your products or services….an external focus?
  • Is it written with the intensity that you want your customers to feel, regardless of length?  (Obviously, Walt Disney’s vision statement was not written with the notion “It’s got to be short or people won’t remember it”)
  • Is it timeless?
  • Is it one that will be incomplete?
Simon Sinek did a TED talk with the theme of “Start with the Why”:  Why do people buy your product or service?  If you can answer that, it gives you a way to think more clearly on what your vision should be.
Cheers to your clear vision that will remain true throughout time,
Mike

It’s Decision Time

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The average adult makes about 35,000 decisions a day. Sounds like a lot, doesn’t it?

According to Psychology Today it’s not. And if you think about it, it makes sense: people make many decisions without thinking of them as decisions. (Which pen do I take out of the pen holder? Do I have time to review the report before the meeting?) With all of these opportunities to change the course of our day, our career, our life, it’s a good idea to explore ways to improve decision-making.

The results of a study published in the journal Cognition indicate that not all times of day are created equal when it comes to making decisions. The study tracked 184 chess players who made about 40 “complex human thinking decisions” during a 3- to 15-minute chess game. The results are interesting.

To summarize, study subjects made the decisions most favorable to their game when they were playing between the hours of 8 a.m. and 1 p.m. After 1 p.m., players made decisions more quickly (presumably they were in a post-lunch slump or tiring as the day was progressing), and their decisions were less favorable to their game.

Bottom line: make important decisions in the morning. Sort of. When you sleep and when you get up matters too. If you are a morning person—you know, the early to bed, early to rise type—then your best decision-making time is the morning. But if you’re a night person, then your “morning” is during the five hours after you rise for the day. So, relax: if you don’t get out of bed until 9 or 10 a.m. , then you haven’t missed your prime decision-making hours.

A lifehacker.com article by Adam Dachis also supports the morning person/night owl concept, recommending that people identify when they’re most able to make good decisions and then resolve to make important decisions during that span only. Creativity coach Mark McGuinness advises people not to worry too much about little decisions, because they generally don’t have a long-term impact on your life.  For example, what clothes you wear on a particular day or what you eat for dinner doesn’t change the direction of your life. (Although, should you wear neon orange cowboy boots with your suit and purple fedora to the office, the boss may question your judgment.)

McGuinness also recommends weighing the pros and cons before making big decisions. And don’t ignore your gut. He says it’s best to take more time (if possible) to land on a decision when your logical side disagrees with your instincts. In other words, intuition matters.

Should you follow this advice? Determine the best time, and then think it over. It’s your decision.

Small Business Matters: “The Importance of Financial Management”

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In this episode of the “Small Business Matters” podcast, Numbers Coach Mike Iverson discusses the importance of careful financial management for the long-term survival of your business:

How this “J” Can Help You Make Strategic Decisions Easier

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by Tim Fulton, Small Business Matters

How often do you get “stuck” on a big strategic decision? If you are like many small business owners, the answer is “too often”. It may be a key employee hire, a capital decision, the purchase of a large fixed asset, or may be a decision to exit the business. None of these are easy decisions and easy to get paralysed in making the final call.

One of the best tools I have found for making tough strategic decisions is the “J Curve”. A popular blog for mid-size businesses, ShortTrack CEO, said the following about J Curves:

“The process of identifying, prioritizing, and managing J Curves is the most important determinant of entrepreneurial success.”

By definition, a J Curve investment is any strategic decision to spend money today for a benefit tomorrow. Any hiring decision is a J Curve. Any significant new customer is a J Curve. Any major allocation of capital resources is a J Curve. A marketing decision such as the offering of a new product or expansion into a new market is a J Curve. The list goes on…

Here are the 3 phases of the J Curve:

  1. The first phase of the J Curve is the “investment. How much will we need to spend in time or money on this investment? If it’s a new piece of equipment; this would include the cost of the new asset, set-up and training time, and any costs associated with ramping up the new equipment.
  2. The second phase of the J Curve is “catch up”. We have now moved based the bottom of the curve and we are trying to move towards break-even as quickly as possible. We again measure this phase in time and money. If it’s a new hire, the employee has completed his/her orientation and training and now is moving towards achieving the results we have set expectations for this new employee.
  3. The third phase of the J Curve is “blue sky”. We have moved past break-even on our investment and we are now moving towards achieving a maximum return on investment (ROI) on this big decision. The new sales rep starts making big sales. The new customer starts placing sizeable orders. The new piece of equipment has doubled our production capacity.

There are several important rules for managing J Curves:

  • Measure the depth and width of the valley. It’s typically measured in either time or money or both. My experience is that we very commonly underestimate both of these as they relate to the decision. We expect the new sales rep to deliver new customers in three months and it takes six months. We anticipate the new customer to place an initial order of $100K and instead we get $50K.
  • Do not become emotionally attached to your J Curve. You may need to abandon it at some point in time. Your newly hired CFO has grossly overstated his qualifications for the job. Are you prepared to wait a year to see him grow into the position or cut him loose and start over?
  • Watch the number of J Curves you have at any given time. The average for small business executives is 5-7 at any given moment. My guess is that if I sat down at the desk of any of my clients I would find at least that many strategic decisions in the making. Any more than that is problematic. Any less than that is a cause for concern as well. I suggest you keep a J Curve register on your desk, which can be a legal pad with a list of your current J Curves just to keep score. What is the current status of each one?
  • Is there a plan for moving from Phase 1 to Phase 3 for each J Curve? There needs to be a unique course of action for moving efficiently thru each phase.
  • Watch out for “W” curves. You have reached Phase 3 and all of a sudden you find yourself back at Phase 1. What happened?

It’s time to get “unstuck” on your big strategic decisions. Thinking of each one as a J Curve is a great first step. You now also have a new vocabulary in which to think of these decisions and discuss with your key executives. Good luck!

What’s Your Plan for Avoiding Burnout?

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by Michael Iverson

Working closely with entrepreneurs, I think I can say that most enjoy their work to a high degree.  As a group, they are upbeat and passionate about business.  Most control their workplace environments, their hours of operation, and the people who work with them.  All of those things make coming to work a lot more pleasant.

At the same time, many entrepreneurs have the capacity to be obsessive.  The very trait that drives so many of them to succeed can also lead them to work extremely long hours and experience bouts of anxiety.  The combination of long hours and anxiety is a recipe for burnout.

Caution: Burnout Ahead

Several years ago, I came across an Inc. magazine article entitled Ten Signs You’re Headed for Burnout.  Here are a few of the warning signs that are most common among business owners.

  • Unhealthy lifestyle choices – You can’t seem to find the time and energy to take care of yourself. You may eat too much or too little, choose unhealthy foods, stop exercising, or rely on alcohol to relieve stress.
  • Inability to stop thinking about work – Thinking about work during your free time is normal, unless your thoughts about work are accompanied by a feeling of dread.
  • Perpetual exhaustion – A feeling that you just can’t get enough sleep. In fact, you wake up feeling exhausted.  The exhaustion can be both physical and emotional.
  • Loss of enjoyment in daily activities – You once enjoyed going to work, but now you are apathetic or fearful of it.

Anyone experiencing one or more of these signs is either already suffering from burnout, or it’s just around the corner.

Strategies to Beat Burnout

To beat burnout, you need to eliminate the factors that contribute to it. Sounds simple enough, right?  But, it’s not.  The tendencies that brought you to the brink of burnout must be confronted, and that may cause you some discomfort in the near term.

Relinquish Some Measure of Control – This is a tough one for most business owners.  The need to be on top of all aspects of the business is part of your DNA.  Are you able to give up a little control for the sake of your well-being?

Short-term:  Make an honest assessment (perhaps with the help of an objective outsider) of how you can offload one significant responsibility to a member of your team.  As an example, one self-contained project that makes sense for some owners to offload is implementing a new technology to improve the business.  If you understand the benefits to be gained, is it necessary to be involved in the nuts and bolts of implementation?  Why not assign that responsibility to a capable staff member or business partner?

Long-term:  On the TV show Star Trek, the captain’s most reliable surrogate was referred to as Number Two. Owners who develop a reliable Number Two at work are able to achieve a better sense of work/life blend.

Make Your Health a Top Priority – If it’s not already a priority, commit to this important lifestyle change.  Daily exercise is the best way to relieve stress.  Ask your doctor about the right exercise for you and work it into your daily routine.  Meet with a dietician to address easy ways to avoid bad eating habits.  Eliminate electronic devices from your bedtime routine as a way to improve your sleep.

Take Time Away – It is absolutely essential to get away from work to sharpen your most important tools – your mind and body.  Steven Covey author of the book “Seven Habits of Highly Effective People” refers to it as sharpening the saw.  Refresh both by giving yourself some well-deserved rest.  Experience something new and out-of-the-ordinary as a way to renew your spirit of adventure.  Take vacation if that’s all you can manage at the moment.  If you are in position to take more time, consider a short leave of absence.

Wondering How Your Company Stacks Up Against the Competition?

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by Michael Iverson

At one time or another, every business owner yearns to see how his or her company stacks up against the competition within the same industry. Comparing a company’s financial performance against that of its peers is likely to provide clues about how to improve the company’s results. For instance, it would be important to know whether a company’s administrative costs are significantly higher than those of others in the same industry.

Unfortunately, it’s not always easy to access competitive data. Competitive companies aren’t likely to publicly share financial results. Even if they do share some information, a large difference in size of a comparative company makes analysis difficult.

One way around the problem is to conduct the analysis using a Common-Size Income Statement, which converts a company’s income statement from dollars to percentages.  Every line on the income statement is expressed as a percentage of Net Sales.

Using common-size income statements makes it possible to compare companies that are different in terms of size but in the same industry. While it might seem unlikely to compare two competitors with Net Sales of $4 million and $100 million respectively, focusing on percentages can bring relevance to the analysis.  It also helps spot trends in your business, when comparing results to a prior period, for instance.  You can address the issues before it’s too late.

In the example below, Warning Lights of North Georgia’s income statement is shown alongside its common-size income statement. In the left-hand column are raw, dollar-denominated figures. The right-hand column shows the converted percentages.  The percentages are based on a percentage of sales.  In other words, you would divide the expense by the sales.  For example, in the spreadsheet below, selling expense of 11.9% is determined by the following formula: 1,223,000/10,281,000= 11.9%.

 

Now, Warning Lights of North Georgia’s results can be compared – line by line if so desired – to those of any other company in the industry.  (The financial statements of publicly-traded companies are accessible through the Securities and Exchange Commission’s EDGAR database or its Canadian equivalent SEDAR.)  Industry averages are compiled by national trade associations and a handful of competitive intelligence information services.  Banks, business brokers and good business libraries are likely sources of such information.

Using common-size financial statements, it is possible to determine how your company performs within its industry against the competition. Common-size income statements may be particularly useful in measuring the cost-effectiveness and profitability of a company against its peers as well as spotting trends when comparing multiple periods of your own financial results.

Is It Time to Re-Examine Your Business Methods?

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by Michael Iverson

Several years ago, I read an article about things in everyday life that most people do incorrectly.  In many instances, it’s simply because that’s the way they’ve always done them.

For example, would you believe that only 5 percent of all Americans wash their hands correctly? The correct way involves 20 seconds of vigorous rubbing with soap and water.   Although soap and water are parts of the routine, only 5 to 10 seconds of washing is the norm.  But, washing the right way lessens your chances of contracting flu and other illnesses.

It seems that some of the instruction we get at various points in life is of dubious value.  One of my favorite quotes is from the great American author Mark Twain. “It isn’t what you don’t know that gets you into trouble. It’s what you know for sure that just isn’t so.”

People tend to latch onto an idea, often learned at a young age, and never let go of it. They believe it to be the truth, and it’s extremely difficult to convince them otherwise – even when the evidence against their idea is overwhelming.
If you like the idea of constant improvement, as most entrepreneurs do, you have to keep an open mind and re-examine notions about the things you do daily.

What you re-examine might be age-dependent

So, what are the things you do every day in your business that ought to be reexamined? The answer can depend on how long you have been in business.

Business owners in their fifties came into business in an entirely different economic and technology environment than we have today.  Many notions about avoidance of debt are rooted in the double-digit interest rate environment of the 1980s.  Obviously, the interest rate scenario has changed greatly, meaning carrying debt is less of an issue than when they got started in business.

Some owners in their fifties are also slow to update websites because of outdated ideas about the costs involved.  Website development costs are significantly lower than they were just a few years ago. If an owner has been putting off a refresh of capital or technology, it’s time to revisit these issues.

Many business owners in their forties will benefit from paying more attention to accounting and legal issues. In their early years of business, most entrepreneurs are pretty casual about their business relationships.  At this stage of your business life, the stakes are a bit higher; it’s time to put your important business agreements in writing.

For example, did you choose to operate as a proprietorship because it was the cheap and easy choice to make ten years ago?  You might want to revisit the matter depending on your goals.  If you are worried about scaling a company and limiting your liability, a Limited Liability Company, S-Corp. or C-Corp would be the better choice.  A proprietorship is unlimited liability.   Also, it might make sense, now, to take a course in accounting from a local college.  It’s hard to achieve peak performance unless you are well-versed in how to keep score and the numbers in business is how you measure winning from losing.

As you re-examine your business make sure that you have a written plan with strategies and numbers.  A plan helps provide important guidepost for making decisions about the business, or to explain your thought process, and your vision to employees and business partners.  The plan does not have to be a 100-page novel.  As a matter of fact, good plans can be one or a few pages of well thought out information and numbers.  Being concise and clear with your vision can help you execute and iterate faster.

Building a Culture of Servant Leadership

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By Michael Iverson

Imagine if this was your first experience with an airline:  Leaving town for vacation, a friend and his young family were among the last passengers to board their Southwest Airlines flight. As the family made its way to the plane, crew members warned there was no room in the overhead bins for their carry-ons.  The captain told my friend to leave the carry-ons at the end of the breezeway and he would find a place for them. When my friend got to his window seat, he saw the captain himself carrying the bags down the stairs to employees loading luggage onto the plane!  My friend thought: What other airline captain would do that?  This act of servant leadership had a profound impact on him and he became a loyal customer of Southwest.

Servant leadership is a leadership style that has been around for over 30 years.  It was first introduced in 1970 by former AT&T executive Robert Greenleaf.  It really came into its own in the 1980s and 1990s, when companies that adopted servant leadership (such as Southwest Airlines and Starbucks) first achieved success and admiration.

But what exactly is servant leadership?  Servant leaders selflessly put their employees’ needs ahead of their own. The employees, in turn, put the needs of customers first.  Customers, appreciative of the attention and care they receive, reward the business owner with their loyalty.  It is, by design, a cycle of virtuous behavior.

It must be noted, however, that servant leadership is a model that can conflict with the traditional management philosophy of a leader needing to exert authority over employees.

Behavior of a Servant Leader  
The servant leader’s natural inclination is to help others.  He or she helps his employees become proficient in their work. A servant leader shows them how they can pursue careers that achieve balance between work and family life.  And, he or she rewards their efforts with financial consideration that is truly representative of the value they add to the business.

Its leadership by example and with integrity, teaching employees how to put the needs of others first.  A servant leader purposely stays out of the limelight, allowing his team members to accept the accolades and not themselves.  He or she trusts his employees to do what’s right for customers and the business.

Management consultant and author Franklin Covey put trust as the hallmark of a servant leader.  He cited 13 behaviors a business owner must adopt, including:

  1. Talk straight:  Tell the truth. Let people know where you stand.
  2. Demonstrate respect:  Show you genuinely care.  Respect everyone, including those who can’t do anything for you. Show kindness in little ways.
  3. Create transparency: Be genuine, open and authentic. Don’t hide information or have hidden agendas.
  4. Right wrongs:  Apologize quickly. Make restitution where possible. Demonstrate humility.
  5. Show loyalty: Give credit to others.  Be loyal to those absent and represent those who aren’t there to speak for themselves.
  6. Deliver results:  Establish a track record of results.  Don’t make excuses for not delivering.
  7. Get better:  Continuously learn and improve.  Thank people for feedback and act on feedback received.
  8. Confront reality:  Meet issues head-on.  Address the “tough stuff” directly.
  9. Clarify expectations:  Disclose and reveal expectations.  Ensure expectations are clear.
  10. Practice accountability:  Hold yourself and others accountable.  Take responsibility for good or bad results.
  11. Listen first:  Listen before you speak.
  12. Keep commitments:  State your intentions and then act on them.
  13. Extend trust:  Extend trust abundantly to those who have earned it.

Business owners who have adopted the servant leadership philosophy say it promotes team-building, achievement, positive change and high employee morale.  So, what’s the catch?

This style of leadership does not come naturally for some people.  Our achievement oriented focus is taught in school and does not consistently encourage servant leadership traits.  It requires an intentional approach to live the principles outlined by Covey.

If you can incorporate the principles of servant leadership into your business, you can provide an environment for your employees that is much more than a place to work.  You are inviting them to a better way to work, and a better way to live.

To discuss whether your business is a good fit for the servant leadership model, contact Trillium Financial.

What is the One Best Yardstick to Measure your Business Success?

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Mike Iverson’s client had it all figured out. He knew exactly how well his business was doing every month, without researching complicated data or paying an expensive consultant. He just looked at his phone bill. If the number of outbound calls was up, he could bet that his revenues for that month would be up, too.

A reckless, haphazard guess? Just the opposite. Iverson’s client had found a simple metric that he could track every month and immediately gauge the health of his business.

The concept of a simple metric as a forecaster of financial health belongs to Norm Brodsky, a successful serial entrepreneur and writer for Inc. magazine. The idea is for every company to find that one magic metric – the connection between a routine business function and the positive growth of a company.

“I think every business has it,” says Mike Iverson, Numbers Coach. “Every small business can put a finger on a certain key number that can tell you how you will end up that month.”

The trick, of course, is uncovering exactly which numbers have that relationship in your business. For example, if call volume goes up and sales go down, you’ve got the wrong metric. It is important to track as many numbers as possible in the beginning, because it may take two years (or more) to find the leading indicator. Also, recommends Iverson, track the numbers by hand. The process of writing the numbers down with a pencil and paper will help you realize the connections.

Here are seven important metrics for any business. Track them for 3 months and see which one gives the greatest transparency to the rest of your business:

  1. The Trailing 12-Month Sales Average: By monitoring – and graphing – sales from the 12 months prior, you’ll get a visual of the progress of sales, while taking seasonal issues out. If it’s July 2025, look at July 2024 through June 2025. Graph each month’s sales and see where the highs and lows were, and what the average was. If that 12 month average is trending up, it’s good. If the graph line is flat or declining something is causing sales not to perform.“If you look at just sales numbers month to month, you won’t see it,” says Iverson. “This is a visual metric: you want to see that 12-month trailing graph trending up.”
  2. Operating Profit Percentage: This shows the extent to which a company is making a profit on standard operations. When looking for indicating factors, ask, ‘Is this percent holding steady, increasing or decreasing?’  You can also examine this on a trailing 12-month average.
  3. Accounts Receivables Cash Conversion Cycle: If you extend credit to customers, track how long it takes to collect cash from the time the bill is sent. What is your cash conversion cycle (or DSO – Days Sales Outstanding)? Be careful about the terms extended to your customers; you have set them for a specific reason. If customers go beyond those time limits, you’ll feel the pinch.
  4. Days Inventory Outstanding (DIO): In theory, you should keep the least amount of inventory on hand as possible. In a perfect scenario, you would get the order in just in time to have it manufactured and sent out; the longer inventory sits unsold the more of a drain it is on your cash.
  5. Disbursement Cycle: These are the terms you get from your vendors. The longer you can hold on to your money and the faster you get it from your customers, the better.
  6. Working Capital as a Percent of Your Revenue: This is an important financial set of measures to look at because it is often overlooked by business owners, says Iverson. “They know to look at the income statement. But if all that operating profit is getting absorbed into working capital, then there won’t be enough cash flow to grow the business,” he says.Receivables and inventory are investments.  (And in the same way vendors have an investment in you.) You’ll want to invest as little as possible of your revenue in working capital. Turn your receivables to cash, your inventory into billing, and hold on as long as you can to your money. Look at the number of days net working capital is invested every month (or cents on the dollar of what’s invested). If you don’t have enough cash flow to cover what you’ve got invested, you’ve got a problem.
  7. Return on Capital Employed (ROCE ) Percent: According to FinanceScholar.com, ROCE measures the efficiency and profitability of a company’s capital investments. For example, capital assets such as trucks and computers should help make the business more efficient, cut down on costs and realize greater profits.  The ROCE percentage also indicates whether the company is earning sufficient revenues and profits in order to make the best use of its capital assets. The higher the percentage the better.

Tracking the numbers involved with these seven metrics over a period of time will give you an idea of which is the leading indicator for your business.

“It seems like the concept would be complex, something more to it. But really there’s not. If you break it down and keep it simple, the metric can give a business owner an easier way to digest information and act,” says Iverson.

Start measuring today so you can figure out what actions to take in order to achieve your financial goals.   The Numbers Coach can help; just contact us at (404) 353-2148 or mike@numberscoach.net.

Could Your Business Benefit from an Advisory Board?

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by Michael Iverson

Self-reliance is a characteristic of most successful small business owners. When an important business objective needs to be accomplished, an owner often takes a hands-on approach. In my experience, the owner’s personal involvement usually assures that the objective is met.

There is a possible downside to self-reliance, however; an excess of self-reliance can stunt business growth. It’s possible for an owner to give too much weight to his own ideas, when listening to the ideas of others would yield better results. To guard against this possibility, many business owners establish advisory boards.

What Is an Advisory Board?

An advisory board is a group of peers that a business owner consults periodically and informally. Members of the advisory board provide perspectives and experience that help fill gaps in the business owner’s knowledge base. In other words, a humble business owner realizes that he doesn’t have all of the answers. Advisors usually make their most significant contributions by helping to shape strategic direction for the business, although some are capable of suggesting operational improvements.

Members of the advisory board are invited to serve because they are respected and trusted by the business owner. The business owner has a personal relationship with each member of the advisory board, so everyone has an interest in seeing the business succeed. Advisory board members serve on a voluntary basis; they have no fiduciary responsibilities to the business. They must not be afraid to offer honest opinions, because opinions and ideas are their principal contributions to the organization’s success.

Getting Started

Many business owners see how useful it would be to have an advisory board, but there’s an obstacle to putting such a board in place. The owners are so involved in the details of day-to-day business that they haven’t cultivated many professional relationships. Don’t let that become your excuse for not establishing an advisory board.

Good candidates can be found through a local business organization (Rotary Club, for example). Or, an owner can identify and approach retired executives with knowledge of the industry. Current business contacts are another source of excellent candidates. A supplier or vendor certainly has knowledge of your operations and an interest in your business success.

Recruit advisors whose skills and knowledge bases complement your own. Think about the biggest challenges you face in building your business and add advisors whose strengths speak to these challenges. No matter what business challenges you face, others have successfully addressed many of the same issues. Your task is to find them.

An advisory board should be a small, manageable group. Typically, the right size is three to six advisors. Knowledge of your industry is helpful, but it shouldn’t be a pre-requisite. At least one or two advisors should be from other industries. They will lend fresh perspectives. A good mix of advisors includes people from varied disciplines: sales, marketing, engineering, finance, human resources and legal, for example.

Compensating advisory board members is discretionary, but most business owners feel strongly that advisors should be compensated to reflect their contributions to an organization’s success. There are many ways to show your appreciation for a person’s valuable input. Gifts, dinners and cash bonuses are a few ways to express that appreciation.

If you would like to discuss how your business can establish an advisory board,contact us.  We’re glad to share our ideas!