A miniscule number of Canadian small- and medium-sized businesses use an advisory board, which is evidently a problem because the companies with one do much better than those without.
These are the findings of BDC’s first-ever Canadian study on the impact of advisory boards. According to BDC, just 6% of Canadian small- and medium-sized businesses use an advisory board, most saying implementing one is too much time and effort. But companies that created an advisory board saw their sales grow almost three times faster in the following three years than in the previous three years.
86% of entrepreneurs who do have an advisory board say it has had an important impact on their business success, according to the study. Productivity rose 6% in the three years after—double the 3% rate in the previous three years. And over the past decade, average annual sales of businesses with an advisory board were 24% higher than those of a control group of other businesses, while productivity was 18% higher.
Yet only 6% actually have one. Talk about a competitive advantage.
“The benefits of having good-quality, independent advice from well-respected, experienced individuals is clear, and we now have research to support it,” says Jean-René Halde, BDC’s President and Chief Executive Officer. “We have to encourage more entrepreneurs to use an advisory board so that we can grow the numbers that have one.”
When forming an advisory board, entrepreneurs typically seek expertise in accounting and finance, sales and marketing, and human resources, the study found. The most commonly cited impacts from advisory boards were on company vision, innovation, risk management and profitability. Most advisory board members give their advice free of charge and meet once a month or quarter with a company’s leadership.
“An advisory board can be a sounding board to help busy entrepreneurs strategize about their business, broaden their vision and enhance their bottom line,” he added. “Unfortunately, there is a perception among those who don’t have an advisory board that implementing one required too much work, time and effort.” “We must stamp out this notion that they are not worth the effort, because all worthwhile initiatives do.”
For the purposes of the report, advisory boards are defined as “a group of independent people who advise the management team of a company on specific problems and who meet on a regular basis. Unlike a board of directors, the members of an advisory board do not have the authority to vote on business matters nor do they have any legal responsibility towards the company. The company has no obligation to implement the advisory board’s recommendations.”