From the November 2010 issue of Investment Advisor • Subscribe!

November 1, 2010

Can You Build a Business?

It takes a special breed of advisor to also be a business owner

The typical advisor has likely attended multiple coaching programs, has participated in dozens of practice management workshops, and has seen more presentations of best practices than there are episodes of Law and Order. Unfortunately, the sad reality is that having done all of these things, the average advisor is probably only marginally more successful in building a business than he would have been if he simply stayed at home. The biggest obstacle on the road to building a business is usually the person in the mirror—the advisors themselves.

Building a business that goes beyond the personal skills and time of the advisor is an act of extraordinary effort that requires passion, commitment and difficult decisions. Realistically, most advisors do not want to create a business—what they seek instead is a solid income and balance of life. Most of all, most advisors seek a sense of achievement and success. Building a business may be the wrong goal to pursue to begin with.  

Are You Pursuing the Wrong Goal?
Most advisors join a coaching program or attend practice management workshops because that’s what everybody does—not because they know what they are trying to achieve personally. After all, who doesn’t want to have a bigger practice, maximize profitability and create more equity value? Who doesn’t want to have six-pack abs, climb Mt. Kilimanjaro or complete a marathon? Then again, who wants to go on a stringent diet, train twice a day for months, spend all their savings on equipment and nurse bleeding feet and bursting lungs? Only a few will have the passion, dedication and the natural talent to achieve such goals.

The first question that advisors should ask themselves is “What do I really want to achieve as a person?” The size of the business and its profits are often part of the answer in my experience, but it often strikes me that we are ignoring the cost in this cost-benefit analysis. To truly believe in the goal you have to consider the trade-offs it will require. Are you willing to spend long hours working? Are you willing to give up significant occasions in your family? Are you willing to put the needs of the business ahead of relationships with other people? Can you bear the responsibility of being wrong? Can you stand the criticism of others? Because each and every one of these will happen to you as you embark on building a business. The business is a beast that feasts on your time, your energy and your money.

The advisory industry is full of the mesmerizing stories of entrepreneurs who have built great businesses. I have had the privilege of knowing many of them and in every one of those “success stories” I can think of, I know there was also a story of many days spent away from home, of having to fire a close friend and a partner, of relocating your family because of the needs of the business, of missed kids’ soccer games and badly neglected golf games. The most successful entrepreneurs I know are well-rounded people with good families. They have hobbies and are good tennis players, golfers, cooks and whatnot - until you start talking to them and you realize that there is almost nothing else in their lives that they are as passionate about as their business. It is what drives them and what makes them go and there is no plane they will not get on to pursue a deal or a client.

Most people don’t climb Mt. Kilimanjaro and run marathons. These are experiences beyond what the average body and the average life want to handle. Building a large advisory firm is another such goal—a beyond-average achievement that will tax the entrepreneur and his or her resources. I believe that just like most people would chose to run and hike moderate distances and maintain balance in their lives, most advisors would rather balance their personal and professional goals.

There is nothing wrong with creating a personal practice that, while overly dependent on the advisor, provides a balanced life and good income. It is a path though, very different from that of building a business. Some levels of income and value will not be achievable, and success will have to be measured differently—a more personal definition than just AUM or income. Most advisors can’t bear to let the opportunity go by, but don’t have the passion and conviction to pursue it. So how can you be sure that you are not missing out on what could be a fledgling opportunity?

Can You Make Decisions?
Perhaps the first step is to ask yourself if you can bear the burden of decision-making. Most people prefer to have control, but very few are willing to bear the responsibility of making decisions. The world has many more “auditors” than real entrepreneurs.

As difficult as it may be to evaluate the image in the mirror, ask yourself—how decisive are you? Can you bear the responsibility of being wrong? Can you make decisions with unclear and unreliable information? Can you stand being the “bad guy?” If the answers tend to be “no,” it may be that you will be much happier and more satisfied in a structured environment where you are not the “captain.” This does not mean that you have to work as an employee, but you may consider merging in a larger firm where you are a “practicing partner”—someone who is focused on clients and does not have to bear the burden of management. If it is not in your nature to be a captain, if you need structure, you may find it tremendously frustrating to constantly have to make decisions with unclear outcomes.

Do You Really Have A Vision?
Most businesses are invented—they are not created on a recipe. Columbus and Magellan did not get their maps from the “Seven Secrets to Discovering New Worlds” workshop. They got on a ship and told everybody that they had a vision of where it will go.

I think that most workshops and coaching programs are really filled with “involuntary entrepreneurs” who are there to find “the answer”—the recipe that they need in order to function. Having a recipe is not a bad idea—unfortunately, it is incompatible with achieving extraordinary results. You can’t say—“I am a great chef, just pass me the cookbook!” You have to invent your own recipes. You can’t build an extraordinary business on a coaching program—you will have to invent it. That’s not to say that you can’t do some darn good cooking from the cookbook. It is also not to say that the great chefs don’t go to school. It is just to say if you want to have a uniquely successful business, you have to invent it.

Can You See Beyond Yourself?
Most advisors have a practice where the client hires them personally to perform certain services. The value proposition essentially amounts to—“you get to work with me.” Whatever the talent, experience, expertise and personality of the advisor may be, that’s what the clients are buying. After all, if you really look around there is not much else. A great entrepreneur I once knew told me the story of how when he started his business he called it Doug Durst and Associates. “The clients kept asking,” he told me, “‘Doug, we can see you, but where are the associates?’”

This personal service model is very gratifying—after all it makes you (the advisor) feel valuable, needed and appreciated. You can see the difference you make and it gives you not only control, but relationships. Emotionally, advisors are addicted to this service model because it allows them to have a personal connection with the clients. Many advisors have described that as “having 100 friends.” Having friends, being surrounded by good relationships is a very powerful emotional need that we all have. This service model supplies it in abundance, making the profession one of the most gratifying occupations. Unfortunately, it also destroys the “business.”

The business and the advisor are inevitably going to be in competition for resources and attention. If the clients relate to the advisor, the value of the business is low if any. If clients come to the business the value is higher, but the emotional gratification may not be there. This is where you will need to know yourself—can you take satisfaction in building a business or do you prefer relationships? Some people are motivated by ideas and others by relationships—the idea people will have an easier time being a CEO.

The concept of the business beyond the person starts with conceptualizing a business value proposition that goes beyond your personal skills. What can be trained and systematized? What can you teach and develop so that others can perform it, too? Finding the magic ingredient that will help your firm develop a proposition, a “life” of its own, is the foundation for your business. It could be a niche market you develop personally and then train others to pursue, it could be a proprietary technique you can teach, it could be a distribution channel you develop and staff. It could be many things, but it will have to be unique, abstract and not contain the word “I.”

Can You Get Over Yourself?
Many coaching programs talk about identifying your strengths and leveraging them in your business. Unfortunately, not enough focus is given on addressing weaknesses. It is true that successful people leverage what they are good at, but many advisors interpret that to mean they can avoid things they don’t like to do. There is a fundamental set of skills that are required in order to be an advisor and a business owner, and every advisor has to be at least adequate in all of them—no exceptions.

You can’t have a great driver who is not good in the curves, a marathon runner who does not like the up-hills and a great surgeon with trembling hands. Similarly, an advisor has to be at least adequate in four fundamental skills in order to have a chance of building a great business. They have to be good at their trade—i.e. a skilled advisor; they have to be able to maintain relationships with clients; they have to develop the business; and they have to manage people. Yes, it is possible to survive in practice without one—but you will be very limited in your practice and the scope of what you can create.

I am personally not a big believer in the theory that we are somehow born with some innate set of talents that never change or that we develop this recalcitrant personality that is not subject to change. I believe that advisors need to be aware of their strengths and play to them, but also I believe advisors should address weaknesses that are shackling them in their strategic choices. Everyone can learn the basics of these four skills. Too many great advisors have never gotten past a personal practice because they could not retain enough staff to even get started developing a business. Too many great practitioners have never blossomed because they were “not very good at selling.” Play to your strengths, but the basics of these four skills are a ticket to the game—you will be very limited without them.

Can You Coach?
Managing people is a particularly difficult skill for advisors to master. Many are so frustrated with past experiences that they are not even willing to try ever again. Then they design their whole practices around the limitations of the current staff. It is also very common for advisors to prefer the “devil they know” and tolerate poor performance from existing employees rather than confront the issue and try to address it. Unfortunately, it is impossible to grow a business without people. What is more, the business will inevitably have not only the kind of employees that do everything you tell them, but the kind that tell you what they think should be done. Those are the most valuable ones. If you want to have a business that goes beyond your time, your skills and your personal involvement, these are the people to cultivate.

I know that many advisors will ask—“Can’t I hire someone to manage the people for me?” To me that’s like a quarterback asking if we can hire someone to do the hand-offs on the running plays. A large firm can have one partner dedicated more to staff development than the others, but it is very true that it takes a village to raise a kid - all partners and owners have to contribute.

So Should You Sign Up?
Not every advisor will build a great business—certainly not because they lacked the talent to do so. Most advisors will choose not to create a large organization because they are not willing to make the tough trade-offs that are required. It is important that all advisors are brutally honest with themselves and ask the questions—Do I really, badly want to do this? Am I ready to do these things? If you want to achieve extraordinary results, you usually have to make extraordinary commitments. Advisors who will succeed in the quest to build a business will be passionate about it, make the tough decisions, define a vision and overcome their weaknesses.     

Philip Palaveev is president of Fusion Advisor Network. He can be reached at ppalaveev@fusionadvisornetwork.com.

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