I’ve been working with the owners of independent advisory businesses for more years than I care to think about. Yet I’m still continually surprised that most firm owners resist building a solid foundation for their businesses before implementing new strategies to grow their firms.
I’m surprised because this is essentially the same conversation that financial planners and other financial advisors have with their clients — who are usually all too eager to implement a new investment strategy before creating a sound financial plan to base it on.
As you may have guessed, this column is about creating a sound business foundation. But, before your eyes glaze over, let me quickly say that I’m not talking about a traditional foundation for an independent advisory business that includes creating finance, technology, sales, back office, client service, advisory, financial planning and portfolio management departments, as well as a strategic plan, vision, mission and a timetable, etc. Instead, I’m talking about a different foundation — what we might call a foundation for the foundation. Believe me, this is a tougher notion to sell to owner-advisors.
Just as with advisory clients, firm owners are excited when they start working with a business consultant. They’ve done some soul searching, decided they need help to reach their goals, made a big (and not inexpensive) decision to get that help and are just raring to hit the ground running. Then I come along, suggesting that they have to take a few steps backward before they can move forward.
The reaction is almost never pretty — even when I give them my “slingshot analogy” about having to pull back before you can let go and shoot forward (go figure). In fact, I’d have to say that most of the time, they freak out.
Years ago, when I was newer to the consulting business, I would sometimes cave in and go along with their demands that I help them “just start growing.” But experience — often painful — has taught me that skipping the pre-foundation step not only makes my job much harder, it greatly lengthens the time it takes to grow an advisory business to target levels; plus, it greatly reduces the chances for achieving that level of success. Consequently, I’d estimate that 95% of my work with advisory firms is about convincing them to build a solid pre-foundation, and then helping them build it.
A large part of the push-back that I get when asking a firm owner to step back and build a pre-foundation is what seems to be the widespread belief that growth is the solution to a business’s current problems, as in: “If we were just bigger, with more revenue, then we could easily solve all these problems.”
What owners with this mentality (and its almost all of them) don’t realize is that growth comes with a large set of new problems, ranging from work overload at every level to systems overload, hiring, training and adding new levels of management.
Many businesses that had already solved their old problems still struggle with these new ones. Businesses that are planning on solving both their old problems and their new ones are setting themselves up for failure, particularly because some of these old problems can create substantial operating risks. Here are four steps for setting your firm up for success:
1. Recognize where your firm is today. I realize that this seems so basic that it sounds trivial. But in my experience, being self-aware of one’s business isn’t any easier than being self-aware in your broader life — and how’s that coming along?
Owners usually have a lot of ego tied up in their firms, which often makes it hard to look at their businesses objectively. I can’t tell you how many firm owners I’ve come across who want their firms to be different in some way — bigger, more profitable, happier, easier, etc. — but are absolutely unwilling to do anything differently from what they are currently doing.
This step is about adopting the right mentality. Yes, I know that you’ll be anxious to get started building your new firm, but try to remember that in most cases your “new” firm will be built on the foundation of your old firm. So, it’s probably not a bad idea to take a hard, honest look at what you currently have.