7 Mistakes Founders Make in Setting Up Their Informal Advisory Board

Building a business from the ground up is one of the most intellectually demanding and personally exposing things a leader can do. You are operating at the frontier of your own knowledge, often without the institutional support structures you may have relied upon in a corporate career. Which is precisely why the question of who you surround yourself with - formally or informally - matters enormously from day one.

This article is the first in a three-part series on the different types of boards available to founders at different stages of growth. We begin here, at the very start: the informal advisory board - arguably the most underutilised asset in an early-stage founder's toolkit.

What Is an Informal Advisory Board?

An informal advisory board is a small group of experienced individuals who agree to offer a founder their time, perspective, expertise and connections - typically on a voluntary, uncompensated basis, at least in the early stages. 

The word "informal" is doing significant work in this definition. This is not a governance structure. There are no fiduciary duties, no legal obligations, no voting rights and no executive accountability. Members have no liability for the company's decisions. They are not employees, consultants or directors. They are - at their best - trusted thinking partners, chosen with intention.

How does it differ from other board structures?

A formal advisory board typically emerges once a business has traction. Members may receive compensation in cash or equity, and the relationship is usually governed by a written advisory agreement. Expectations are explicit: introductions to investors, structured quarterly meetings, review of materials. The informal advisory board is the precursor - the proving ground where relationships are tested and mutual value is established before formalising anything.

A formal governance board (or board of directors) is an entirely different construct. This is a legal body with fiduciary duties to shareholders and, in regulated sectors, to regulators. Directors carry personal liability and are subject to fit and proper assessments. They attend formal board meetings, review audited accounts and have the power - and responsibility - to hold the CEO to account. This is governance in the truest sense: structured, regulated and consequential. 

The informal advisory board belongs to a different category entirely. Its power lies precisely in its informality. Done well, it gives founders something that formal boards rarely can: candid, low-stakes dialogue with people who have nothing to lose by telling you the truth.

Why Every Founder Should Build One

Before we turn to the mistakes, let's be clear about why this matters. An informal advisory board, assembled thoughtfully, can deliver a remarkable range of value for a founder in the pre-revenue or early-revenue phase:

• Sounding board - Building a company can be an isolating experience. Having trusted advisors you can think out loud with - before committing to a direction - is invaluable. Some of your best ideas will emerge through conversation, not contemplation.

• Advice and expertise - You cannot be expert in everything your business requires. The right advisors fill gaps in your knowledge of regulation, technology, finance, sales, operations or market dynamics - without the overhead of hiring.

• Referrals and introductions - A warm introduction from a respected advisor is worth many cold outreach attempts. Advisory relationships, when well-tended, become a doorway to clients, investors and talent.

• Credibility - In the early stages, your firm's track record is thin. The calibre of individuals willing to associate with your venture signals quality to the market. This is especially important in financial services, where trust is the primary commodity.

• Coaching - Some advisors will take a genuine interest in your development as a leader, not just in the business itself. This kind of mentoring relationship - candid, experienced, personalised - is difficult to replicate elsewhere.

• Diversity of thought - The best advisory boards resist the gravitational pull of homogeneity. Advisors who think differently, come from different sectors or challenge your assumptions will consistently produce more useful friction than those who simply agree.

• Blind spot identification - By definition, you cannot see your own blind spots. Advisors who understand your market, your model and your leadership style are uniquely positioned to name what you cannot see - before it becomes a problem.

• Motivation and caution - Good advisors do both: they energise you when progress feels slow, and they apply the brakes when you are moving too fast or in the wrong direction. That dual function - encouragement and challenge - is more valuable than either alone.

7 Mistakes Founders Make in Setting Up Their Informal Advisory Board

Mistake 1: No Clear Purpose - Building a Board Before You Know What You Need

The most fundamental error is forming an advisory board before you have answered a deceptively simple question: what kind of help does this business actually need right now?Many founders build a board because they feel they should have one - because it looks credible, because a mentor suggested it, or because they saw a competitor announce theirs. The result is a collection of impressive names attached to no particular purpose.

Before reaching out to a single potential advisor, get specific. Which decisions are you finding hardest? Where is your expertise genuinely thin? Are you struggling with product-market fit, regulatory navigation, commercial strategy, fundraising or talent? The answers to those questions should determine the profile of your advisors - not the other way around.

A strong advisory board isn't the one with the most recognisable names. It's the one made up of people who are directly relevant to where the business is right now and what it needs to overcome next.

Mistake 2: Chasing Names Rather Than Relevant Expertise

Closely related to the above is the temptation to build a board for optics rather than utility. The instinct is understandable: a prestigious name on your website signals credibility and may open doors. But it is a fragile strategy. The most celebrated names are often the least available, the most overstretched and the least connected to the specific challenges you face. An individual who built a payments business in 2005 may have a famous name but limited relevance to the embedded finance landscape of 2025. 

Seek advisors whose expertise is sharp, current and genuinely matched to your needs. A former head of compliance at a mid-tier bank may be infinitely more useful to a regulated fintech than a well-known venture capitalist who has never navigated the FCA's SM&CR regime. Relevance beats a big name. Every time.

Mistake 3: Failing to Inspire - and Neglecting the Mutual Benefit

Founders sometimes treat advisory recruitment as a one-sided ask: "Would you be willing to give me your time?" That framing - consciously or not - positions the relationship as a favour rather than a genuine exchange.

The most effective advisors are those who are genuinely inspired by what you are building. They lean in not because they owe you something, but because the mission resonates, the problem is interesting, or the relationship itself energises them. That means your first conversation with a potential advisor should be as much about sharing your vision compellingly as it is about exploring their experience. Equally, be honest about what you can offer in return. At the pre-revenue stage, it may not be financial. But it might be early access to a growing network, the intellectual stimulation of a genuinely novel problem, the opportunity to shape a sector, or - further down the line - involvement in something more formal and compensated. Make the mutual benefit explicit. The advisors most worth having are the ones who ask you "what do you need?" not "what's in it for me?" - but they still need a reason to say yes.

Mistake 4: Leaving Expectations Vague

One of the most consistent findings across research on advisory boards is that undefined expectations destroy otherwise promising relationships. When no one is clear on what "being an advisor" actually means, the result is typically nothing - polite silence on both sides, with neither party willing to trigger disappointment.

Be specific about what you are asking for before you make the ask. How often will you meet - individually, as a group, or both? Will sessions be in person or virtual? How much preparation are you expecting? Will you share materials in advance? How long is the initial commitment? What does success look like for both parties?

Monthly individual conversations in the first quarter, followed by a quarterly small-group session, is a cadence that works well for many early-stage founders. The precise arrangement matters less than the fact that it is agreed explicitly - in writing where possible - from the outset.

Mistake 5: Getting Compensation Wrong - Too Much, Too Soon (or Nothing at All)

Equity and compensation are areas where founders consistently misjudge. The two most common errors sit at opposite poles.

The first is over-compensating too early - offering equity or cash before the relationship has been tested, before the advisor's contribution is understood, and before vesting structures have been thought through properly. Granting fully vested equity upfront to a large number of advisors before a single employee has been hired can meaningfully dilute the cap table before the company has demonstrated any value. Advisor equity should vest over time - typically 12 to 24 months - and should be tied to genuine ongoing contribution.

The second error is treating the "informal" in informal advisory board as a justification for offering nothing at all - no acknowledgement, no reciprocity, no path to compensation as the business grows. Advisors who feel undervalued disengage quietly. Even where there is no financial compensation initially, founders should be transparent about what the relationship could look like over time, and should be generous with introductions, recognition and the less tangible currency of genuine appreciation.

The right approach: have the conversation openly, set expectations clearly, and build in a structure that reflects the evolving relationship.

Mistake 6: The Board Is Too Large, Too Small, or Too Homogeneous

Size and composition both matter more than most founders appreciate. 

A group of two or three advisors is a start, but lacks the diversity of perspective that makes advisory boards genuinely useful. A group of ten or more is unwieldy, difficult to coordinate, and often devolves into a collective in which individual voices are diluted and accountability for follow-through disappears. Research from the University of Pennsylvania suggests that meaningful collaboration tends to fall off beyond six people. For most early-stage businesses, three to five is the right range. 

Composition is equally important. If your advisory board all share the same professional background, the same sector experience, or - frankly - the same demographic profile, you are building a hall of mirrors rather than a window. The most dangerous thing about a homogeneous advisory board is not the advice it gives you. It is the advice it never thinks to give you, because everyone's blind spots are pointing in the same direction. Build for complementarity. Cognitive diversity, functional breadth, and varied lived experience are not nice-to-haves. They are the mechanism through which advisory boards actually improve your decisions.

Mistake 7: Ignoring Confidentiality - and Then Sharing Too Much

In the enthusiasm of early-stage building, founders can become indiscriminate in what they share with advisors. An advisor relationship that feels close and collaborative can erode the boundary between helpful transparency and genuine exposure - of client information, proprietary business model details, or intellectual property that constitutes your competitive edge. 

This is particularly acute in regulated financial services, where client confidentiality obligations are not merely ethical but legal. Before sharing anything sensitive with a potential advisor - even in an exploratory conversation - ensure that a basic confidentiality understanding or non-disclosure agreement is in place. Most serious advisors will regard this as entirely standard practice rather than an insult to their integrity.

The flip side is also worth noting: some founders over-correct, sharing so little that advisors cannot give useful input. The solution is not to choose between openness and protection, but to be deliberate about what you share, with whom, and under what terms.

The First Step in a Longer Journey

If you take one thing from this article, let it be this: building an informal advisory board is not a one-time event. It is the beginning of a relationship-building process that, done well, will evolve with your business. 

In the pre-revenue phase, an informal advisory board offers you the strategic support, honest challenge and external perspective you need without the cost or complexity of formal governance. It allows you to test advisory relationships and establish patterns of mutual trust and value before any formal obligation is created. 

As your business grows - as revenues begin to flow, as the team expands, as external investment becomes relevant - your advisory needs will change. Some of those early informal advisors will naturally evolve into formal advisory board members, with clear agreements, defined compensation and structured engagement. Others may step back, and new voices will be needed. That evolution is healthy, and it is expected.

The informal advisory board is the seed. What grows from it - the formal advisory board, and ultimately the governance board that a mature regulated business requires - is the subject of the next two articles in this series.

Coming Next: The Full Board Journey

This article is part one of a three-part series on boards for founders:

Part Two: The Formal Advisory Board - When and how to formalise your advisory relationships. Compensation structures, advisory agreements, and how to get the most from a structured, paid advisory board.

Part Three: The Formal Governance Board - What a board of directors actually does, why regulated financial services firms need one earlier than they think, and how to build a board that genuinely governs rather than merely rubber-stamps.

Laura McCracken is the Founder & CEO of Blackheath Advisors, a specialist board advisory firm serving Chairs and CEOs of regulated financial services and technology companies. She has held board-level roles including Chair, INED, CEO and Managing Director positions in these sectors, and advises founders on governance, leadership, culture, board-level strategy and resilience.