As advisory businesses grow, their needs change. Unfortunately, some owner-advisors may not fully grasp what this means to the business side. Perhaps the best — and most important — example of these changes is the role of the “rainmaker.”
Typically, when advisory firms start up, the owner-advisor has the role of attracting clients. In the case of two advisors starting a firm, one could take on the rainmaker role, while the other delivers financial advice to clients.
Regardless of who fills the rainmaker role, a growing business requires that the rainmaker change along with it. And firm owners and/or rainmakers who fail to fully appreciate this dynamic can greatly impede the growth and success of their firm.
Think of the rainmaker as a “business developer” with more responsibilities than simply bringing in new clients. What most needs to be recognized is how that role shifts as the business grows.
Like many people in business, firm owners tend to think of a rainmaker/business developer as being responsible for growing “topline” revenue via the addition of new clients. (When a business is starting out, this is typically the case — and exactly what the business needs.)
But as advisory businesses grow, their needs tend to change. To continue to succeed, their focus needs to shift, too. One of the most important changes is to move the emphasis of the business away from increasing revenues and onto increasing profitability.
What to Do
It typically takes firm owners a significant amount of time — usually a few years — to get their heads around the transition from being focused on revenues to zooming in on profits.
The simple explanation for taking this approach is that while “high” revenues are be nice to brag about at industry conferences, increasing profits boost compensation for owners and employees and provide the business with resources it needs to keep growing.
As the requirements of the business shift (due to the emphasis on higher profitability), the business developer’s job expands beyond simply adding more clients to include playing a critical role in the growth of the firm’s profits, too.
Simply put, this means going from a focus on bringing in “any” new clients, to bringing in “profitable” new clients. And the more profitable they are, the better.
In other words, for most rainmakers, the game shifts from quantity to quality, with more emphasis put on the criteria for deciding who will and won’t make good clients.
While the size of a client’s portfolio needs to remain a factor, today’s rainmakers also have to consider issues such as: How many of their firm’s services will a new client use? How much work will their portfolio require? And how much time consuming hand-holding will they need?
We call that decreasing the “spend” of the clients vs. their cost. And part of business development’s focus needs to be put on increasing the “spend” of existing clients without increasing the cost of servicing them, as well as attracting new clients with favorable “spend” ratios.
Overall, advisory firm leaders need to create better service for existing and new clients but not spend more money and time.
Time & Money
Using this approach, the role of new business development will change to focus on “big opportunities,” while the firm’s advisors will generate referrals from their clients and expand the services their clients use. This means putting in place a “marketing machine” that depends on a team rather than an individual to generate revenues.
As all this happens, the rainmaker may get overwhelmed by the changes in the organization. In reality, it’s just a shift in focus, and the former job as a rainmaker job becomes that of business developer, i.e., someone who finds larger opportunities (like M&As), larger clients and most, important, great employees/advisors.
(Related on ThinkAdvisor: See Death of a Rainmaker)
A key problem today is the failure of rainmakers to make this important change. If they stay focused on revenues and don’t focus on profits, while allowing the existing clients to bring in new clients through referrals, they greatly limit their firm’s ability to grow.
If you’re the primary rainmaker for your firm, start calling yourself the “rain-marketer.” By doing so, you should start thinking more comprehensively about how your talents can best be used to attract more partners and advisors into your culture.
At the same time, you’ll grow your brand and profitability, while your people grow revenue. This all means your firm will grow naturally, accomplishing your main goal.
Angie Herbers is Chief Executive at Herbers & Company, an independent growth consultancy for financial advisory firms. She can be reached at email@example.com.