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.