34 INVESTMENT ADVISOR OCTOBER 2018 | ThinkAdvisor.com
and become CEO, or hire someone else
to fill that role.
Hard choices. Long before you have
to deal with the CEO question, you’ll have
to get serious about running your business as a business. This often requires
making hard decisions — on a regular
basis. (Which I suspect is why firm owners often avoid taking this next step.)
In addition to watching your personal
income level off — or even decline a bit
— you’ll have to stop using your business
as an ATM machine, or even a bank.
To grow and sustain a larger business
requires, among other things, controlling your business’s cashflow.
In a business, cashflow is the fuel for
growth: it enables you to attract more
clients, hire more staff, improve or add
services, and add or upgrade technology.
Consequently, it will be important to
control and predict your cashflow to use
it most effectively. And frequent fluctuations due to “personal” withdrawals will
make this process much more difficult,
and impossible if you want it to survive
What about your employees? In
the early stages of an advisory business,
owners tend to pick up the slack from
employees who aren’t getting their jobs
done. Sometimes they do this out of
hope that these employees will come
around and become good at their jobs.
Other times, it’s just out of sympathy.
While these motives can be admirable, once your business grows into or
approaches the middle range, you really
won’t have that luxury: you’ll need every
employee to perform at a high level.
The reason is simple: your business will
be competing for clients against much
larger firms with a lot more resources and
smaller firms with limited client bases
and a high level of personal service.
Firms in the middle can, and do,
compete effectively with the larger and
smaller counterparts but it requires a
team effort from all employees, which
leaves little room for slackers. You’re
employees are not your friends in the
middle. When you start running a busi-
ness like a business, you can be friend-
ly, but making hard decisions doesn’t
always make for friendships.
Paring down services and clients.
For mid-sized firms to compete effectively, they have to operate as efficiently
as possible. This brings us to both clients
Smaller firms and their owners tend
to waste resources by offering unprofitable services to unprofitable clients.
Every firm owner knows that some clients are more demanding, time-consuming, and/or more difficult than the rest.
There’s nothing wrong with keeping
these clients as long as the only consequence is lower owner income in a
But if you want to grow your business into (and out of) the middle —
you’ll need make changes. Providing an
unprofitable service or two is fine as
long as they attract clients who then use
profitable services. Financial planners
have been doing this for decades.
But you’ll you need to take a hard look
at all the services you offer to determine whether the unprofitable ones are
The same goes for some clients. If
your staff is spending 75% of their time
on 25% of your clients, you need to think
about making some changes. Sure, every
advisor has some clients who are friends
or relatives of good clients — and that
usually makes economic sense. But I’ve
found many advisors who have more
than a few high maintenance clients for
no good reason.
In the past, many well-run middle
market firms worked with clients who
all needed essentially the same services.
But today, to compete with larger firms,
most successful mid-sized firms offer
a broad array of services to a broad
array of clients. To make this work from
a business and competitive standpoint,
make all the services you offer as finan-
cially efficient as possible, while broad-
ening your potential client base.
Middle market firms today aren’t
doomed to extinction. In fact, it’s the
opposite: many of these firms will not
only survive and prosper, but grow to
become some of tomorrow’s largest and
best firms. I know this because I have
helped many of the largest firms today
grow out of the middle.
The key to success in the middle of
the growth cycle comes down to one
simple business concept: operating efficiency. Which means, getting the most
out of the resources you have, including
investing for a more efficient future. My
best advice for all firms in the middle is,
solve your problems with your brain, not
Angie Herbers is an independent consultant to
the advisory industry. She can be reached at
My best advice for all firms in the
middle is solve your problems with
your brain, not your pocketbook.