Socrata

Successful startups need good advisors. These folks are seasoned professionals who provide sound advice based on real world experience. What makes a good advisor, how do you find them and how do you get them to join your advisory board?

Think about your own strengths and weaknesses as an entrepreneur. Use your advisory board to fortify areas where you are weak or inexperienced. These areas might include: technology development, data center operations, capitalization, business strategy, accounting & finance, marketing or sales. You probably don’t need to cover all the areas. If you’re marketing a free, consumer Internet service you probably don’t need an advisor with experience in enterprise software sales. For sure you need at least one advisor who has previously been a successful entrepreur.

Finding advisors requires some networking. Ask your attorney, banker, accountant and other entrepreneurs for introductions to potential board advisors. Be direct and tell them what you’re trying to accomplish. Use Linked In to make introductions as well. Active angel investors are good candidates as advisors, too. I’ve found most folks to be fairly receptive and flattered to be considered for an advisory role. Here’s what I look for in potential advisors:

1) Repeatedly demonstrates a propensity to be extremely candid
2) Distinguished and well-respected within his or her domain
3) Track record of multiple successes within his or her domain
4) His or her participation lends credibility with your target audience(s)
5) Has the intelligence to map his prior experiences to your startup’s needs
6) Can add value commensurate with or in excess of the cost of getting the advisor

Point #6 really is the summary point. A lot of advisors don’t add as much value as they cost, in my opinion. You want someone about whom you feel is worth the x number of shares it costs to attract them.

While #6 is the summary point, #1 is the one most neglected but is far more important than #2 through #5. Your business processes, strategies, presentations and messaging will improve dramatically if your advisors are candid enough to offer insightful, constructive criticism. And that’s the whole point of having advisors in the first place. Good ones improve your chance of success.

Landing good advisors takes time and the establishment of mutual respect and trust. When meeting potential advisors, tell them your motives and that you’d like to get to know them over time. They’ll want to do the same – after all, their reputation is diminished if they become an advisor and you turn out to be not such a great entrepreneur. Nurture the relationship over time and when the time is right, ask the individual to become a formal advisor. From there, avoid the second most common mistake – under-utilization of board advisors.

One of the first questions entrepreneurs ask when starting a company is about hiring an attorney. Do I need one? If so, what kind do I need? The answer to every question regarding your startup is “It depends.” Seriously, though, you do need an attorney. What kind of attorney you need depends on how you plan to organize, grow, and as importantly, how you plan to capitalize your company. If you expect the company to remain fairly small and not need external investors, there are many good attorneys who can help you set up an LLC. If you want to be the next Zillow, you’re going to need a great attorney from one of the bigger law firms.

In February I incorporated blist as a Delaware C Corporation. As a small company in Washington, that might seem odd to some entrepreneurs. The reason is simple – if you ever plan to raise capital from a VC, they will feel most comfortable investing in your company if it’s a Delaware C Corp. You could start as an LLC or a Washington Corp. and then convert it later, but why pay the legal costs twice? The added annual cost of being incorporated in Delaware is nominal.

So how do you actually pick an attorney? Here’s the process I used both this time for blist and last time for MessageRite. I asked about a dozen entrepreneurs and angel investors to provide recommendations. Entrepreneurs will typically know only one attorney – their own. Active angel investors will often sit on advisory boards and know their way around the startup ecosystem. They’ll usually recommend a few attorneys they’ve come to know. Next, correlate the responses. Are there any attorneys who show up two or three times? That’s what you are looking for. Make your short list of three or four attorneys and either send them an email yourself or ask your entrepreneur/angels for an introduction. In the email make it clear that you are trying to choose an attorney for your new startup.

On to the interviews. It’s as important to interview an attorney as it is a prospective employee. You are going to be spending a lot of time with this person during formation, the first year, during financings, and eventually when your company is acquired (or goes public). Here’s what I look for in an attorney – someone who:

1) I can trust and in whom I can confide
2) Seems to understand my business
3) Who understands business strategy in general
4) Is connected with the right VCs
5) Has the bandwidth to handle my account
6) Lends credibility to my company
7) Has great references Is respected by his or her peers
9) I like

The list might seem odd. Why isn’t there anything on the list about his or her legal chops? I expect an attorney wouldn’t satisfy 1/2 of these if he/she wasn’t a good attorney to begin with. You might also be surprised by my emphasis on understanding my business and business strategy in general and liking him or her. If you’ve picked the right attorney, (s)he’s going to be one of your most active advisors. You want someone who understands business and particularly business strategy for startups.

If you are in Seattle, here are the local attorneys who were frequently recommended to me: Dave Clarke of Perkins Coie; Laura Puckett at DLA Piper, Craig Sherman of Wilson Sonsini, John Robertson of Heller Ehrman and Alan Smith of Orrick. You can’t go wrong with any of these attorneys. I went with Dave Clarke because he was the best fit for us. That decision has been excellent and I highly recommend Dave. Ben Elowitz of Wetpaint loves Buddy Arnheim, also of Perkins Coie, but based in their Silicon Valley office, not Seattle. Admittedly most of the time I communicate with Dave Clarke via email and phone, but I like being able to visit with him in person. For others like Ben, physical proximity isn’t quite as important.

Select a great attorney. It’s much more important than most first time entrepreneurs think it is.