With the dramatic growth of many independent advisory firms in the past decade, it’s a good idea to review why firms that reach $4 million or more in annual revenue need full-time managerial attention.
This means a full-time leader/CEO who can focus solely on the needs of the growing business — without the distractions of working with clients and/or attracting new clients.
The simplest solution, of course, is for owner advisors to reduce their client load and transition into a full-time CEO. But that’s not always the best solution for the business or the business owner.
Often, owner advisors don’t want to stop working with their clients, don’t have the business background or don’t have the inclination to successfully run a growing business. In these cases, the easiest solution is to elevate a current partner or high-level employee into the CEO position.
Of course, another solution is bringing in an outside executive. Although many firms have not been successful using this route, I’ve helped many owner advisors integrate new CEOs into their business, particularly next generation CEOs. And while choosing the right person — whether from inside or outside the business — for that role is important, it’s not the largest stumbling block.
Ironically, the most common problem for new CEOs is the owner advisor. It’s not that most owner advisors are bad or self-destructive people. In my experience, they aren’t either. But, when it comes to working with a new CEO, most firm owners seem to be unprepared for the changes that the addition of a CEO will create. Consequently, owner advisors tend to overreact, behave badly or both.
Like most of us, founders of advisory businesses tend to want things to be different (a bigger business, smoother operations, better team work among the staff, etc.), but they don’t really want to do things differently. Combine that mentality with the fact that the owner advisor started the business, made it what it is today and is most likely responsible for all the decisions.
In that context, introducing a new successor CEO, either from inside or outside the firm, can cause friction. Why? Because the new CEO likely will be younger than the firm owner and less experienced, but he or she probably will see some things that need to be done differently to improve the business.
There is a solution, and it involves both the firm owner and the new CEO.
Working Together The solution starts with the firm owner understanding — and accepting — that hiring and/or grooming a new CEO will create many changes for their firm. For example, the “pace” of a business is going to accelerate, people tend to work a bit harder, new ideas crop up more frequently, and new projects are initiated more often.
This faster pace can be unsettling to a firm owner — especially if they are unprepared for it. They often feel a loss of control and sense that change is happening much too quickly. While these feelings are perfectly normal, it’s important that owners don’t “use” them as excuses for defending their “old ways” of doing things or for preventing the successor from moving the business forward.
For the relationship between the firm owner and the new CEO to flourish, it’s crucial that the CEO have some understanding of the above — that is, where the owner is coming from. For instance, realizing that an owner can view proposed changes as personal criticisms, the CEO should be tactful about how he or she talks about the way things are vs. how they might be improved.
The new CEO also should give the owner time to adjust and not make too many changes too quickly or simultaneously. It’s important to keep in mind that the current state of the business reflects how the owner got the firm to this point. It’s the CEO’s job to build upon that foundation and make the business even better. Tactfulness will go a long way.
It’s also important for the CEO to understand the owner’s potential feelings of lost control or difficulty with a faster pace. New CEOs usually are excited about their new jobs and eager to show what they can do to improve the business. But at the same time, a new CEO won’t get very far without the owner’s buy-in to new initiatives.
For the most part, changes to advisory businesses aren’t particularly time sensitive; the competition isn’t likely to get a quick jump on you. Therefore, slowing the pace to keep the owner feeling comfortable isn’t going to hurt anything except maybe a new CEO’s ego.
No Mini Me’s Finally, firm owners often make the mistake of hiring a CEO who is “like them.” There are basically three types of advisory business owners. The first are entrepreneurs who like the thrill and tend to be creative and enthusiastic, which makes them natural rainmakers. Next, there are executives who like to follow steps and rules, creating processes and strategies.
Lastly, there are the technicians who really just want to be financial advisors. Most advisors are some combination of all three, with one trait standing out.
Understanding these tendencies can be helpful. Most firm owners tend to want to hire a CEO or find a successor who has the same inclinations as themselves. Not only does this reduce the firm’s diversity in leaderships abilities, but it increases the likelihood of conflicts between owner and CEO.
The first step in hiring and finding a successor CEO should be to identify the style of the firm owner: entrepreneur, executive or technician. The new CEO’s style should be different, and the combination will make the firm stronger.
Also, an owner advisor shouldn’t be surprised if there is new enthusiasm in the business culture after the new CEO starts. As with the beginning of most new relationships, people tend to get excited when they see new potential and possibilities. The whole culture seems to open up with energy that’s contagious.
It’s important that firm owners don’t take this new enthusiasm as a criticism of themselves. It’s not — it’s simply a reaction to change. Also, it can be a huge boost to the business, so owners should embrace it and use it to achieve more of their goals.
Despite these challenges, finding and hiring successor CEOs can have many benefits for a business. Full-time management allows more time for controlling spending, streamlining operations, developing a great culture and having more robust marketing.
Finally, it’s important for a new CEO to understand that her/his perspective is different from the owner’s. This firm is the owner’s life work. They built it. Now, they are letting go, and it’s hard.
A new CEO needs to take time to understand what the owner is going through. Taking smaller steps will help him or her work through this transition with the owner. This dynamic also is seen in mergers when young advisors come in. The founder, who is going to retire relatively soon, may not recover financially if bad decisions are made and is anxious. Although it’s a different timeline, the best advice is not to push owner advisors. Instead, CEOs should work with them to reach their goals and minimize their risks.
Angie Herbers is an independent consultant to the advisory industry. She can be reached at firstname.lastname@example.org.