When I started consulting with advisory businesses almost 20 years ago, the goal of most independents was to get to $100 million in assets under management. As a goal, that made good business sense for three reasons.

First, two or three advisors could fairly easily manage the 150 or so clients it would take to get to that figure. Second, at 1% (the standard AUM fee back then), there were enough revenues for all of them to make a very good living. And third, running a business with three advisors isn’t all that different from running a business with one advisor.

Today, $1 billion in AUM is the new $100 million. That is, it seems like everybody wants to build a $1 billion business. Problem is, running a business that can attract and manage $1 billion in client AUM is very different from running a smaller business. Yet most business owners don’t understand this, and what they don’t know can greatly hamper the success of their businesses.

The biggest mistake that I see (over and over) is that many owner-advisors today have somehow gotten the idea that they can build a billion-dollar business in seven years. Now, I’m not saying that you can’t, but I am saying that most firms don’t. Not within that time frame.

(Related: The Face in the Mirror: Admitting (and Overcoming) Advisor Fears)

While thinking big can be a good thing, the problems come when owners start trying to build a billion-dollar firms today, long before they have the revenues to support one.

I sometimes wonder if this thinking doesn’t stem from the “building a house” analogy that financial planners use with their clients: start with the foundation, etc. But the difference between building a house and building an advisory business is that you usually don’t have to live in the house while you are building it. Your business still has to function successfully today, even while you’re building for the future.

To position their businesses for what they envision will be the near future, many owner-advisors start right in, spending money to create the foundation of a billion-dollar business today. Typically, they move into larger offices, ramp up their compensation structure, create the organizational structure of the future, and start hiring people to fill it. 

Hopefully, you see why this might create some problems. Perhaps the most obvious is that if one’s anticipated growth in AUM doesn’t happen — or it happens more slowly than anticipated — you will have created a whole lot of expensive overcapacity.

Less obvious is that whenever you do get to your billion-dollar firm, you will probably have spent a lot of your precious resources on things and people that your bigger firm doesn’t need, and overlooked many things that you do.

This is my biggest challenge with owners who want to build substantially larger businesses: ego. They want to believe that they know enough today to successfully build and manage a much larger business in the future.

What I try to get them to understand — with varying degrees of success — is that they don’t. Not yet.

As I’ve written many times before, managing and growing a successful independent advisory business is a learning process. Despite what some folks may lead you to believe, nobody really knows what will work for you, with your goals, your employees, your market, your clients, in today’s financial, economic and technological world, or in the future.

To succeed, we try the things that seem the most promising, evaluate the results and take the next most promising step. Along the way, we learn what works for you and your business — and what doesn’t.

And that’s the biggest problem with building tomorrow’s firm today: You’ll miss all those vitally important lessons that you should be learning along the way.

The bottom line is that you don’t have any idea what your business will need to look like in seven years — and neither do I, or anybody else. The best we can do is build the business you need today (which almost no one has), with an eye toward where you think you want to be in the next few years.

Always keep in mind that things are going to change in ways that haven’t foreseen, so learn from what happens and keep your plans flexible enough to change as needed.

— Read Zen and the Art of Advisory Firm Management on ThinkAdvisor.