For technology companies, success often hinges on mastering four critical factors (the four Ps): product, positioning, pricing and prospecting. This is a made-up alliterative framework, but it captures the critical areas tech companies must master for success.
While this framework applies to most businesses, it’s most critical for tech companies due to the cost and time required for research and development, product development and go-to-market strategies. Tech companies often fail because they run out of money while seeking product-market fit and trying to generate revenue and/or raise capital. Advisory boards offer a proven solution to these challenges.
As a technology executive, angel investor and advisor for more than 50 technology companies, I’ve seen firsthand the incredible impact that advisors can deliver. I’ve also seen founders build unicorns with a penchant for ignoring everyone’s advice (including their customers). But, those are the outliers, as that approach mostly leads to catastrophic failures.
So, what is an advisory board, what types of advisory boards are there, how do they differ from boards of directors and how do you go about setting one up to nail your four Ps?
Advisory Board Statistics
One of the most impactful strategies helping companies succeed is having advisors. Companies with formal advisory boards have demonstrated an average 24 percent increase in revenue, 18 percent increase in productivity and 80 percent of business leaders with advisory boards would build them again, according to a BDC study.
Advisory Boards vs. Boards of Directors
While they may sound similar, a board of directors is a formal governing body elected by shareholders to oversee a company’s management and ensure the company meets its fiduciary responsibilities. Advisory boards have no fiduciary or legal responsibilities and are simply a group of external experts who provide non-binding strategic advice and support a company across various topics.
Within the realm of advisor engagements, there are many types: formal (advisory boards) and informal (individual advisors), customer-centric or non-customer and various other considerations all designed to support the company’s specific needs.
Earlier-stage tech companies tend to have individual subject matter expert advisors, as they’re not ready for the commitment and formality associated with managing an advisory board, nor do they likely have the appropriate customer relationships to form a customer advisory board.
Later-stage tech companies, including the Fortune 100 like Microsoft, Google, Amazon and Adobe, almost all have CABs and partner advisor boards and use many of them throughout their organization’s business units.
While the goals of advisory boards are similar, they differ by the type of advice gained and overall expectations. For example, an advisor who’s an experienced product leader from a relevant tech company may guide your teams on product roadmap strategies, whereas a senior customer executive may inform your competitive positioning, pricing and outline opportunities for retention and expansion at their organization.
Both strategic and customer advisors serve as ambassadors and an advocacy network for tech companies, providing awareness and access to their trusted professional networks to acquire partners, talent and prospective customers.
Case Study: How Customer Advisory Boards Improve Company Growth
BackBox, a market leader in network automation, security and management solutions articulated several lessons learned from their CAB which have been crucial to their growth and success. BackBox used candid, diverse feedback from its CAB to refine its product roadmap, aligning with real-world customer needs.
This allowed them to hear honest, sometimes uncomfortable insights that led to meaningful product and service improvements. This collaborative approach strengthened customer relationships and turned customers into advocates, fueling innovation and driving the company’s growth in ways that would have been impossible without the CAB.
How to Build a Top-Notch Advisory Board
So what does it take to build and manage a high-performing advisory board?
Start with your goals and objectives. What are the two or three needle-moving objectives that a group of advisors can help you accomplish? Note: The answer cannot just be sales prospect introductions! Sales is a lagging indicator, and if your other three Ps aren’t optimized, your tech company will struggle.
Advisors open doors and contribute to sales success, but this type of purely transactional relationship is better executed via a referral program than an advisory board, although advisors do typically participate in the company’s referral program. Clearly defined goals will help you identify the ideal advisor profiles.
Then it’s time for program design, which will be memorialized in your advisory board charter, and includes your program overview, engagement structure, goals and expectations, compensation and term limits, etc. You’ll also need to align on your budget and key resources necessary to execute your advisory board program, including consistent meetings, program measurement, advisor recruitment, performance reviews and replacement.
As with any business initiative, there are risks and challenges associated with the development of an advisory board or CAB. But tech company executives would be hard-pressed to find a more powerful growth driver than a dedicated group of experienced subject-matter experts, customers and partners supporting their company’s four Ps.
