By now, you’re probably tired of hearing that financial advisors usually don’t have any business management training. Of course, that doesn’t mean advisors aren’t highly intelligent. In fact, in my experience, many are voracious readers, studying popular business management books to the point of being able to quote liberally from them.
Three books out of many that have become near Bibles for many advisors are Tom Peters’s In Search of Excellence back in the day; then Michael Gerber’s The E-Myth; and most recently Jim Collins’s From Good to Great.
Yet trying to learn practice management from popular books, however good they are, presents problems of its own (ironically, not unlike clients trying to understand personal finance from what’s on the shelves of Borders). The problem with most management books is that they’re based on observations about Fortune 500 Companies, which of course, have been fabulously successful at one time or another, but tend to be quite a bit larger than the typical advisory firm. For a little perspective, firms with less than $300 million in annual revenues are considered small businesses, which makes even the largest independent advisory firms itty-bitty businesses. Even more sobering, by any reasonable estimation, all the independent advisors in the country taken together wouldn’t make Fortune’s list. So what works swimmingly at companies with $10 billion in sales may not be much help in your practice. Based on their experience with one or two small firms, most advisors’ ability to make that call is, shall we say, limited.
One of the best examples of this is today’s hottest business book, Collins’s From Good to Great. It’s a good read, and an interesting study of what makes great companies, well, great. But the problem with it is–you guessed it–Collins bases his conclusions on what makes very large companies great. That won’t necessarily make your practice great.
In my view, the biggest disconnect between managing large corporations and very small firms like an advisory practice is the different ways in which each needs to approach managing human capital; that is, their employees and junior partners. Collins’s book is a perfect example. One of his fundamental principals is the bus analogy: As a manager you want everyone on your team to be “on your bus.” If they shouldn’t be on your bus (and you get to determine who should and shouldn’t be), then you should ask them to “get off your bus,” which is a cute way of showing them the door.
Perhaps a little folksy for a management book, the real problem with this advice is that it just plain doesn’t work in the average advisory firm. Here’s why. Let’s say you’re a company like GE, which hires thousands of people every year. You have considerable flexibility within your labor pool–your pay scale is excellent, your benefits are better. Combine that with great on-the-job training and almost unlimited opportunities for advancement, and it’s not hard to see why newly minted MBAs are lining up to work for you. So even at the management level, you have a large talent pool to choose from: you can work with the people who seem to fit on your bus, and boot off anyone who doesn’t.
How do you decide who’s a “fit” for your bus? Simple: Look at their job performance. If they’re not a top performer, say, in the top quartile or so, let them go, and bring in some new folks. Then do the same thing–keeping the best and getting rid of the others–until you find yourself with a team of top performers, and your bus is ready to roll. The best part of this strategy is that you don’t have to spend a moment worrying about the high turnover you’re creating, because you have a huge human resources department all geared up to recruit and hire new employees faster than you can fire them. Then there’s another whole team to train them. The bottom line is that large corporations make kicking people off the bus as painless as possible, and consequently, the whole bus thing may have some validity at companies like GE.
Getting On the Advisor Bus
Are you beginning to see the flaw in this strategy, as it applies to firms as small as your practice? I know this is an assumption, but I’m guessing that you don’t have people lining up to work at your firm. Sure, you might get a good response when you post an ad for a job opening, especially in this economy. But are your compensation and benefits and training and career opportunities so good that folks are just dying to come work in your practice? If you can take an objective view, in most cases you’d have to say “probably not.”