There comes a point when continued growth begins to expose things that were easier to manage when the practice was smaller. For veteran advisors, this usually has little to do with learning how to delegate. Most figured that out years ago. You’ve added teams, technology and processes that allow you to serve far more clients than you ever could individually. The more interesting question is what it now takes to achieve the next level of growth.
A practice that grew from $50 million to $150 million may have done so largely through the reputation and relationships of one or two advisors. Getting from $150 million to $300 million probably required more people, better technology, and changes in how you served clients. The next stage may require something different.
Howard Marks, co-founder of Oaktree Capital Management, has written extensively about understanding cycles and recognizing when conditions have changed. There is a useful lesson in that thinking for veteran advisors. The conditions that helped create past success should not automatically be assumed to be the conditions needed for what comes next.
Most advisors never designed the practice they have today. It evolved.
Think about that for a minute. Did you really have a master plan for what the business would look like ten or twenty years later? Probably not. You added people when needed, introduced modern technology and changed how clients were served as the business grew. Opportunities came along, people joined or left, and you adjusted. Over time, those decisions became the business you have today.
There is nothing wrong with that. The ability to adjust along the way is one of the reasons the practice became successful. But eventually, evolution deserves examination. A decision that made perfect sense when the practice was half its current size may still be part of the business because nobody has had a reason to question it. A process created years ago may still be there even though the business around it has changed.
So perhaps one of the better questions for a veteran advisor is this: If you were building this business today, knowing what you know now and where you want to take it, would you build it this way?
Growth Can Hide a Lot
Assets and revenue are easy to measure, which is one reason advisors naturally focus on them. They can also hide friction developing underneath the business. Suppose revenue grows 15 percent, but expenses increase nearly as fast, and senior advisors are spending more time managing the organization. The growth may be real, but so is the additional effort required to produce it.
As practices become larger, advisors need to pay more attention to the organizational effort required to produce additional growth. If every increase in revenue requires a similar increase in people, management time, and complexity, eventually the economics, client experience, or ability to manage the business will feel the pressure.
Assume the Growth Plan Works
One way to look at the practice differently is to assume the growth plan actually works. Imagine the business is 50 percent larger three years from now. Do not worry about how you got there. Assume the clients, assets and revenue are already there.
Now look at the practice as it operates today. What would have the greatest difficulty in supporting that larger business? The answer will be different for every practice, but identifying where the pressure is most likely to appear before it becomes an immediate problem is the point of the exercise.
Successful advisors tend to be good at solving problems. They have spent careers doing exactly that for clients and their own businesses. But that strength can also make it easy to deal with issues as they surface rather than questioning the structure that keeps creating them. At some point, anticipating what the next version of the business will require becomes just as important as solving today’s problems.
More People Can Also Mean More Complexity
Hiring is often the natural response when capacity gets tight, and sometimes it is exactly what the business needs. But before adding another person, it is worth asking whether you are solving a staffing problem or compensating for the way the business operates.
If too many decisions require senior approval, additional staff may actually create more decisions for senior people to make. Over time, a practice can have significantly more resources without becoming much easier to operate.
Go back to the earlier question. If you were building the business today, would decisions move through the organization the same way? Would you automatically add another person, or reconsider how the work gets done first?
Your Role Has Probably Changed Too
The same examination should include your own role. The activities that made you successful fifteen or twenty years ago may not be where you create the most value today. As the practice grows, developing people and thinking about where the business goes next can become more important.
Yet there is rarely a moment when someone tells you your job has changed. The calendar simply fills up, and responsibilities accumulated over many years continue competing with what the business needs from you today. Questioning how the practice evolved eventually means being willing to question your own role in it.
Most practices became what they are through years of decisions, adjustments and opportunities that could never have been predicted when the advisor started. That evolution helped get you here. There comes a point, though, when it makes sense to look at what evolved and decide what you would intentionally keep.
If you were building your practice today, with everything you have learned and knowing where you want to go next, how much of it would you build exactly the same way?
