The six steps to building a great business
Client Segmentation, Service & Pricing / 12 May 2017
Often, practices focus primarily on their client value proposition, and that’s important. While many advisers focus ‘below the line’ (on investments and products), I’ve proposed repositioning this to ‘above the line’ (people, goals and objectives) in the form
of ‘life-first’, real goals-based advice.
Clearly, there are other areas to consider in designing and building a world-class business. Let’s look at each of them.
It starts with you
There are various stakeholders in an advice business, and the principals are among them. Typically, principals are practitioners and employees, along with business owners. I see some advisers want to grow increasingly scaled businesses, while others are quite happy to maintain a lifestyle business. There’s no right or wrong but before you consider your business plan, ask yourself whether you have a personal plan. Are you clear what you want out of your life? In all our lives, we have a start, a middle and an end. We need to enjoy the middle bit. We have a limited number of days and hours. Precious time is slipping away. What do you want to do with your life?
The key notion here, figuratively speaking, is taking a helicopter up to 10,000 metres for an overview and working on your business not just in it. And not just once a year, but regularly. It’s an old saying but a good one: ‘If you fail to plan, you plan to fail.’ I continue to meet an alarming number of advisers and principals without a documented business plan, or who don’t regularly review, monitor and update the one they do have.
Have you considered a formal board or an advisory board structure? (The difference, of course, is a formal board has directors. An advisory board has advisers to the board, without formal governance, regulatory and compliance responsibilities and associated risks). Certainly those businesses with growth aspirations, who have annual revenue at or greater than $1 million to $1.5 million, and typically 5-10 staff or more, need to consider this. We can all benefit from fresh eyes, objectivity, mentoring, coaching and accountability. Take the best athletes as examples; they typically have a coach, or a team around them. (Unless you are Nick Kyrgios, and therein lies the point – enormous unfulfilled latent talent and potential.)
What about your current and prospective organisational structures – which tasks and roles are you undertaking? Which do you enjoy, and which could you delegate? What tasks do you undertake that you detest? Are you using the notion of leverage, working on ‘the highest and best use of your (and everyone else’s) time’? Draw up a chart of all the roles you fill, all the ‘hats’ you wear, then ask yourself what would need to happen for you to get out of each of those roles.
Have you considered future organisational charts, based on expected growth rates, to determine what your business might look like after one, three and five years? What roles need to be filled and when? What will the drivers be?
These are not easy decisions for businesses, as new hires mean increased expenses and, typically, shorter-term pressure on margins. But we need to invest in our own business and people to grow. Evidence shows greater EBIT margins are available to those who make the hard decisions and push through the barriers and glass ceilings.
Client value proposition
Historically, many clients, certainly in a commission-based world, have received suboptimal value propositions. In a fee-based world, an issue that I am sure will surface over the next period from some quarters will be ‘fees for no service’.
I strongly feel more people would seek out advice from client-centric, life-first, goals-based advisers whose value proposition is focused ‘above the line’. The keys to an above-the-line value proposition are reflected in the following statements:
‘Really know me and my family. Understand me, help me, simplify me, de-clutter me, reduce my anxiety, and help me achieve what’s important to me.’
One of the challenges is that prospective clients often have the view that an adviser’s value proposition is ‘below the line’ – investing. Rarely would a prospective client proactively ask for a financial adviser to help them achieve their goals and dreams. They typically ask you to help them with their investments. My view is that there is a difference between what they want, and what they need. Many don’t know what they don’t know, and certainly don’t understand that the adviser of the future can help them achieve their goals.
Working on the value proposition, we need to make sure you and the team can articulate the basic building blocks. This would include both your business and personal ‘why’. Why you, and why your business?
Successful businesses are able to articulate their ‘why’; most articulate their ‘what’ and ‘how’ – what is often referred to as an ‘elevator pitch’. That’s how you articulate and summarise what you do in, say, 30 seconds? But where do you add value? You might also want to consider defining and working on the following areas:
Ideal client. Have you defined clearly the sort of people you want to work with? Can you and your team articulate what that market looks like?
Niche markets. Do you have a precise area of expertise you could focus on? Increased focus and efficiency lead to increased profitability.
Employee value proposition. If you’re moving from a practice to a business, you need to attract and retain good people. Why would someone want to work with you, rather than the firm down the road? How would you articulate the attractions of your firm to prospective employees? Once they join you, what are the reasons they
are likely to stay?
As financial planners, we act in three stages. Firstly, in the ‘life-first’ discovery process, where we get judged by the questions we ask. Secondly, in the ‘life-first’ strategy stage, where strategic solutions are recommended to help clients get on track to achieve their goals and aspirations, and remain there. Finally, if required, we offer a product-based solution to implement the strategies. Of course, one of the issues from the past has been that advisers have led with the third step – product-based solutions.
Service and pricing
Working on the relationship between client segments, client services and pricing is a job
that’s never finished. This is a critical area you need to come back to each year as the market changes.
Typically in an advice business, 80 per cent of clients bring in about 20 per cent of business income. What’s your breakdown and ratio? Without measuring these variables, your management, analysis and strategic decisions become much harder. Ideally, a business can measure not only income per client, but profitability per client as well.
Think of this in terms of an airline: many businesses offer first class, business class, premium economy and economy services, but we need to be careful we don’t take the first-class wine and trolley down the back of the plane. All clients deserve equal respect but clients don’t all deserve equal service. They should receive what they pay for.
Precise client segmentation will enable solid strategic decisions to be considered and made, increasing efficiency and profitability, and potentially a partial client sale and capacity release that could provide capital to meet your goals. Remember, you’re not only in the business of financial advice, you’re in the business of getting paid for financial advice.
Processes and systems
“It’s not the unique things of a business that make it successful, it’s the business’s ability to do the ordinary things in an extraordinary way, and to do those things consistently, predictably, effectively, day after day after day” – Michael Gerber, The E Myth.
Advisers frequently ask for help on workflow processes and the systems required to automate those processes. In undertaking these reviews, the key is being clear on your practice’s end-to-end client experience. Reverse engineer the processes and document them. This needs to include, but is not limited to, all letters, emails, agendas, minutes and templates. So the first step is what is best-practice client-centric process? The second step is how you automate that.
We often hear the term ‘sales and marketing’ but marketing needs to come before sales. What’s your marketing plan to bring in an endless stream of pre-qualified referrals? Do you have a social media strategy?
For smaller businesses, do you have an external team that can assist you on matters you’d like to outsource? What areas will you in-source? What are you outsourcing? For example, in human resources, do you have an employee manual, position descriptions, staff induction tools and documented KPIs that are SMART – specific, measurable, agreed, realistic, and time-based? The key here is to systemise the process, but
to customise the advice – we are not talking about a ‘cookie cutter’ approach here.
What do you measure in your business? What would you like to know, but don’t currently measure? What should you measure?
There are some obvious measures, such as total revenue, ongoing revenue, EBIT or profit, and share price. Some critical but less obvious measures and key ratios would be: revenue/full-time equivalent (FTE) staff, revenue/adviser and revenue/active client. As an example, an efficient business in Australia would be at or above $200,000 for revenue/FTE; an efficient and scalable business is at more than $300,000 in revenue/FTE.
Less critical, but also important, measures would be assets/client, number of clients/FTE, number of clients/adviser; and margins such as average basis points charged, normal gross profit margin and normalised operational margin.
Ideally, once you decide what your key measures will be, the outputs will be automated on a dashboard for efficiency.
In conclusion, the future will not be an upgrade on the present, it will be entirely different. People don’t buy what you do, they buy how you make them feel. Set regular time aside to work on your business, not just in it.
David Haintz is a principal of Global Adviser Alpha.