From the March 2012 issue of Research Magazine • Subscribe!

February 24, 2012

How to Advise the Entrepreneur

Working with wealth creators requires target-marketing, clever communications, trust and a tailored counselor-style client engagement.

Entrepreneurs are a tricky bunch. Notorious risk takers, they are passionate, time-stretched and sometimes self-reliant to a fault. The Next Big Thing may be hardwired into their DNA but financial savvy? Not so much.

“Real entrepreneurs view risk differently. They have a very sophisticated algorithm sitting in their head. They know they have 10 or 20 different levers they will have to pull and push — and they understand the levers they need to pull and push to win,” observes Ray Padrón, president of Brightworth, an advisory firm in Atlanta. “Translating that isn’t easy. The hardest thing is having a conversation around risk and reward. You don’t want them to apply the same principles to their portfolio as they do to their business model.”

Entrepreneurs, quintessential do-it-yourselfers, also tend to seek out financial counsel not as a preemptive action but after a problem has surfaced. As business advisor Gene G. Wright, who heads Atlanta-based Northstar Consulting, puts it: “They’ve stretched the rubber band as far as they can.”

Wright calls entrepreneurs an “incredibly underserved” but lucrative market that requires special handling on the part of the financial advisor.

“Providing advice to the CEO of a Fortune 500 company is a very different process than to someone who’s just built a $10 million business and hasn’t had a vacation in five years,” says Wright. “You need to be results-oriented. You need to remember that entrepreneurs are time-compressed. There’s no time or need for formal reports. I’d be laughed out of the room if I showed up with a PowerPoint. Above all, recognize that entrepreneurs value relationships. You may have an incredible pedigree, but that won’t matter a twit if someone doesn’t trust you.”

What are the chief challenges facing advisors who want to develop a practice that features the entrepreneur? Here’s our four-part primer — with expert commentary from advisors and entrepreneurs themselves — on how to target the market, communicate to best advantage, build trust, and engage in a way that pulls it all together.

Target the market — Just as no two entrepreneurs are alike, neither is there one best way to make an approach. The experts’ advice? Make it simple and keep it real.

For starters, the advisor needs to understand the entrepreneur in advance as fully as possible, according to Herb Sih, a former financial advisor who heads Think Big Partners, an early stage business incubator based in Kansas City, Mo. It is one of 30 businesses he has started.

In essence, Sih says most entrepreneurs (and their spouses) are highly stressed; favor short, on-site meetings (“not death by a thousand PowerPoints”); and may have backgrounds that have nothing to do with their current endeavor. While their jobs are innately high-risk, the advisor should not assume that they have or want a high-risk investment profile.

Personal referrals and networking events are Sih’s preferred method of introduction. Sih says he gets a lot of pops on LinkedIn, which he ignores or deletes. “Not worth my time,” he says.

When Padrón meets with a prospect, it is typically through a referral — a source that gives him instant gravitas. However, he says, “I don’t sell Brightworth. I probably spend 80 percent of my time trying to understand him or her and their business. That usually communicates a level of sophistication.” It also gives him entrée to begin asking probing questions. He advises clients across the spectrum of the business cycle but he prefers to work with them three to five years in advance of a liquidity event because that’s when he believes he can add a lot of value.

Wright, who has started three businesses himself, has created what amounts to a Meet-the-Entrepreneur template. First, he uses a marketing service to identify businesses with the profile he wants: a five-year track record, a certain number of employees, a demonstrated cash flow. Next, he hires another firm to call the entrepreneurs he wants to target and offer them a complimentary consultation.

“Then I show up, sign a confidentiality agreement when I walk through the door, and listen to business issues,” he says “You let them do most of the talking. If you can add value, you probe. It’s the quality of the questions you ask that stops them in their tracks — questions they don’t have answers to.”

Be a savvy communicator — Entrepreneurs often think fast, talk faster and they’re big multitaskers. As Dominic Rubino, executive vice president of FocalPoint Business Coaching in Henderson, Nev., notes: “Entrepreneurs have a very unique headspace and it takes strategy to get inside it.”

Rubino uses the behavioral assessment tool DISC to educate financial advisors about different entrepreneur personality types. Financial DNA is another well-known assessment tool. Basically, the tools examine a person’s conversational style to help determine the type.

Many entrepreneurs, he adds, are “drivers”: quick, to the point and strong-willed. “If we were all birds, the driver would be an eagle. He’d just eat us and not care,” says Rubino. The lesson for the advisor? “They are the four-star general and you are the three-star general. You both are strong personalities and you have to step back.”

The savvy advisor is also likely to use a different approach with an entrepreneur who owns a gravel business as opposed to someone who creates avatars for online gaming. The message here: Match and mirror. “To be successful, I have to talk in your language back to you,” Rubino says. “That means I have to know what my style is first in order to modify to you.”

Other top tips: Don’t be rigid about scheduling and keep meetings under one hour. Make a point of including the spouse. And be concise.

Entrepreneur Scott Alvord, who operates three businesses in Sacramento, has a good friend who is a financial advisor but after a year and a half of pitches, Alvord had failed to hire him.

“Part of the problem is he would offer suggestions on things and I’d be too busy to deal with it. You’ve got to give me something very succinct. I have no time to look at a 50-page document,” he says. “Summarize it for me.” After his friend adjusted his approach, Alvord hooked up with him on a project.

Build trust — Most entrepreneurs will reject high-pressure sales techniques outright, preferring the slow and steady creation of trust. Any approach, according to Alvord, must include tact, non-pressure education and logic.

“The trick to a lot of it is just trusting somebody,” he says. “An advisor will have to gently impress upon the entrepreneur that the advisor cares and is not in the relationship just to make a sale but is instead trying to help prepare them for financial success and protect them from downturns or disasters.”

The best advisors, adds Wright, will also be proactive about deepening the entrepreneur’s network by providing introductions to other professionals. “I can’t solve every problem my clients encounter and it’s important to have a good network of accountants, attorneys, information technology and human resources professionals who can help out along the way,” he says. “This is a big trust-builder.”

Wright also uses what he calls “education-based selling” with his entrepreneur clients. “I like to raise logically provocative issues that make the business owner think about what it is they do and how they’re doing it.” A simple question like “How does the retirement account look?” could lead, for example, to a discussion that could transform the relationship.

It’s also important to have answers and insights.

As Rubino notes, “You want to offer solutions from a position of wisdom. You want to make sure your solutions seem very easy to implement. You want to take the work and worry away from the entrepreneur. ‘I just need this piece of information and I’ll take care of all the details.’ That’s what they want to hear. They like to delegate — if they can.”

Create a lasting engagement — Some advisors deal with the entrepreneur’s personal wealth, some with the business — some with both.

“Many entrepreneurs are looking for someone who can be a sounding board — who can ask the right questions, almost like a personal board member,” says Padrón. “You become their trusted counselor.”

One issue that might arise: a spouse or children who have taken a back seat to the building of the business.

 “You may have a spouse at home who has suffered through 20 hard years of building this thing. That 20 years is now sitting in an investment account and it represents different things to both of them,” he adds. “Understanding that and the dynamics taking place are huge for the advisor. You’ve earned the right, in your role as advisor, to help your clients in ways you might not have foreseen.”

Often, with entrepreneurs, the line blurs between business and personal financials. “It’s not always cut and dried,” says Derek Holman, co-founder of EP Wealth Advisors in Los Angeles. “There’s a lot of opportunity out there.”

 Holman’s best advice? Set expectations up front.

“We want to show them our process when it comes to investments and making larger business decisions. An entrepreneur wants to be engaged but not involved. They don’t want to be in the weeds of the decisions. And deliver what you promise. Obviously, trust is fragile and it’s earned and it can be broken pretty quickly.”

 John Koudsi, CEO and chief strategist of Core Financial Partners in Venice, Calif., helps his 80 entrepreneur clients with corporate strategic tax planning but he also often reminds them about why they became an entrepreneur in the first place.

“Business owners forget sometimes that they went into this for a reason. They’re passionate about what they’re doing, but they did it to create personal wealth and to create a better life for their family. Sometimes they’re so deep inside of it they fail to look at what they are really generating and how it’s affecting their personal life,” says Koudsi.

“You need to remind them: Here’s what you want to accomplish. Let’s let your business feed those personal goals. The business is your engine,” he adds. “There’s some personal reason why you work so hard and why you put all that risk out there. You need to keep that close.”            

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