Consultants · Board of directors

Board member v. consultant?

Will Glasson Assistant County Attorney, Multnomah County

June 20th, 2013

A fellow who's really experienced and recognized in an industry and role critical to our company's market has approached us offering his help. We would certainly welcome his input and, if he was willing and we had the money, would hire him as an executive-level employee. Discussions are early, but it's clear that we can't afford him at his going rate, so we're talking to him about coming on as a board member. He has asked us a number of questions about "formalizing" the relationship, and suggested a relationship that sounds more like a consulting project than a volunteer advisory role (let's be candid, a board spot can be hugely important for the company, but often pays little in tangible benefits to the board member -- it's a volunteer position). 

MY QUESTION OR ASK: who should be on the board and who should be project-based consultants? Has anyone else grappled with this dilemma and how did they work through it? I would love to hear how people addressed the compensation side of this question as well. 

Many thanks! 

Vijay MD Founder Chefalytics, Co-owner Bite Catering Couture, Independent consultant (ex-McKinsey)

June 20th, 2013

When you say Board there are 2 groupings: 1) Advisory board - generally honorary with some compensation but no power 2) Board of Directors - entity controlling the company by representing shareholders - CEO reports to and is accountable to. Make sure he's not looking for #2 - these should go to investors and founders at the start. For #1, generally advisory board members get some token for participation - it may be a small piece of equity, it may be cash, it may be recognition. They share their perspectives and can help to open doors. Project based consultants spend real time with the company and are responsible/ accountable for producing deliverables (models, charts, operational elements, strategies, plans, etc). It sounds like this individual is soliciting you (e.g., you didn't come to him) and so he wants to be paid like a consultant. If you do this, just make sure he's producing deliverables that move your organization forward. Board of Advisor spots tend to be more ad hoc unless there are solid deliverables associated with the relationship - and then the contract would outline what those are and how the payments tie to deliverables, vest, etc. ------------------------- Vijay Goel, M.D. Principal, Goel Insights 310-492-5601 www.goelinsights.com Schedule time to talk: http://meetme.so/vijaygoel

Steve Banfield

June 20th, 2013

Having been both inside startups and on advisory boards, this is a huge issue. I would say never put anyone on your Board of Directors that is not either a founder, key employee or an investor. Maybe you put someone on your board who is a very senior exec at a partner company that might be a potential acquirer. That's it. Putting other strategic relationships, key consultants and mentors/advisors is for the advisory board. The advisory board has no formal authority in the startup and may never actually meet together as a unit. They are there for you as the Founder to utilize as you see fit. As for formalizing the advisory board or compensating them, then that's where you can leverage some portion of the option pool. It shouldn't be enough to change the dynamics of the cap table or your control of your company as Founder but enough for them to see upside if their efforts to help you be successful create value in the future. I would say everyone else the person who claims they can "get you funded" (they usually can't), the marketing guru (with no web site), the strategist (knows all the big words), and the sales rock star should be very clearly defined consulting projects with pay based on achieving goals, not on time, or otherwise put them on the advisory board, compensate them for their time, attention, ideas and relationships in stock options but not cash and keep your actual BoD small and simple.

Rob Mathewson

June 20th, 2013

You can formalize an advisory board, complete with legal agreement and compensation framework.  I agree with other's comments about the sanctity of the BOD.  In a more mature BOD, you sometimes have members with industry experience who are selected with mutual consent between founders and investors.  

Vijay MD Founder Chefalytics, Co-owner Bite Catering Couture, Independent consultant (ex-McKinsey)

June 20th, 2013

This story often doesn't end well. See the reactions of others, but putting an industry player on your board of directors can often limit your disruptive potential, the markets you pursue especially if you pivot, and reduce valuations and exit potential due to the sense you're locked in with a strategic acquirer. If they don't acquire you, then people will wonder why and valuations will go down. Risky move. Worth betting the company on? Sent from my iPhone

Mark Piekny Engineer, Consultant & Entrepreneur

June 20th, 2013

I like Vijay's and Steve's advice.  My own advice: It seems your guy is looking for consulting work.  Set up an evolutionary role.  Bring him on as an adviser for evaluation.  If you like his contributions and he still wants hourly compensation rather than looking at the long term success of your company than he's a consultant and not a potential director.  All the while make it clear to him that you are evaluating him for future potential.  I hope that helps.

William Grosso CEO, Scientific Revenue

June 20th, 2013

Ø (let's be candid, a board spot can be hugely important for the company, but often pays little in tangible benefits to the board member -- it's a volunteer position). Usually it gets a pretty nice stock kicker. Bill William Grosso Me: http://www.wgrosso.com My consulting company: http://www.osolog.com Rustic Canyon: http://www.rusticcanyon.com

Will Glasson Assistant County Attorney, Multnomah County

June 20th, 2013

We've considered adding him to our advisory board, but we would rather have a more "formal" relationship, such as between a director (fiduciary) and his corp.

Will Glasson Assistant County Attorney, Multnomah County

June 20th, 2013

These responses are great and have offered new guidance and creative approaches to this issue that, I think, will help tremendously. Thank you very much for the feedback and advice! 

Rob Mathewson

June 20th, 2013

Will, 
Can you clarify your "board" reference. Is it board of advisors or board of directors?

Eddy Baik Product Management at Tubular Labs

June 20th, 2013

Only skimmed others' responses. But from what I know, agree this person should not be on your board or maybe even part of your startup if large "cash" compensation is his main motivation. I would say anyone with this mentality doesn't understand the world of startups with limited resources.

My understanding is that you don't really need an official advisory board. You can have him as an advisor without the board structure. I would say that's the best structure, and it's the advice I've been given by credible folks. If you want him more involved, then you can offer slightly more equity to be an advisor with the request for more active participation (hard part is defining what that really means).

But if you have to move heaven and earth to get him to really help out, I think that is sign enough that it may be best to keep in touch but move forward with your startup w/o worrying about his active participation. If you really like and trust him, you can always come back and structure a relationship later on. If you've made progress in getting traction, he'll likely want to help because your startup's potential may be more clear

I wouldn't hire someone as a contractor unless the person provides concrete, tangible benefits to your startup which you pay for (code, sales, etc)... not intangible industry expertise which though valuable, may leave you in a situation where you feel like you're paying a lot for questionable, ambiguous return. 

You could be creative and structure a consultant/contractor payment arrangement where you only pay per lead, introduction, or closed sale. But be wary, if his only benefit is receiving cash from you, the incentives won't be structured properly for him to want to help you in the right way. That's why you'll likely circle back to the advisor structure as probably best