A sole focus on profit or business value produces the same result as a sole focus on your scorecard during a game of golf. I don’t believe it works. Good profits or business values are results and outcomes of playing a good game. If your sole focus is profit, it’s going to be hard to focus on building a truly great advice firm.
I’m a fan of Jim Collin’s “Good to Great: Why Some Companies Make the Leap…and Others Don’t” (New York: Harper Business, 2001), and in particular his ‘Hedgehog Concept’: The marriage of a profit-making entity with passion for what you’re working to achieve, built on top of an environment where you have a growing reputation in your niche of expertise, will result in a great, long-lasting business. Get the book for your Christmas reading if you haven’t read it already.
However, we live in interesting times. As we head towards the back end of a unique year, it’s opportune to consider how your firm can improve profitability. Too many firms have too much of their revenue tied to uncontrollable valuations of their client’s assets, and they need options to get them through this turbulence.
In order of easiest (my assessment) to hardest, here are a few tactics to consider.
#1 – Lift your minimum fee. If your firm has done too much for too many clients for too long, now’s the time to do something about it. Lift your minimum fee. You’ll lose some clients, but you’re a business not a charity. If your clients value your advice and relationship, chances are good they’ll want to stay. If you believe your firm ‘owes’ something to clients who fall below possible new minimums because you didn’t properly set expectations about your proposition (i.e. you promised to beat the market?) go now and reset expectations about what you do before lifting your minimums.
#2 – Benchmark your business. When did you last get a thorough analysis of your real business performance? Success leaves subtle clues. Adopt a detailed analysis of your business’ performance, to identify potential ‘performance gaps’ between your business and other businesses in similar situations. Performance gaps show you where to extract better returns from how you generate revenue, spend money, price services, or improve returns per person employed. Identify potential structural gaps, income gaps, and inefficiencies in returns from your client base that may be able to be quickly rectified.
#3 – Survey your clients. It’s a simple but not always obvious idea to ask the people paying you what other services you might be able to provide, or how you might be able to improve the services being offered to them. They might also tell you some of the services you’re wasting time or resources on delivering, that they don’t actually value. We often get so caught up in our own dust storms of activity that we miss the obvious clues. Ask them.
#4 – Stop giving away the free stuff. There is a huge misconception in our marketplace that upfront strategy work needs to be discounted in order to gain the ongoing renewal income. If there’s one clear story time and again from our “Cultivating Advice”® workshops, it is that, properly positioned, you should not discount your up-front advice. (Cultivating Advice is a registered trade mark of Strategic Consulting & Training Pty Limited – All rights reserved.) Your upfront strategy – be it risk, finance, accounting, tax, investment or some combination of these – is worth it. If you have prospects that don’t want to pay for it, let them go elsewhere. If they’re unwilling to pay the value of your upfront advice, do you really believe they’ll pay for your ongoing advice? Test it out.
#5 – Cut costs. This is a quick fix. Unless you’re harbouring a Ferrari in the company garage, this usually means cutting people. Our people are our biggest investment, often our most undermanaged resource, and easily the toughest part of our role as builders of advice firms. You’ve invested in these people, they have a relationship with your clients, and they have often been loyal to you. At the end of the day, it’s about business – but there are an increasing number of businesses (big and small) putting employees first, customers second and shareholders third. Retrenching people usually means more work for those who are retained, and forever changes the ‘mood’ of the firm. Tread carefully but deliberately.
#6 – Ask for Referrals. Many firms seem to find this harder than retrenching people. Why? Too many of us hold illogical fundamental beliefs that real professionals don’t ask for referrals. In fact, I used to be one of those idiots – until I was overwhelmed by the evidence to the contrary. It’s not about getting your clients to do something that they don’t want to do; it’s about proper training, skilling, and unearthing some of your illogical beliefs. Once you get over your referral hang-ups, you too can successfully tap into those clients who want to help you grow a very successful firm and enjoy the results.
#7 – Change your Proposition. Take a quick snapshot of your firm today. Let’s assume that (a) you have clients who trust you, (b) you’ve already proven to many of them that you’re good at what you do, and (c) you really want to help them achieve their financial objectives. But… you’ve never done insurances, finance applications, mortgages, debt, leasing, investments, self-managed superannuation, individually managed accounts, tax, estate planning (list goes on) before. OK – there’s no time like the present. They trust you, now trust yourself and don’t let your incompetence stop you. Remember when you started in this business? You didn’t let your incompetence stop you back then, what’s different now? Broaden your proposition, charge more for more services, and potentially delight your trusted clients even more.
#8 – Sell your non-ideal clients. We might be witnessing the bankruptcy of modern economics at the moment, but there still seem to be more willing buyers than sellers of your client base out there. It makes sense that some of those suffering from the fallout from the current calamity eye the stickiness of your government sanctioned superannuation renewals as a means to rebuild their income streams. Take advantage of it – it won’t last. Raise some much needed capital in the process. Whilst it will take some time, it will also release time, if not long-term profits (remember you are selling future income streams). Short term, it will give you some strategic breathing space for your growth plans on a reduced but more focused client base.
The path forward to building a great advice firm often requires a couple of steps backwards before forward progress can begin. Implementing some of the aforementioned tactics in the short term, and – in the longer term – developing a good understanding and implementation of Jim Collin’s HedgeHog Concept, will assist you to generate the profits you deserve.
These are the best of times to be building a great advice firm.