The fastest way for most advisory businesses (hedge funds, wealth management, asset management, insurance, real estate, art and so on) to dramatically increase top line revenue growth is to have their key people, seen as an “object of interest” or unparalleled expert in their field. The mere mention of their name (John Paulson, Larry Gagosian, Warren Buffett) has instant credibility, their pronouncements create an immediate following and the most attractive buyers of the firm’s products and services come banging on the door for help, such that acquisition costs are close to zero. In such cases, these individuals and their firms are able to charge above-market prices because the buyer believes their value is worth paying a premium for.
One of the confusing challenges for these firms is how they build their business around these individuals’ talents. How do they build scale, where the most attractive clients want access to that individual and are less comfortable being handed off to a subordinate without the same star quality? How do they avoid corporate bureaucracy suffocating internal decision-making and yet maintain the highest standards of governance? How do they plan for the day when that individual is no longer with the Company, by choice or design? How do they keep clients happy beyond the short-term?
For many advisory firms, there is a conscious decision to stay small, accept a small number of highly profitable clients and not dilute the effectiveness of the “star” performer(s). Indeed, many hedge funds, asset management business, art dealers, legal practices and so on are designed with those priorities to the forefront.They excel while that individual remains at the top of their game and their passion remains undimmed for the business. For some, that dissipates over time and for others it continues until the individual dies. At different points, the organisation’s customers, shareholders and employees must make a decision about their own best interests before the lights go out. Formula One Management, its’ founder, Bernie Ecclestone and its’ current shareholder base are one such example.
The starting point is
1. What is the strategic vision of the business? I am not talking about some stupid 100 year picture of the future rather where does the business want to be in the next 3-5 years and what must it accomplish to remain a significant player in its’ chosen market. For example, Formula One would probably argue it wants to be the dominant global sports brand in its’ field measured by attractiveness to sponsors, future television rights value, participation fees per event and contributions paid to each team, and its’ shareholders.
2. What is the shortest, quickest path to arrive at that set of business goals? Where does the business and its’ key people need to enhance the focus on growth and expansion? What does it need to ditch or start doing less of?
3. How can we make that happen? Where does accountability need to reside within the firm for each business goal? What behaviours and skills are required from those people seen as objects of interests or experts to accomplish the business goals? What additional experience, resources and development are required to support those individuals in their daily work and accomplish the business goals?
Many of the world’s most successful advisory businesses have grown profitably because the founder had a very clear vision of where they want to head, what their customers needed and how best to serve those needs. Those beliefs create a superglue that govern all employees’ behaviour and the expectations of customers and shareholders alike. The very best firms have a constant reinvention going on. Those people seen as objects of interests have learned to adapt and remain highly relevant and valuable.
The difficulty comes where there is a demand for significant growth, key people are drawn into greater management challenges that don’t play to their strengths, their energy and passion is sapped. Equally, transition is not something they are comfortable discussing. For they sense, the mere talk threatens their control of the things they most cherish (decision-making, clients, reputation, external perceptions etc), their control (or reduction) threatens their power and influence over their personal priorities. Yet for those whom growth and perpetuation is a priority, they must come to terms with succession and delegating responsibility. For those sitting on Boards in these advisory companies, ask yourself how that key individual(s) might speak positively of that discussion, irrespective of what you decide to do. Answering that question might increase the aptitude of those people to share their ideas in ways that you never imagined.
© James Berkeley 2014. All Rights Reserved.