Buying Legitimacy: The Advisory Board

It is a tale. Told by an idiot, full of sound and fury. Signifying nothing.

Macbeth(A5,S5)

Something that seems universal among startups is that, at some point, they'll get negative press - sometimes deservedly, sometimes not. How that company responds to the negative press can also tell you a lot about them and where they are. Clear, concise rebuttals containing facts and data usually serve to dampen any story (and if provided to reporters prior to publication, may kill the story entirely). It's common, however, that companies that hit rocky times have the PR team swing into action and distract from the core questions, never actually addressing the concerns but instead creating fanfare and the appearance of action, but that ultimately mean nothing. One such method is the "Advisory Board".

An Advisory Board is a panel of experienced people in a given field, supposedly there to make comment on an organization's progress or approach within that field - these Boards can be general, for business, IP licensing, technology, media, or any other topic that can affect the company. Done well, these Advisory Boards can serve as an excellent resource for the company and staff, giving advice, providing connections, and a seasoned second set of eyes. 

A company serious about an Advisory Board starts it early in the cycle, before it is needed. The Advisors have recent working knowledge of the field, are compensated, usually with expenses and some stock, and meet on a regular schedule to receive company reports and then give their advice. Relevant staff have direct access to this board, and can use them as a resource when needed. Started early, they become part of the process and grow with the company and teams. The Advisory Board rarely has any actual powers or teeth but rather operates with the goodwill of the staff and executive.

Unfortunately, these Advisory Boards are rarely used for this but instead are either a method of publicity or of assuaging fears. The Advisory Boards are started or populated late in the company cycle, past the time when they can be easily integrated into processes, and perhaps with 'big names' who have not been at the 'coal face' for many years. There is much made in the press of their joining the Advisory Board, but following that, there is nothing they can do or say that is of interest to the company.

For example, Theranos recently expanded their Scientific and Medical Advisory Board with eight new very prominent doctors and researchers, claiming to have fully opened up their technology and processes to scrutiny. "Adult supervision is finally there!" you think upon reading it. But is it really?

How well qualified are they to judge the processes and technology Theranos uses? Microfluidics is a pretty specialised topic, and I don't see any engineers who build those systems there. Generally the end users of the technology, the doctors, don't know how it actually works beyond the basics. Are they capable of finding flaws, or fraud, if it's there? More importantly, how much access are they given to the systems? Is it open, free, and unsupervised, or is it closely restricted and monitored, perhaps shown a specific test? Why is this going to be effective when the actual Board of Directors had a former CDC director as a member? I've seen Advisors look at a very well scripted "show and tell" and then proclaim it a fantastic demonstration, without digging into it themselves. 

Critically - if they find anything, can they speak out publicly and have direct access to the Board of Directors (who should have real power to correct), or does the NDA they inevitably have to sign before seeing the technology restrict this? It's entirely possible that after the initial PR announcement of their joining that they are never contacted again by the company, but they can't even reveal that publicly. Getting someone to sign an NDA, and then showing them just enough of what you do, is also a great way of silencing a potential critic.

In the case of a company like Theranos, there is only one way to truly prove their technology works well - and that's an independent, third party, running standard tests in a remote location, without company personnel there, with guaranteed public release of the results regardless of outcome. That's standard in medical technology - usually multiple studies and peer-reviewed papers presenting the data for all to see.

Energous pull this trick too - for example in 2015 they had Martin Cooper, the "Father of the Cell Phone", join their Advisory Board. It was quite a coup for them, and made for some good publicity. Looking at the investor forums discussing Energous, it's not uncommon for people to write:

"Plus, if Martin Cooper is on board as a Director, The Father of the Cellphone, well, that's good enough for me. "

Quite literally, this person's presence is persuading an individual investor that the company is a sound investment. That's how valuable this type of 'endorsement' is. Like a fading TV star doing an infomercial for real estate or stocks, their name closes the deal. It's used alongside the TED talk, the article in the tech press, and the big name investor - none of which proves anything of value in the company - to cause the critical faculties of investors to switch off.

Sadly, the Advisor often doesn't even realise what their name is being used for. They are often true experts and highly ethical people, who come in with the best of intentions, but with limited knowledge of what's really going on (until after the NDA, then it's too late). It's not committing to a full time job, so they don't scrutinize too hard. They don't understand that the biggest value they give to the company is simply the use of their good name, a name they likely spent a lifetime building. That good name is used by the company to "Buy Legitimacy". 

So when you see companies like Theranos and Energous talk about their Advisors, understand what in my opinion is likely really going on. These aren't adults coming in to sort out the situation, they're generally just window dressing to distract. If these companies were serious about transparency they'd have created the Advisory Board from the beginning, not just during a crisis. To gain the real trust of the investors (and remember, it's all about selling on to a greater fool), they need to do the one thing that would silence every critic, and that's a real public demonstration of their technology.

How many of you expect to see that happening with any of those companies anytime soon? Exactly, so don't be distracted by the window dressing of the Advisory Board, keep asking to see the real results. It's the only honest way to buy legitimacy.