Do I Need a Board of Advisors?
Jumi Kim's thoughts about how to build her business race as fast as the Bentley, Lamborghini and Aston Martin luxury cars that are available for customers to drive at her exotic car rental company.
Kim started the firm, Capital Dream Cars, with her husband Eugene Kim -- who has been a Ferraristi since he was a kid -- and friend James Kim (no relation) in 2006.
They used to travel to Formula One races for fun and soon came up with the idea to offer other fans of fancy cars the opportunity to take them for a spin. Business for the Tysons Corner, Va. firm has gone from zero to 60 over the last two years and the Kims are now thinking about new ways to grow their business.
Jumi, who is the company's only full-time employee, is considering putting together an advisory board.
"We've been hesitant up to this point," she said. "I think it would have been helpful to have an advisory board from the get-go, but because there was so much confidential information in the development of the company, we were reluctant to share company secrets with outsiders."
It took the company about six months of very aggressive searching to find an insurer willing to commercially insure the firm's very expensive vehicles. The Rolls-Royce Phantom it offers for a joyride retails for $350,000, making the Ferrari 360 Spider look like a steal at $190,000.
"We wondered why there wasn't another firm like us in the area and then we understood why once we did the legwork," she said. "We called hundreds if not thousands of insurance firms but no one wanted to insure our start-up and now we consider our insurer a company secret and that ties into whether or not we should build an advisory board." She added that at least a few times a month, the firm gets a call asking who insures their cars.
But now that Capital Dream has a few laps under its belts the company founders are warming up to the idea. "I think that now we're kind of beyond the start-up stage, just figuring our way. Now we're on the beginning of our growth stage," said Jumi, a former English teacher. "It would be really helpful to have a board that's dedicated just to strategy, vision and long-term direction."
David Kirsch, a entrepreneurship professor at the University of Maryland's business school, said a company can't keep secrets from its board of directors because the board is the legal entity that represents a corporation. However, a board of advisers doesn't always have the same legal weight. "A small firm might want to keep this distinction in mind and think about framing their hiring standards differently" for the two distinct groups, he said.
Carolyn Semedo-Strauss is the founder of Enterprising Moms, a start-up networking group for entrepreneurial, business-owner and self-employed moms in the D.C. metro area. She recently formed an advisory board for her Alexandria, Va. firm.
"The term 'advisory board' can be intimidating, especially for a solopreneur or small business owner," she said, but also pointed out that a board "doesn't have to be highly structured or organized."
That's true if a company chooses to make an informal advisory panel rather than a board of directors -- a term that has legal connotations, as Professor Kirsch noted.
"There are certain benefits of a board of directors -- certain legal niceties," he said. "With directors, a company has to send a notice that a meeting is taking place and everyone has to convene at once, but board members also can face liability" when a business goes through tough times.
For some small firms, putting more control into the hands of a board of directors might be the right path. "A board of directors has formal fiduciary oversight over your firm and that might keep a small business owner out of trouble," he said. "Plus, having to report to a board who asks hard questions might be good for certain people."
And corporations of any size must have a board -- it can be the business owner, his mom and his brother, said Kirsch, but "a corporation has to have one."
He noted that some microenterprises might be more comfortable with an advisory group that gives a business owner advice in a more informal one-on-one setting, like lunch or dinner.
For Semedo-Strauss, a board is a "reality check" for her company and although she hasn't held meetings for her seven-person group, she plans to have them twice annually at a working dinner or lunch.
"I don't see my board doing hands-on work necessarily, but I'll go to them for their expertise and advice and hope they'll tell me if I'm headed in the wrong direction," she said.
She looked to fill her board with people who care about her business and are able to respond and give feedback, rather than legal or financial experts. "You can get the other sort of advice by paying for a lawyer or accountant, it's more important to have connections," said Semedo-Strauss, who currently does not pay her board members.
Avi Marcus, who co-founded Bethesda, Md. Jobstick with his brother in July 2007, has both a board of directors and a board of advisors for his five-person firm.
"I've got so many things that I'm doing, the boards give me advice and tips that really help me organize," he said.
His start-up matches lawyers of all experience levels with appropriate jobs. His board of directors is comprised of his software entrepreneur father, along with a main investor at Jobstick who founded a large search and recruitment organization in 1965. One person sits on Jobstick's advisory board -- a technology entrepreneur and former lobbyist.
"I don't think I could have [started Jobstick] without them...they are a sounding board," said Marcus.
Kirsch advises small businesses to carefully consider whether they need a board: "It shouldn't be just window dressing where a business thinks 'Oh, we've reached a certain size so we need a board.'"
"A small firm should think about the cost of organizing and engaging a group of advisers in a way that ensures they're able to contribute," he said. A small firm "might want to think about [the prospects of a board] early even if they don't act on it. They should keep an eye out for the kinds of people who might in due course be on the board."
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