Whilst Business Advisory Boards are fairly new in Australia, a growing number of business could (and should) use them…
Many business owners and CEOs have an informal network they access to provide a sounding board for ideas or issues, but very few have formalised this access to high-quality, successful advisers by creating a business advisory board.
There is significant evidence an advisory board will dramatically improve performance and help a business go to the next level, but how much further?
Before we get into the details of how an advisory board works, I think it would be a good idea to look at what they can achieve.
After all, if having one isn’t going to make a real difference to your bottom line, why would you want one?
Whilst new in Australia, the good news is that they’ve been around for a bit longer in Canada, and there’s been some research on how businesses which use them compare to those who don’t.
The most impressive research was carried out by the Business Development Bank of Canada, a government-owned financial and advisory corporation that specialises in helping small and medium businesses develop.
In 2014 they spoke to almost 4,000 business owners across the country, as well as reviewed the economic literature and talked to a range of business experts. The survey looked at what percentage of businesses had an advisory board, how it operated if they did and how the company was performing.
This is not just anecdotal evidence. To make sure they were getting an accurate picture, the BDC followed a twin-track approach.
First, they randomly selected 8,785 businesses from their list of clients (which includes about 28,000 Canadian SMEs) and contacted them. About 47% responded.
Those that had set up a board in the previous three years were excluded, and the BDC then spoke to the 3,902 that remained. They also studied those businesses’ records, including financial data, to build a clear picture of how they were performing. It was a major study, and a lot of data was analysed.
The BDC’s findings are eye-opening:
The 3 areas where performance improved dramatically:
- Sales grew by 66.8% on average in the first three years after setting up an advisory board. That is not just three times the sales but three times the rate of growth.
- Productivity in the same period rose by 5.9%, against a 3.2% rise in the previous three years. That is the staff were getting more efficient nearly twice as fast.
- On average, annual sales for businesses with an advisory board were 24% higher than those without one, and productivity was 18% higher.
The numbers are thought-provoking.
Furthermore, where businesses had an advisory board, 86% of leaders believed it had contributed significantly to their success in areas of vision, innovation, risk management, strategic clarity, and profitability.
How much time have you spent on fine-tuning strategies, trying to squeeze out a fractional gain in productivity or an extra one or two percent in sales?
How often do you manage to triple your sales growth? For most businesses, the answer is probably “not very often.”
The BDC survey also asked business owners why they thought having a board had improved their performance. The most popular answers were:
- They wanted help in growing the business
- They were able to make improved strategic business choices and better decisions.
- A wider range of skills and knowledge were available.
- It was easier to develop new ideas.
- Management structure was improved.
- The company benefited from a better reputation and image.
Advisory boards were seen as having a positive effect on the company’s vision, its ability to innovate and the management of risk. Profitability and sales growth were mentioned repeatedly.
Many owners also felt that the board had improved labour relations and made it easier to hire the best employees.
Leaders of businesses that have an advisory board are also more likely to have the confidence to carry out ambitious projects. When asked if they would consider a growth product or major restructuring, 58% said yes. For leaders without a board the figure was 35%.
Fifty-six percent (56%) of those with a board would consider expanding into a new market, against 34% of those without one.
The improvements in sales figures and productivity probably have a lot to do with this increased confidence. If you successfully expand into a new market, sales will rise. If you bring off a well-planned restructuring, you’ll see a growth in productivity.
Businesses with an advisory board seem to be more willing to do those things, and that means they’re more likely to succeed.
It’s no surprise that the vast majority of business owners with an advisory board say they would set up another one if they had to start over. The evidence shows that owners who have experience of working with an advisory board overwhelmingly find it helpful, both for them personally and for their business.
