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Advisory boards: 6% is not enough

By Jean-René Halde
President and Chief Executive Officer
Business Development Bank of Canada (BDC)

Canadian businesses’ competitiveness is the topic of debate for policy-makers, business leaders and academics alike—and rightly so. At BDC, we have long championed the view that to maintain the nation’s prosperity and the standard of living that Canadians enjoy, we must do more to improve the long-term competitiveness of our small and medium-sized enterprises (SMEs). In a globalized world, this is arguably one of Canada’s most important business concerns.

Making a business more competitive in a global economy is difficult. Many entrepreneurs do not have the expertise or the time when they are busy dealing with the ups and downs of running a business. But being able to see the forest for the trees is necessary if a business is to succeed. That is why I have been a vocal advocate of the use of advisory boards. I have seen first-hand how businesses benefit by having one. They are a resource with great potential to help SMEs innovate, be more productive, better compete and grow. Ultimately, that is the goal.

BDC recently surveyed Canadian entrepreneurs about the benefits of having an advisory board, and the numbers are impressive. Of those businesses that have one, 86% say it has had a significant impact on their firm. More importantly, the impact is on sales growth and productivity—where it counts the most. From 2001-2011, average annual sales were 24% higher and productivity was 18% higher in SMEs with an advisory board than in those without one. A resounding majority (80%) of entrepreneurs surveyed said they would use an advisory board again if the opportunity arose.

The problem is only 6% of Canadian entrepreneurs have an advisory board. A pittance, really, given that Canada is a country of small businesses—98% of all businesses in total. These businesses are crucial to our economy and account for the lion’s share of new job creation.

In short, there are not enough advisory boards—and this needs to change. More entrepreneurs should be encouraged to use them. And this perception that they are not worth the effort also needs to be stamped out. Any good business person worth his salt knows that all worthwhile initiatives take some time and effort. And while they are certainly not a panacea for all that ails Canada’s SMEs, research shows they are an untapped resource that could turn the nation’s businesses into strong global competitors.

When you think about it, these findings should come as no surprise. As the people who are at the heart of the business’s daily operations, experienced entrepreneurs know that, for the most part, they work in the business. Few have time to plan, strategize or look at the grand scheme of things—that is, few have time to work on the business. And, given the tough conditions of today’s global marketplace—fierce competition, rapid technological change and persistent economic uncertainty—that is a dangerous thing. The limitations of the entrepreneur quickly become the limitations of the firm.

Put an advisory board into the mix and all that changes. Good-quality, independent advice from well-respected, experienced individuals has a profound impact. At the root of the impressive statistics is the fact that an advisory board encourages the entrepreneur to question the fundamentals, rethink his or her business model, formulate new ideas and, more importantly, to adopt a broader view, see the bigger picture and, if necessary, develop a new vision for the company.

Several years back, I served on an advisory board to a small company. We were only three (a board does not need to be large to be effective). It became quickly apparent that the company’s business model needed to change, and rather quickly, if the entrepreneur hoped to stay in business. The cost structure was unsustainable and profits were slipping. At this critical juncture, it was time to talk turkey with the entrepreneur to persuade him to change course. We knew that the course correction would mean him having to make difficult, unpopular decisions, but he is still in business today. Would he have come to the same conclusion on his own? Perhaps, but I believe we helped him reach a decision sooner, saving him time, money and in the end, his business.

Stakeholders in both the private and public sectors have to start talking about the benefits of advisory boards to SMEs. BDC has begun to do its part by publishing research that now supports their use. And we intend to do more.

An advisory board is a simple, inexpensive resource that can give Canadian businesses a strong advantage that will help them prosper and more importantly, stay ahead of the pack in the global marketplace.