Even if you believe that you have the right knowledge and skills to make your start-up succeed, it’s probably safe to say that you do not already possess a great amount of relevant experience and that you are not already a big name in the industry… This means that investors and other people you want to work with will be afraid that you will make beginners’ mistakes… just like experienced entrepreneurs. One of the safest ways to dispel this fear is to equip yourself with appropriate advisors, even if you don’t want to call them an “Advisory Board.”
These are consultants from different fields relevant to your project. They’ll have undergone a thing or two in their lives and they’ll have three central roles. The first and most important role, of course, is to supplement your knowledge in areas where you are weak. That might involve strengthening your familiarity with your industry (trends, competitors, suppliers, etc.), boosting your professional knowledge of development, production or marketing, or even providing a broad understanding of how to set up and manage a start-up. All of that help comes from someone who has already learned and experienced everything there is to know, and who knows how to transfer that knowledge to shorten your path and reassure investors.
The second role of a consultant is to connect you with people and companies relevant to your progress. That’s not just investors. It could also include strategic clients (people with whom you can engage in pilot programs, for example), business partners, advertising companies, the media, and so on. A good consultant will give you almost free access to a network that he has built with great effort over a number of years. Remember that a good word from someone that people trust is worth gold and can be the deciding factor in going into business with you.
The third role, and it’s no less important than the first two, is to legitimize your project. The fact that a professional with experience and a reputation believes in your chances of success and has agreed to connect his name to yours is significant, and can open doors.
So the best combination is, of course, someone with experience and skills who is also a well-known name in the industry. Finding someone like this is feasible, especially in the Israeli high-tech’s amazing ecosystem where many entrepreneurs have already managed to “sell the Ferrari” (or at least put it in the parking lot) and are prepared to help other entrepreneurs just starting out.
But is it enough just to add a familiar name to yours to enjoy all these benefits? Of course not. The nature of your relationship with the consultant is just as important as the relationship itself. If an investor does its homework and finds that the consultant is not really involved (for example, if they’re not obliged to work with you for at least a few hours a week or have not received any real reward for their services), it will be clear that the consultant’s name is only there to help with the marketing. You might not be taken seriously.
The relationship with the consultant should match the needs of the project and the consultant’s ability to help. Even if you haven’t agreed on a clear timeframe the agreement with the consultant should include at least a “soft” commitment to help. So, for example, you could agree that the consultant will be available to meet with the founders occasionally, take part in important meetings and negotiations, help forge connections, and so on. The compensation the consultant receives for this help should match the level of services provided and be in line with industry standards.
5 Tips To Work Effectively With Consultants:
- Ask the consultant for a short summary of their resumé (a paragraph or two at the most) and add it to every relevant presentation, business page, website, etc.;
- Remind the consultant occasionally to introduce you to industry leaders who can help, including consultants in other areas that you want to strengthen. Want to know someone specific? Don’t be afraid to ask the consultant if they have a direct or even indirect connection;
- Bring your consultant in on as many of the problems and challenges you face as you can (within reason). The consultant may well have solutions that you missed, saving you time, money and aggravation. Never assume that your consultant has nothing to say about an issue;
- If you want the consultant to take part in an important meeting or negotiation, ask them. The presence of an experienced person in the room can lead to completely different results even when you think you are in control;
- The most important rule: consultants are usually very busy. Don’t wait for them to chase you; use them in a respectful but effective manner.
5 Tips For Engaging Consultants:
- Cash payments to consultants before the first investment round are very rare. Usually a consultant will receive options or shares in the company. The amount depends on the scope of the services, the seniority of the consultant, the stage at which the consultant joined the project, and so on, but it’s often between 0.25% and 2-3%,
- The stock options or shares should be granted, or “vested” in stages. You could agree, for example, on quarterly awards and spread four equal parts over a year. To determine the right period for you (one year? two years?), try to think when it would be fair to say that the consultant has earned all their options or shares even if they have stopped providing services to the project.
- You can agree on a monetary reward (a monthly retainer, hourly work, etc.) after the company has raised a minimum amount in investments. You can also agree on a “success fee” payable in cash, options or shares if the consultant has helped to bring in an investment or a deal;
- Make sure that the engagement can be terminated for any reason with reasonable notice (usually 30 days). The consultant should be free to do the same;
- Regardless of the type of services you receive, make sure that the consultant signs commitments to maintain confidentiality and protect any intellectual property rights created within the framework of the company. The issue of non-competitiveness may be problematic because the consultant probably works with other companies in the same field, but you might be able to win an agreement that the consultant will not work with direct competitors doing exactly the same thing as you.