As a business consultant to independent advisory firms and their owners for the past 16 years, I’ve come across many challenges that are common to most, if not all, of my clients. Perhaps the most pervasive — and damaging — of these challenges comes from trying to apply the “business school” MBA principles that are touted by many business books, speakers and consultants to an advisory firm.
For the most part, these principles are derived from observations of, experience in and theories about how to run large corporations. If you’re an executive in a Fortune 500 company (or want to be one), much of this information can be helpful.
The problem in applying this wisdom in our industry is that even the largest independent advisory firms aren't large corporations. They are small businesses (which are typically defined as having fewer than 500 employees and generating less than $100 million in revenue a year), and small businesses have about as much in common with Apple or Exxon as their owners do with Brad Pitt or Angelina Jolie.
Here's a breakdown of the most important differences between independent advisory firms and large corporations, and the different strategies advisory firms require to become successful.
Employee turnover. Large corporations are built to handle high employee turnover, which has historically been the primary cause of lagging growth rates at advisory firms. Jim Collins’ best-selling book “Good to Great” has helped create this situation. Among Collins’ keys to business success is to “get the right people on the bus.” To get the right people on the bus, he suggests you kick the wrong people off the bus: good advice, in theory, and if you’re running a large corporation with tens of thousands of employees and an HR department to serve as your “conductor.”
Advisory firms have to be more prudent. They have to more careful in their screening of new employees: They don't have the resources to take a trial-and-error approach. They need to have training programs that enable employees to become good — or even great — at their jobs. Training is far more cost effective than high turnover.
Talent and outsourcing. Large corporations can attract the best students out of professional schools or employees with lots of valuable experience. While there are exceptions, advisory firms often aren't attracting the best and brightest, which is one of the factors behind their historically high turnover rates.
To solve this problem, owner-advisors need to stop thinking of hiring as the first remedy when they have a problem. Instead, like other small business owners, they need to take advantage of the large and growing number of companies that offer business support. These businesses typically offer a much higher degree of professional competence than advisors could afford to hire, at a fraction of the cost.
Hiring for fit. These days, more and more people are as concerned with their quality of life as they are with their careers. Often, advisory firms are a good choice for those people. A friendly work environment, a somewhat flexible schedule and meaningful work helping people live better lives all make advisory firms good places to work.
It's important for firm owners to realize that some of their employees may not want increased responsibility or more challenging jobs, even if it means more money; usually those things also come with longer hours and higher stress levels. Firm owners need to carefully consider the needs and goals of their employees, and balance them against the needs of the firm.
Identifying a successor. Large corporations tend to attract people who are driven to be leaders, and usually have the training to do so successfully. Owner-advisors and other firm employees tend to become leaders out of necessity, with little or no training. This is a similar point to the above, but I list it separately because it can be a particularly vexing problem at advisory firms. When looking for new partners — and eventual successors — it's important for firm owners to understand that not everyone can be, or even wants to be, a leader.
When choosing a successor to eventually run the firm, it's important to pick someone who truly wants the job, and to mentor him or her to acquire the knowledge, skills and “owner's mentality” to actually succeed at that job.
Keep in mind that people's ideas about what it's like to be CEO or senior partner are usually very different from what the job actually entails. Firm owners need to give their successors an accurate picture of the job and be prepared for the possibility that the younger advisor could decide he or she doesn't want the job after all.
Diversity of goals. Large corporations are typically very homogeneous. The primary jobs of their executives are to hire, manage and motivate large numbers of employees to increase profits. In contrast, advisory firms tend to be more unique, with the needs and goals of their owners and employees playing a larger role in their success. That's why firm owners have to be very careful when applying data or recommendations from industry benchmarking studies to their firms.
I was recently working with a future CEO of one of my client firms, who was quite worked up about a benchmarking study he’d just read. It seems the study showed that the advisors at his firm were working over capacity; that is, handling more clients and generating more revenues than industry averages. Consequently, he felt that his firm needed to hire more advisors in order to get their productivity in line with industry norms.
I asked him if he felt the firm's advisors were overworked, or whether he felt that the service quality of the firm was falling. He answered “no” to both questions, recalling that the firm's latest client satisfaction survey showed clients were even more positive about the firm than their previously high levels. So I asked him why in the world he would want to change from being great to average.
It's important for firm owners to keep in mind that industry benchmarking studies are at best indicators of what other firms are doing; they tell us nothing about what firms should be doing. If you have a problem, you can use them to see what other firms are doing in that area. But if you don't have a problem, the last thing you want to do is change simply to be like other firms.
Training the next generation. Recently, world-renowned author and speaker Simon Sinek gave a presentation on the self-confidence of the next generation, noting that it's lacking. He believes this is due to social media, which has programed a generation to measure their self-worth by the number of “likes” they get online.
In my experience, this reliance on likes has translated into a need for next-gen leaders to constantly seek approval for their decisions. For instance, it's not uncommon for next-gen advisory firm owners to tell me that they “can't make a decision right now”; they have to check with the rest of their team and will get back to me.
While it's important for business leaders to be liked by their employees, it's equally important for them to make decisions that are in the best interest of the firm. Getting input from one's employees and partners is important, but making decisions via groupthink can be disastrous for a business.
For one thing, “everyone” is rarely as informed as the firm owner. For another, decisions by people who have little or no responsibility for the outcomes are often not well thought out. (Just consider the U.S. Congress, for example.)
The solution to this issue is a bit tricky. In my experience, it involves patient mentoring of next-gen advisors to help them better understand their future role as a leader and a business owner. Good leaders make decisions that are right, not that are popular. Ultimately, the weight of their responsibility usually sinks in, but it can be a slow process. Because their life experiences haven't prepared them for it, it's hard for many next-geners to understand that when you’re the leader, “it's not my fault” isn't a valid excuse.
Of course, advisory businesses are different from larger corporations in many other ways as well. But if firm owners can recognize these six basic differences, and disregard advice that is based on businesses that don't face these problems, they and their firms will be much more successful.
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