It’s Not About You

What to do?
As the management guru Peter Drucker once said, “Plans are only good intentions unless they immediately degenerate into hard work.” Leaders of advisory firms have an opportunity to build critical mass in their business through a reduced dependency on the owner. As with the processes of attracting clients, delivering advice or managing money, mentoring staff requires a disciplined approach.

After reading dozens of studies and talking with thousands of advisors, it’s clear to me that the best performing advisory businesses—as measured in sustained growth, strong profitability and a place where others want to work—have several important things going on:

1. Clear positioning: They know who their optimal client is and have built a client experience around it.
2. A structure that supports their strategy: They have designed their business and their processes to help them serve their optimal clients effectively and efficiently.
3. Managing to profitability: They pay attention to all the key levers of profit management, not just cost control.
4. A human capital plan: They have aligned hiring and talent development with their vision and structure.

This last point is critical for those “tweener” firms that want to shed their skin and become stronger for the next phase of their business.

First, outline the types of clients you wish to attract to your firm. Understand the people and roles required to achieve your specific goals. Then construct a career path, training objectives, a performance evaluation process and an implementation plan to help draw talent to your firm and develop these individuals into high-performing contributors.

Once you have a reasonably clear idea of how the business needs to be built out to achieve your vision, hiring becomes more obvious. Evaluate current staff to decide if certain employees are ready for new responsibilities, and help them to refine their focus. Then determine what skill set and experience level you need to bring on. Remember to hire somewhat ahead of the need; it generally takes 18 to 24 months for individuals to get to full productivity within an advisory firm, so it’s important to keep a long view on your human capital investment.

With a laser focus on managing to profitability, determine the break-even point for hiring people; this informs you of how many new clients, generating how much in annual revenue, are needed to cover that cost. Rarely does a business get instant payback on a new hire, so manage your expectations and plan for the future.

Keep profitability in mind as well as culture; it is important to create a reward structure that reinforces the right behavior. If your goal is to get to a 25% operating margin and attract 50 new clients, yet to do so in a team environment, then the compensation plan will need to balance base salary, short-term incentives and long-term incentives. If your goal is to drive new sales, then the compensation plan for certain individuals likely will be heavily variable and short-term oriented. There is no one “right” answer, but the plan cannot be created without the end in mind. This is critical when competing for talent who may be offered signing bonuses elsewhere. The cost of the signing bonus must be incorporated into the margin over a reasonable period of time, and the impact of the bonus needs to be evaluated in terms of how the individual recruit will behave with a chunk of money in his pocket before he even gets started.

As an advisory practice progresses through its life cycle, owners eventually reach that crossroad where they have to decide if the business is going to revolve around them as a rainmaker, or around their vision as a business leader. Either decision is OK, but it’s best to make a commitment one way or the other. Power through the growing pains and an awkward duckling may well transform into a healthy, graceful, mature firm that can soar.