The Guide to Advisor Shares and the Philosophy of Kaizen

The Guide to Advisor Shares and the Philosophy of Kaizen

Introduction:
In the fast-paced world of startups and personal development, two key concepts stand out: advisor shares and the philosophy of kaizen. While seemingly unrelated, these two ideas share common ground when it comes to achieving long-term success and growth. This article aims to explore the connections between them and provide actionable advice for incorporating them into your entrepreneurial journey.

The Importance of Advisor Shares:
When building a company, having a vesting schedule for advisors is crucial. Just like you have vesting agreements for yourself and your employees, it's essential to set expectations for advisors. These agreements typically span two years, with monthly vesting and no cliff. However, before promising equity, it's worth considering if a potential advisor would be willing to invest in your company instead. Direct investment not only increases their commitment but also sends a positive signal to future investors. Therefore, it's vital to choose advisors as carefully as you would choose a co-founder, as they can either be instrumental to your success or become a liability.

Different Types of Advisors:
Understanding the various types of advisors can help you identify the specific expertise you need to complement your weaknesses. The first type is the advisor who brings value through association. This association can enhance your company's credibility and open doors to valuable connections. The second type is the practical advisor, acting as a sounding board for your ideas and providing guidance based on their experience. These advisors might even consider investing in your company directly, further aligning their interests with yours.

Formalizing the Relationship:
Once you've identified the right advisor, it's crucial to establish a formal relationship through a signed agreement. This agreement should outline the advisor's domain of expertise, their role in helping your company, and the compensation they will receive, which may include equity. Documenting the agreement is essential, especially if equity is involved, as it protects both parties and ensures clarity in expectations. Collaborating with a lawyer and involving your potential advisor in the agreement process can help create an arrangement that benefits everyone.

Advisor Share Percentages:
Determining the appropriate equity percentage for advisors can be challenging. Data from advisor shares issued in 2019 for companies that raised under $2 million shows that advisor RSAs ranged from 0.2% to 1% of a company, while advisor NSOs ranged from 0.1% to 0.5%. Generally, the earlier an advisor joins a company, the higher their fully-diluted equity share. However, it's advisable to avoid a four-year vesting schedule since most advisors deliver the majority of their value upfront. Re-evaluating the relationship after a year or two allows for adjustments if needed.

The Philosophy of Kaizen:
Now let's shift our focus from the world of startups to personal development. Kaizen, a Japanese concept, embodies the principle of gradual change. In an age of instant gratification, it's easy to become overwhelmed by vast, distant goals. Kaizen encourages us to make small, continuous improvements over time, leading to significant and sustainable transformation. Rather than striving for perfection, which is unattainable, the philosophy of kaizen emphasizes the pursuit of being better than before.

Implementing Kaizen in Your Life:
To apply kaizen to your life, embrace the idea that even if you're not perfect, you can still strive for improvement. As Roman philosopher Seneca said, "It is enough for me if every day I reduce the number of my vices and blame my mistakes." The key is to focus on gradual, continuous improvement rather than aiming for a drastic overnight change. By making small, consistent adjustments, you can achieve long-term personal growth and success.

Finding Common Ground:
Although seemingly unrelated, the concepts of advisor shares and kaizen share common ground. Both emphasize the importance of gradual change and continuous improvement. Just as a vesting schedule allows for incremental equity ownership, kaizen encourages incremental personal development. By incorporating both into your entrepreneurial journey, you can create a solid foundation for success.

Actionable Advice:

1. Choose your advisors wisely, considering their expertise and commitment to your company. Instead of solely relying on equity, explore the option of direct investment to increase their dedication.
2. Formalize your advisor relationships through signed agreements, clearly defining expectations, and compensation. Documenting these agreements protects both parties and ensures a harmonious working relationship.
3. Embrace the philosophy of kaizen in your personal development. Focus on making small, consistent improvements rather than striving for perfection. This approach allows for long-term growth and sustainable change.

Conclusion:
In conclusion, the concepts of advisor shares and the philosophy of kaizen intersect in their emphasis on gradual progress and improvement. By carefully selecting advisors, formalizing agreements, and implementing the principles of kaizen, entrepreneurs can lay the groundwork for long-term success. Remember, success is not achieved overnight but through consistent effort and continuous growth.