Does your company need a board of directors or an advisory board?
Many entrepreneurs hesitate to establish a board – perhaps out of fear of endless meetings, heavy decision-making processes, or simply because it’s difficult to know where to begin. But a board of directors or an advisory board can be a crucial factor in running your company. The right combination of people and competencies provides access to experience, insight, and networks that can help develop the business.
This article walks you through the difference between a board of directors and an advisory board, when you should consider them, and how to assemble a team that can help your company grow.
Board of Directors vs. Advisory Board – What’s the Difference?
Sooner or later, most companies reach a point where external advisors can make a meaningful difference. The question is what you truly need – a board of directors or an advisory board? Although both can be powerful strategic tools, they have very different roles and obligations.
A board of directors is a formal body with legal responsibility. It is obligated to ensure that the company is run responsibly, finances are healthy, and the strategy is on track. The board can demand actions from management, make decisions, and ultimately fire the CEO if the company underperforms. This can be especially valuable as the company enters a stage where governance, investor trust, and scalability become critical. The board can help structure fundraising and ensure compliance.
An advisory board has no legal obligations. It functions as a flexible and informal group of experts who advise management. It can be an important sparring partner when navigating complex regulations within AI, medtech, or technology. Experts with industry insight can help interpret regulatory requirements, optimize product development, and open doors to strategic partnerships that accelerate growth.
When Should You Choose What?
The choice between a board of directors and an advisory board depends on where your company is in its growth journey and what you need.
In the early stages, when rapid input and flexibility are critical, an advisory board is often the best option. You gain valuable experience without committing to a more rigid board structure. As the company grows – and especially if you are raising capital – a board of directors may become necessary to ensure governance, financial control, and long-term strategic direction.
Many startups choose a combination of the two: the board handles formal decision-making, while the advisory board brings specialist knowledge and networks. This allows both structure and fast counselling – without one solution excluding the other.
How to Assemble the Right Board of Directors
When searching for board members, it’s crucial to recognize that board work requires more than titles and experience. An effective board consists of active, strategically minded members who understand their roles as both critical counterparts and partners giving constructive feedback. It’s not just about finding the right competencies – it’s just as much about building a team that collaborates well and constructively challenges management. Key competencies include:
Strategic Understanding
A strong board must think long-term and anticipate the company’s challenges as it grows. Board members with strategic experience can help:
- define and validate the company’s growth strategy
- create structure and governance for professional development
- support management decisions with data and insights
Industry Knowledge
Understanding the market is essential for making the right decisions. Board members with deep industry knowledge can:
- Provide insight into market trends and regulations
- Contribute to product development and positioning
- Anticipate risks and identify new growth opportunities
Financial Insight
Financial management is crucial for startup success. A financially strong board member can help:
- develop a sustainable financial strategy
- ensure control over budgets, cash flow, and risk management
- prepare the company for fundraising and investor dialogue
Network
A good board member brings not only experience but also access to a valuable network. Well-connected members can:
- open doors to new business opportunities and partners
- introduce the company to potential investors
- help recruit talented employees and advisors
Diversity
A high-functioning board requires more than technical skills – it also needs diversity in perspectives, experiences, and backgrounds. Consider:
- Functional diversity: A mix of strategic, financial, and technical expertise ensures a holistic approach to challenges.
- Industry diversity: Members from different parts of the value chain (e.g., suppliers, customers, regulatory experts) can provide insights that might otherwise be overlooked.
- Demographic diversity: Variation in age, gender, and nationality provides multiple perspectives, better risk assessment, and deeper market understanding.
Your Board Should Evolve with Your Company
A board is not a fixed entity – it should evolve with the company. Skills that were critical during the startup phase may not be the same as those needed during scaling or internationalization. Regularly evaluate whether the board continues to contribute optimally and whether its composition supports the company’s strategic goals.
Good times to reassess your board include when the company:
- Faces strategic shifts such as scaling, internationalization, or entering new markets
- Is raising capital and investors require a more formal governance structure
- Has passive board members who are no longer actively contributing
- Experiences skills gaps in the board’s composition
An effective way to manage changes is to establish a cadence for evaluation, assessing members’ engagement and contribution. By continuously adjusting composition and working methods, you ensure the board remains a value-creating force supporting the company’s long-term success.