A few years ago, I asked the financial planning class that I was teaching who invented the light bulb. One seemingly bright student answered, “Benjamin Franklin, who flew a kite that was hit by lightning and he trapped electricity in a jar.” I tried not to hold this answer against him when it came time to hand out final grades.
As most of you know, the first commercially viable light bulb was invented by Thomas Edison, 150 years or so after Franklin’s kite experiment. I’m telling you this story because it illustrates the misconception that most of us—particularly owner-advisors—have about innovation: that it’s the result of catching lightning in a bottle. Edison didn’t just have a good idea one day that led to illuminating the night around the world and the ongoing success of the General Electric Company (GE) on the Fortune 500 and S&P 500 today. To create the light bulb, and the other 1,083 inventions for which he was granted patents, Edison hired a team of scientists, mathematicians and engineers, including the young Henry Ford and Nikola Tesla (the inventor behind Westinghouse Electric), and built a company around them to turn their ideas into reality.
As the story of Edison illustrates, successful innovation in business is not the luck of random insights, but rather the result of a deliberate process. In our experience, most independent advisory owners have it backward: They innovate first—coming up with ideas to grow their firms—and then try to implement those ideas on foundations that weren’t designed to support them. Consequently, it’s no mystery why many owner-advisors are frustrated and their firms are languishing in mediocrity.
To successfully grow, advisory firms need to be transformed into businesses that will support innovation. To help firm owners make this transformation, we take them through four steps that will result in businesses that will not only support innovation, but will become a steady pipeline of new ideas for growth. The hardest part for most owner-advisors is learning to change: to let go of the way they currently think about and run their firms (no matter how successful that’s been) so they can transform them into even more successful businesses. Here’s how:
Empower. Many owner-advisors are their own worst enemies. By that, I mean that they believe their firms are “all about them.” Not that there’s anything wrong with this—that is, if you want a business that’s limited to just what you can do. Sure, you can hire some support staff to leverage yourself, but that will only take you so far. At the end of the day, you can only see so many clients, bring in so much new business and spend so many hours a day running your business and managing your staff—and that doesn’t include the extra effort needed to implement new ideas. The best solo firms can bring in upward of $1 million a year in revenues, while most do from $50,000 to $200,000. It’s no wonder that virtually all of them are unhappy about the hours they spend in their firms each week.
To get beyond their self-created glass ceilings, owner-advisors need to empower their employees to help them build successful, growing businesses. Empowering means asking for help and allowing your staff to help you. In our experience, most firm owners do just the opposite: They actively stifle employees’ attempts to help them build better firms.
We use a simple test to determine how receptive owner-advisors have been to new ideas. We get everyone in a room and ask the employees for ideas to make the firm better (usually the employees have the best ideas in their areas). If no one says anything, you can bet your boots the owners have given clear signals that they don’t want any help.
To create a firm that can support innovation, you need the help of everyone in the firm. Most employees are more than willing to help if you let them. Learn to listen to your staff, and to encourage them to make suggestions, give feedback and explore new ideas. An owner who gets everyone involved in the process of creating a better business is well on the way to building one.
Build. Unless you live on the dark side of the moon, you’ve undoubtedly heard top athletes talking about the keys to their success. I’m often struck by the breadth of their focus these days. They aren’t just practicing their sport and maybe pumping a little iron: They’re concerned about nutrition, strength, speed, flexibility, cardio, rest, hydration, etc., and most of them have a sports psychologist, too. They know that while most of those areas won’t make them great, slacking in any one of them can prevent them from being great.
Firm owners need to think the same way. I’m sure you’re familiar with the six areas that support business growth: management, client service, human capital, operations, finance, and sales and marketing. Yet many owners fail to grasp that deficiencies in any one of these areas can derail their efforts to grow. You can have the best marketing in the world, but if your client service is weak, you’ll have low client retention. You can have the best employees, but bad management will drive down productivity.
Similarly, you can come up with brilliant innovations that will transform your business, but weak operations, the wrong employees or unstable finances can prevent you from implementing them. The solution is to build a business that is strong in each of these areas so that when you and your team come up with great ideas, you can successfully make them happen.
Sustain. Once we get owner-advisors on board with transforming their firms to support innovation, this is another area where they often fall down. When you get each of the six business areas to the point where they can support innovation and growth, you need to keep them there. That means you can’t just rely on the people who are currently doing those jobs. As your firm transforms, they might end up doing something else, which means someone new may have to fill those roles. To make these transitions seamless, you need systems that work, so that a new person can step in and know exactly what needs to be done and how to do it.
Furthermore, while these systems need to be enduring (that is, doable over the long haul without a superhuman effort), they also need to be flexible, so that employees can solve even unusual problems that will come up. At Kaleido, we have a graphic that shows us the status of a firm’s key processes (from very weak to outstanding) in each of the six business areas at a given point in time so we can track a firm’s progress in implementing these processes. This helps focus efforts where they are needed most.
Innovate. Once a firm has empowered its employees to contribute, solidified all six foundational business areas and created processes to ensure they run smoothly, it’s ready to support innovation. Now the firm has a fighting chance of successfully implementing some of those great ideas that the owners and employees come up with. This transformation won’t happen overnight, which means you may have a backlog of ideas that you want to get in the works. It’s important to resist the temptation to do everything at once (read: start by implementing one new idea at a time). You don’t want to undermine your transformed firm by overloading those new systems you’ve put in place. So, start slowly with your best idea and see how it goes. Be careful to monitor the impact that each new project has on each part of the firm—even the best preparation is bound to need tweaks here and there.
Remember, keeping the firm on track is a lot easier than getting it back on track. Be sure to keep the lines of communication open; the success of any innovation depends on execution, so listen carefully to the folks who are actually implementing your ideas.
Over the years, we’ve come to realize that the success of any advisory firm depends on innovation. To grow an advisory firm to the next level almost always requires new strategies and tactics that are quite different from those that have worked in the past. But to achieve innovation, firms need to build a strong foundation, so that those new strategies have a chance to succeed.