After a recent workshop I held in Dallas, an advisor came up and asked a common question: “My firm is about $500,000 in annual revenues,” he said, “and they are growing at about 7% per year. Is that above or below the industry average for a business my size?”
I tried not to give any indication that not only is this an frequently asked question, it’s also an off-base FAQ.
I asked the advisor for more specifics about his firm. He wasn’t having any of it, and the more I put him off, the more frustrated he got.
Of course, I knew the answer. And no, I’m not going to tell you for the same reason I didn’t tell him: It’s the wrong question.
And because it’s the wrong question, the answer will more than likely hurt you and your firm rather than help you, and frankly, I am not in the business of hurting a business.
I’ll let you in on a secret that’s closely guarded by us business consultant types: An average is just an average.
Someone simply collects the growth rates for many advisory firms over the same time period, divides that number by the number of firms, and voila: You have the average growth rate.
What does that number really tell you? For one thing, that roughly half the firms polled grew faster, and half grew slower, than that average number (if it was the mean growth rate, it would be exactly half and half).
But the real question is what does this number actually tell us? If you’re like most firm owners, the answer affects whether or not you should feel good about yourself — depending on whether their firm falls above or below the average.
The answer to the follow up question is more important: What do you do in response to being either above or below the “average” firm growth rate?
Again, if you’re like most firm owners, the answer will either be “celebrate and keep doing what you’re doing” (for those with above average firms), or (for those below the average) “get depressed, and start questioning all the decisions you made to get to this point.”
The Real Issue
Neither of these responses is likely to lead to building and growing a successful advisory business. That’s why your firm’s relationship to the average growth rate is essentially useless information.
And it’s why I try to direct my clients and other owner advisors toward more important questions, such as, how do you feel about your business currently?
I find that many firm owners get so focused on growing their business that they don’t stop to think about what they genuinely like about their business as it is, and how that will change if it grows.
I believe that many advisors will be and are happier with larger firms and the benefits that come with them (higher income, more support staff, partners, more potential directions to grow, etc.). But I also know a lot of firm owners who are happy with their current firm size — or are quite unhappy in their larger firms.
Before owners decide to grow their businesses, they should consider their current level of happiness with the firm the way it is now:
Most independent advisors I know love what they do. They like working with clients, being their own boss (or one of the bosses), setting their owner hours, mentoring younger advisors and employees, etc.
As firms get larger, their job usually changes: the business takes up more of their time and everything else gets less attention. Some advisors like larger firms, others don’t. It’s an important decision to think through because it’s very difficult to go backward.
Small businesses have a lot comradery and friendliness and often feel more like families. As businesses get larger, they tend to feel more like, well, businesses. Most folks strongly prefer one environment or the other.
This is big one. In general, firm owners make more as their business grows. (This usually levels off at around $ 1 billion of AUM.)
For most owners, this initially seems like an easy question; more money is better. But as their jobs and firms change with growth, I’ve seen many owners truly regret losing the lifestyle they had when they were making less.
The takeaway here is that the future happiness of owner advisors, in large part, depends on their ability to control their egos, and refrain from growing their business simply to have faster growing businesses.
Bigger firms mean bigger problems and different jobs. So, rather than worrying about whether your business is fast enough, spend at least an equal amount of time thinking about whether a larger firm will truly make you happier, and if you determine that it does, don’t be average.
Be better than the best, which means not having any sort of an ego or care about what everyone else is doing. By doing so, you’ll find yourself in a league of your own and, I promise, that’s the happiest place on earth.