Maximizing the Value of Startup Mentors & Advisors

A way to fill in the gaps.

Introduction

Startup founders often seek advice for a variety of reasons. By tapping into the expertise of various individuals, they gain valuable insight and advice on navigating the challenges and uncertainty of starting and growing a business. In addition, founders gain support and encouragement as they work to bring their ideas to life and overcome obstacles. Moreover, advisors can provide invaluable lessons learned and best practices, connections, and introductions to potential customers, partners, and investors. Finally, experienced individuals can provide a sounding board for ideas and strategies and help founders think through tough decisions by giving constructive feedback. In short, startup mentors and advisors can be a precious resource for founders looking to gain the knowledge, guidance, and support necessary to build and grow their businesses.

This post looks at the role of a startup mentor and advisor from several perspectives. Starting with the difference between a mentor versus some acting in an advisory capacity. From here, I will highlight each role and its benefits to founders. Next, this post explores how to identify the right individual for your startup needs and where to find them. Finally, I describe how to set ground rules for the relationship and handle legal agreements and compensation issues.

Startup Mentor versus Advisor

While some of this may be considered semantics, I think it is worth considering how the roles of mentors and advisors differ. Yet, both positions are essential in supporting founders and developing their new ventures.

In general, a mentor is an experienced and trusted advisor who guides and supports an individual, typically a less experienced person, in developing their skills, knowledge, and abilities. In addition, a mentor often serves as a role model, providing guidance and advice on professional and personal development and helping the mentee to set and achieve goals in the startup context. Finally, a mentor is a person who provides general guidance and advice to the founders of a startup based on their own experiences and knowledge.

A startup mentor plays an invaluable role in helping a new business to establish itself, grow, and thrive. By leveraging their experience and expertise, they can provide valuable guidance and advice, introducing the startup to potential investors, customers, and partners and helping the founders develop and refine their business plans. Additionally, they can offer support on the overall direction and strategy of the business, including advice on fundraising and financial management, hiring and building a team, and legal, regulatory, and compliance matters. Furthermore, a startup mentor can help the founders to develop a strong company culture and maintain a healthy work-life balance, enabling them to reach their goals and become successful enterprises. With their support, the startup can navigate the early stages of growth with greater confidence and success.

Conversely, an advisor is a person who provides expert guidance or counsel to someone in a specific field or area of interest. They may be professionals or experts in their field and offer advice, recommendations, and support to help the person make informed decisions, solve problems, or reach goals. Advisors come from many areas: education, business, finance, and personal development. For founders, an advisor is an essential asset to any company in the early stages of growth, as they provide valuable advice and counsel in a particular area of expertise. This expertise can be in the form of experience and knowledge in a specific industry or field, such as marketing, finance, technology, or other areas. 

The responsibilities of a startup advisor can differ from case to case, but some of the critical roles they play include: offering expert advice and support in a specific area, like product development, marketing, or financial planning; helping the startup recognize and take advantage of new market opportunities; providing advice on industry trends and best practices; giving guidance on how to scale and grow the business; offering guidance on legal, regulatory, and compliance issues about the industry; and introducing the startup to potential investors, customers, and partners in their respective area of expertise. Ultimately, the goal of a startup advisor is to assist the startup in reaching its objectives and becoming a successful business by providing expert advice in a particular field.

Determining the Right Fit

When looking for a mentor for your startup, it is essential to take the time to consider a variety of factors carefully. These might include the mentor's experience in the industry, the mentor's ability to provide advice and guidance, their communication skills, and their business acumen. Thinking about how the mentor's skillset may complement your own is wise. Do you have a particular skill set the mentor can help you develop? Do they have experience in areas that you want to develop? 

I always have founders assess their knowledge and market access to help determine where there are gaps that a mentor or advisor can fill. The assessment includes personal questions (interests, values, passions, financial situation, and long-term goals), business model elements, customer problem and value, knowledge of competitors, customer experience, infrastructure (skills, capabilities, resources, and partnerships), profit (revenue and costs), and personal drivers (financial gain, personal goals, and practicality).

How the mentor interacts with you and your team is also essential. Can they provide a nurturing environment and foster collaboration and trust? Mentors provide guidance and support to startups as they navigate the ups and downs of the entrepreneurial journey, offering valuable insights and perspective. You want to be comfortable discussing any anxieties or challenges you are experiencing throughout the journey. Additionally, a good mentor should be willing to provide honest feedback and constructive criticism to help founders improve and grow their businesses. And as a founder, you should welcome such feedback.

Finally, it is essential to consider if the mentor is willing to commit to the startup's long-term success. Starting and growing a business can be a challenging and often lonely process. A good mentor should provide encouragement and support to help founders stay motivated and focused on their goals. A mentor who will be there for the long haul and offer support and advice during challenging times.

When looking for an advisor for your startup, several important factors must be considered. First, relevant experience and expertise are essential to an advisor's effectiveness. Ideally, you should be looking for someone with experience and knowledge in the industry or field related to your startup and who can provide valuable insights and guidance on specific aspects of your business.

Secondly, checking the potential advisor's availability and willingness to commit time and energy to advise your startup is vital. You want to explicitly agree with an advisor about how much time is available for counseling and guidance. To effectively manage advisors, schedule meetings regularly and in advance, maintain open communication, be clear with expectations and compensation, and consider the role of each advisor.

Thirdly, personal and professional connections can be invaluable in providing resources to your startup, so an advisor with a strong network is a great asset. Advisors often have a vast network of contacts and connections that can be helpful to startups as they seek funding, partnerships, and other opportunities.

Finally, finding someone you feel comfortable with, who you respect, and whose work style aligns with yours is crucial to ensure a good working relationship. In addition, advisors provide accountability and motivation to startups, helping to keep the company on track and focused on its goals.

Important note: A background check on your potential advisor is good. Speak to founders who they have advised. It is beneficial to seek out an advisor with a proven track record of success in their field and as an advisor.

Finding Mentors and Advisors

If the entrepreneur has limited experience and internal resources, then help from outside is necessary. Entrepreneurs must learn to be listeners and find advisers to help make difficult decisions. In addition, entrepreneurs must develop networking skills and uncover and penetrate networks of possible partners, mentors, customers, investors, and others.

Founders can locate mentors and advisors through various channels, including professional networks and associations, online resources, incubators and accelerators, referrals, and communities. Reaching out to individuals within your industry or joining professional organizations related to your field is a great way to connect with potential mentors and advisors. In addition, numerous online resources, such as LinkedIn, AngelList, and MentorCruise, can help facilitate the search. Incubators and accelerators also often have a network of mentors and advisors who can guide startups in their programs. Furthermore, referrals from trusted friends, colleagues, or other entrepreneurs in your network can be beneficial in finding the right mentors and advisors. Finally, by participating in local entrepreneurial communities and attending networking events, you can meet potential mentors and advisors who can help you on your journey.

Entrepreneurs quickly learn that certain people are "hub-like," whose business life depends critically on personal connectivity. You should identify the "connectors" in your field and locality and arrange to meet and talk to them about your plans. Start very early because you need time to build trust and respect before they are likely to devote much time to helping you directly or recommending you to their network. You will be surprised how often people are willing to help you if you are open and honest with them. You should not seek mentors who always agree with you. Instead, ensure you have one or two who challenge your decisions constructively.

Note: It's essential to keep in mind that finding a mentor or advisor is a process that takes time and effort, so be proactive and persistent in your search.

Managing Mentor and Advisor Relationships

You want to establish ground rules for working together in these relationships. 

First, you want to establish a regular and open line of communication to ensure that both parties are in sync. In these scenarios, both the founders and advisors are busy, so you want to respect each other time and availability. So set realistic expectations for availability and responsiveness. 

I suggest that you meet with your mentor or advisor once a month. For these sessions, provide an agenda and keep the meeting to no more than an hour. Be sure to evaluate whether you have met specific goals for these meetings and session outcomes. If both parties agree, these record these sessions. Transcripts help to summarize the meeting highlights and results. Typically, I will review the transcript at the end of an advising session, create a summary, and send it back to the founder for their review and comment. 

In general, you want to spend time upfront to define the goals and expectations of the relationship, including the level of involvement, areas of support, and expected outcomes. Then, with this ground rule, define the roles and responsibilities to ensure everyone understands their part in this advising relationship. 

Finally, some aspects of these advising relationships are legal. For example, clearly understand what information can or can not be shared with outside parties. In these advising relationships, both parties must be confident that most information is confidential and must stay between them. As will be discussed in the following section, you want to establish clear compensation expectations and ensure both parties understand the terms of the agreement.

By establishing these ground rules, you can build a strong, productive, mutually beneficial mentor or advisor relationship to help you grow your business and achieve your goals.

Compensating Mentors and Advisors

The main difference between advising and mentoring is that advising involves working with the company, and compensation is usually involved. Mentoring focuses on the person being mentored, focusing on personal and leadership development, and is usually not compensated. However, I have known founders who have paid for coaching, focusing more on general professional development.

For advisors, you should discuss compensation up front. Arrangements are typically for a specific time when you will have pre-determined access to them for advice. Many advisors request fees as a retainer and a small percentage of equity that vests over time. The amount of compensation depends on several factors, including the amount of access time to the advisor, the goals of the startup and how the advisor's contributions potentially impact these objectives, and the seniority and reputation of the advisor in terms of experience.

On average, startup advisors may charge anywhere from $5,000 to $25,000 per year for a retainer fee, but it can be more or less than that, depending on the individual advisor and the startup's needs. Negotiating the payment with the advisor based on the specific circumstances is best.

Along with modest retainer fees, it is common to offer some equity as part of the advising agreement. The average equity percentage given to a startup advisor can vary widely, depending on several factors, such as the startup stage, the advisor's level of experience, the level of involvement expected of the advisor, and the market conditions. In general, startup advisors may receive anywhere from 0.25% to 5% equity in a company, with the average equity stake around 1-2%. These are rough estimates, and the actual equity stake can vary significantly from one startup to another. The ranges can be lower when coupled with a retainer fee.

Most importantly, as with most equity arrangements, you will want to provide a vesting schedule similar to deals with senior team members. The typical vesting schedule for these positions runs four years, with a one-year cliff. In other words, the total amount of equity promised to an advisor will be distributed in 25% increments, with the first quarter earned only after the first 12 months of the agreement. This arrangement allows both parties to work together and determine the collaboration's value before the first year ends. If the parties reach the 12 months and agree to continue, then the advisor would be eligible to earn the rest of the total amount over the life of the vesting period,

My advice to founders is to take your time with these arrangements. I recommend establishing a short but focused probationary period where you work with an advisor for one to three months to see if there is a good fit. During that time, you should set clear, measurable objectives for the advising period to evaluate the impact the advisor brings to your venture. If the advisor is not willing to provide some counsel under these arrangements, look for someone else. Most startup advisors understand the financial conditions of a new venture and should accommodate a reasonable introductory period. 

No matter the arrangements, you will want to have a formal agreement with mentors and advisors. Agreement terms offered to startup advisors typically include meeting times, confidentiality and non-disclosure, equity and vesting, and non-compete. Many existing agreement templates can serve as a starting point. Sources for these mentor and advisor agreements include law firms specializing in startups, online legal services, document libraries, and open-source startup communities and accelerators. 

It is crucial to remember that while these templates can be a useful starting point, your specific circumstances may require modifications to the agreement. It's always best to have a lawyer review and customize the contract to ensure that it meets the legal requirements in your jurisdiction and protects your business interests.

Summary

Mentors and advisors are essential resources for startups, providing invaluable support, objective guidance, feedback, and business insight. They help startups avoid costly mistakes, improve business management, build networks, and provide access to valuable advice for navigating the unique challenges of starting a business.

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