Let me just start by getting out some details here. This is intended to be a workshop, so you’re here to work. I’m going to talk you through some of that work. I’m also going to be walking around the room to help you. If you don’t want to do the work, then I guess you just have to listen to me, but let me get an idea of who my audience is here.
So how many of you are founding owners? OK. So most of you. Employees? Then, are any of you employees in executive positions? Most of you. OK. So I’m going to just share a little introduction of myself. My name is Angie Herbers. I’ve been doing consulting for the advisory industry professional services firms for the last 17 years. I have my own consulting company. We have three locations across the U.S., and what I do now is I get to do what I love, which is come out on the road and teach the workshops and what we learn in the consulting division.
So, based on my audiences, the level of knowledge, we never know — we never know if it’s the basic level of business management knowledge or if it’s the high level of knowledge. So what I’d like to do in the workshops is, with any question that you have, I would love for you to just ask the question, and I’ll work through those issues with you, but we work holistically within consulting. So when we’re looking at a business, there are eight areas of the business relationship that we’re looking at.
These are the eight areas: leadership, corporate finance, client service, operations, management, human capital, sales and marketing.
When you’re in a service-based business, or you have service-based businesses attached to product-based businesses, you’re basically doing the impossible every day. You’re helping clients, you’re trying to maintain the business revenue and then you’re trying to balance all these eight areas.
So what we’re going to learn today is how to balance all of these eight areas and then develop strategies around those eight areas, particularly organizational strategy, which is the foundation of all that.
So how many of you like to manage people? I have one person. I love it. So we’re going to talk a lot about the people strategy today and learning to lead instead of manage. Ten years ago, my consulting firm did a big research project, and the goal of the research project was actually to eliminate the management function. So we got the team together, and we said, “If we could eliminate management, management of people, how could we do it?” We did it through the organizational structure. I’m going to teach you those organizational structures today.
So, if you have a question, raise your hand. I’ll answer the question. If I think that that question will be answered later on in the presentation, I’ll write the question up on this whiteboard, and then we’ll come back to it. Don’t be afraid to interrupt and ask. I want it to be an interactive group.
So let’s talk leader-to-leader or executive-to-executive, and for the employees in here who aren’t executives, I’m going to talk to you as if you are going to be the future leaders. Let’s just start with this question: What is 4 + 4?
Audience: Trick question.
Herbers: How do you know it’s a trick question? Isn’t 4 + 4 = 8?
Herbers: What else could it be?
Herbers: OK. What else could it be?
Audience: A way of duplicating yourself.
Herbers: I’d like that. Never heard that, but that could be true. All right. I want everyone to get out a piece of paper, and as we go through this entire presentation, I want you to write down as many solutions that you can possibly come up with to what 4 + 4 is.
Here’s what happens in business management and running your firm or even leading a firm: You get what’s called “domesticated.” So what happens is, you think you learn something or you experience something, and then what your brain tells you is that that outcome is going to be the same every time.
So it prevents you from doing new things. It prevents you from starting new things. It prevents you from making big moves in the business. It prevents you from adding new client services. It prevents you from going to a conference and experiencing it in a whole different way.
That domestication is the death of building really great businesses. So when you look at the business, the first and most important thing is, what is the first option? The first option is 4 + 4 is 8, right? What is the second option? 4 + 4 could be 16. It could be a way of duplicating yourself.
What is the third option? What is the fourth option? What is the fifth option? When you’re working within your business, you have to keep asking yourself the question, What are all the options? or What are all the possibilities? I’m going to give you the answer to 4 + 4 at the end of the presentation.
So when we’re looking at your business, we want to look at what are all the possibilities that you have, OK? So does anyone want to share with me something that they are struggling with in their business?
Audience: New staff.
Herbers: New staff.
Audience: Communicating vision.
Herbers: Oh, that’s a good one, communicating vision.
Audience: I guess you could say pulling back on my production to lead, but that means I need to be able to fulfill avoidance production.
Herbers: Sure. That’s called a growth barrier. Yeah. So pulling back, hiring staff, leading other people — all of those things have solutions, right? So, pulling back — let’s use this one. This is a really good example. It’s a very common one. So, pulling back. What is your solution to that problem?
Audience: A solution as opposed to a leap of faith?
Herbers: Most people do the leap of faith. They, literally, are right here. [visual] They’re stuck. They can’t move, and they look like this, and that business goes.
Audience: The solution I’ve tried is to try to identify my personality type and find one person whom I felt was closest to that personality type and attitude. As the best leap of faith — that someone would be there to carry that. Whether that would work, time will tell.
Herbers: Great. So, duplicating yourself, basically, is what you’re trying to do. Does anyone else have any other option for him to solve his problem?
Audience: Hire more effectively to recruit better.
Herbers: OK. Recruit better. Anyone else have a different solution?
Audience: Training, education.
Herbers: Training, education. Anything else that doesn’t have anything to do with people?
Audience: Streamlining his process to scale.
Herbers: Good. What else?
Audience: Hire a consultant.
Herbers: I’ll take it. Yes.
Audience: Well, I guess also, too, is looking at the clients he served personally, and does he need to be seeing all those clients?
Audience: Trimming effect.
Herbers: Good. So what if I told you that you could solve your problem by actually taking away client service?
Herbers: So, if we didn’t look at hiring as a solution or growing a marketing as a solution or sales as a solution, what are the other solutions? The solutions are in leadership or in corporate finance. We could actually make your business smaller and much more profitable by taking away the service that you give to your client and serving only a few clients, and then shoot it high. So that’s one option.
There are hundreds of millions of options. Many people go to two options, which we heard in the group today. They jump to hiring and people. We’re going to solve problems with people, and then we’re going to solve problems with marketing. So as we’re thinking about going to what we’re going through today, what are all the possibilities in your business, trying to stay away from the things that you’re domesticated to think?
Most business problems are not solved logically. They’re solved with other places in your business, and I’ll show you where those other places are in a minute, other places in your business to truly get the biggest impact that you could possibly get.
So growing an advisory firm or a service-based business or an insurance company — all of this is hard. It’s really hard work. The reason it’s hard is because it takes a lot of work. How many of you have had strategy sessions in your businesses? Are you happy with the implementation after those strategy sessions, or do you just go in there and talk, and then nothing happens?
Audience: You buck the trend yourself.
Herbers: You buck the trend. I don’t like strategy sessions, and I’m a consultant, and here’s why: Because they often look like a hockey stick. So what happens is, you go into your company and you say, “Hey, we could do this particular strategy, and this is what will happen to our revenue and our growth. We’re right here on the path to being a bigger company.”
What we’re going to do is invest the money in some capital; usually it’s in hiring people or going out and getting a new marketing program. We’re going to invest the money in our revenue if this is our revenue line or our income line. [visual] We’re going to use some of that, and ... “Excuse me. This is our profit line. Our profit line — we’re going to use some of those profits. We’re going to invest in a company, so our profit goes down like this, right? Then it starts to go up like this, and then it’s going to go like this. Right?” It looks like a hockey stick or a hook. [visual]
So what happens is we get stuck underneath the illusion that what we can do is invest a little bit of money in people and marketing, some capital, and then, boom, everything is going to turn around. We’re going to be able to grow really fast because it doesn’t depend upon me. We’re going to be able to grow really fast because we’re going to have all these clients come in.
Nearly all consultants come and propose fancy hockey sticks. Rarely do they work. Almost all executives come and propose their company’s hockey sticks. Rarely do they work. Many owners believe that the hockey stick works. It doesn’t most of the time. The technology industry will be a little bit different.
What happens is you do the strategy here. [visual] You get down here. It gets really hard because it takes a lot of work to turn this around. What happens is that they have abandoned it. So it comes down here. You abandon it. You go back to your old ways of doing things. You get right back to where you were, and then you do the hockey stick again. So all the company does is it just goes up and down like this. If you’re lucky along the way, which is called trial and error, the company then will start to look like this. [visual] That’s a lot of work.
Herbers: Right. This is called “chaotic growth,” and we’ll talk about that in a minute. So the other reason why most people stop here is because it hurts. [visual] Within the consulting relationship, there is human behavior. So our human behavior tells us that if you have a bunch of information and data, what happens? Anyone know? You get more confident, right? The more information, the more research and the more data that you have, the more confident you get.
So your confidence gets higher, and then there’s this amazing thing that we carry around in our brain every day, and it’s called our ego, that fantastic little sucker that talks to us. Our ego then tells us, because we have all this data, that “This will work. It will work.” We’ll put our feet in the sand, and we’ll say, “It’s going to work. We’re going to do it. We’re going to invest the money, and this is going to happen.”
So when that doesn’t happen, within human behavior, you get really confident about something. You try it, and it doesn’t work, it fails, and what happens to you and your business, you emotionally or your confidence level? It goes down, but it doesn’t go down to where you were before. It actually goes down lower than where you were before.
What ends up happening is not only is your business going like this, but your confidence in your business is actually going like this. [visual] So you’re going up and down all of the time. Now, has anyone ever been around someone who’s so dramatic, and they’re up and down all the time? Right? It drives you nuts.
So the goal is to try to get it consistent. The only way to get it consistent is to essentially flatline it. So you’re here. [visual] You know that your strategy isn’t working. You don’t want to pull back. You don’t want to come down. You don’t want to make the investment here. So the goal is to do this.
Now, there’s this amazing thing called a stairway, and it looks like this: up, flat, up, flat, up, flat, up, flat. [visual] Which would you rather have? This or this? Right.
Audience: Door No. 3.
Herbers: Right. Door No. 3 would be like this, right? [visual] There is a way you can do this. I’ll teach you that today. Moderation is much better than agitation. Consistency is going up.
Does anyone remember the children’s book “The Tortoise and the Hare”? What do you want to be? The tortoise. The best owners whom I know who own multimillion-dollar firms, huge multimillion-dollar firms, know how to stop time. You know how they stop time? They literally start slashing ideas or innovations in their business. They slow everything down.
So one of the goals that I have for you in your business when you’re managing people or working with people or you have hundreds of ideas is to make a list of all those things in your head, and slash them all the way down to one or two, and then tell your whole organization that you’re focused on one or two things, and then stay there.
Congratulations. If you’re running a business and you’re also working with clients, and you’re trying to grow this business, you’re doing the impossible each day. Over 90 percent of the businesses in this country don’t even make it to $1 million in revenue. The reason that they don’t make it is because they can’t balance those eight areas while doing the work that they do.
So you’re already in a really good place. The question is, now that we’ve got there, how do we keep it balanced, and then how do we make it stairstep and then grow if that is the goal? How many of you have growth in your company as the goal? How many of you have growth in revenue as the goal? How many of you have growth in profit as the goal? What is the real goal?
Audience: It is the profit.
Herbers: Right. From a business owner perspective, the real goal is profit, but when you’re working within service-based businesses or serving another human, what is another goal that you have?
Herbers: Client satisfaction — making sure the client is taken care of to the best of your ability. So, when you’re running a service-based business or a professional business, whether you’re offering advice or recommendations or even advice or recommendations along with a product, you’re in conflict all the time. You’re in conflict with what is best for the client, what is best for the shareholders, what is best for the profit line.
Many owners or executives have a hard time balancing that in financial services. So do you know what they only focus on? The only thing that they focus on is to cancel all those things out. They only focus on revenue, the top line. When you’re only focused on revenue and the top line, it’s possible that you can end up with a much bigger business, problems multiplied, and now you have many more problems to solve.
I had a really good friend who built a technology company. Has anyone ever seen those ad rolls where you go to Nordstrom or whatever, and then it follows you around the internet? He invented that software. I tell him all the time that I hate him because I don’t like it following me around the internet, right?
We were talking one time about business and developing the business, and I said, “All we do in the relationships that we have is we solve problems, and then we have a new set of problems to solve.” He said something really interesting to me. He said, “Ang, when we look at people in general, people don’t change that much. When they get larger, they’re making more money; they just multiply.” In other words, if you have a small, little fishing boat today, and now you’re making $2 million or $3 million, you’re just going to have a yacht in the Mediterranean. People just multiply as they make more money.
The business works the same way. If you run the business like you are today, the problems that you have today as you grow, if you don’t truly solve them, just get bigger along the growth curve. So the goal is to solve them early and then have good problems to solve. We have to do that within these eight areas.
So, if you have a pen and a piece of paper, I just want you to write down what area here is the hardest one in your business. [visual] I’d like you to share real quickly around the room what is the biggest problem you feel like you have.
Audience: I would say operations — would that be staff?
Herbers: So, no. Staff would be down here in human capital. The management of that staff is here. [visual] Marketing is self-explanatory. This is profit and revenue. Leadership is you, you leading the company. Client service is how well you do the client service, and operations is how well you deliver the client service. So operations is the process and procedure to deliver the client service. Thank you for asking that question. All right. Anyone want to share their biggest problem?
Audience: Human capital.
Herbers: OK. Anyone else? Was anyone aware of the answers that we got, most of the answers that we got? Most of the answers that we got were human capital to start with, and then we got one about marketing, and then we went over to leadership, but how many of you said, “client service” and “operations”? We have one, two, three. I can tell you that the vast majority of problems in the business lie in these two areas. Why?
Audience: Because they conflict in the other areas.
Herbers: They’re in conflict, yes, but what else?
Audience: They’re perceived to not create revenue.
Herbers: Yes. What else? How many of you think you’re the best organization on the planet, you’re truly unique in what you do, and you don’t really want to change what you do?
Audience: It’s value add.
Herbers: The client service, operations? Client service and operations encompass everything that you sell, whether that be advice, a product, or a service, and then how you deliver it. A value add to that is just simply an addition onto the product, service or advice that you’re offering. OK? It’s encompassing everything.
What people would do, what business owners traditionally do, is they’ll blame anything but the thing that they want to look at, which is client service and operations, right? Listen. I can tell you right now, I’m the best consultant, and I have a unique process, right?
I don’t want to change. I don’t want my organization to change and evolve in client service and operations because I’ve been doing it for 17 years. I don’t want to change, right? The minute you put your feet in the sand in this particular area, where’s the problem? Right. It’s that you aren’t moving anymore. You’re not changing anymore. It’s that you’re not evolving anymore.
It’s much easier for us to blame it on people. It’s much easier for us to blame it on growth, and it’s much easier, and this is the most unfortunate part, to blame it on ourselves. Most of the problems lie here. You don’t solve those problems, though, by looking at those problems. You solve those problems by solving the confidence issues here, here and here. [visual] All right.
I’ve already talked to you a little bit about chaotic versus consistent growth, but when you take each one of these areas in your business and you look at them, your goal is to flatline them. Get them all consistently looked at. When you’re not looking at these two areas, they’re down here, and everything else is higher, right? That creates what we look at here. [visual]
So not looking at these areas creates all of this focus in all of these other areas, and your revenue line, in addition to your profit line, starts looking like a heart rate monitor. So the goal, your primary goal, is to get one goal in each of these areas, and then get these consistent and get out of this chaotic pattern.
Do you know what happens when you get out of that chaotic pattern? You get really bored, and then you need a babysitter. Many people get bored when their business gets consistent because they’re doing the same thing over and over again. Service-based businesses are not hard to run. The problem is we get bored, so we’ve got to take something that makes it interesting, creative or innovative, and we’ve got to then throw it into the consistency that we already created.
Do you want to know the most common thing that people throw into the consistency that they created? It’s another line of business. We’re going to add institutional investment management. We’re going to add tax services. Now we’re going to add, I don’t know, another component of insurance. Now we’re going to add a value add, right? That’s the easiest way to slow your growth.
Many people will blame growth on marketing when, in fact, it’s usually just the chaos of not having any consistency or the boredom of the leaders. We’ve got a small group, so I want to ask you: Are any of you who are working with client relationships or have client relationships at all bored with them? Right. That’s honesty, right?
When you get bored with a client relationship, you start innovating the business. So the first clue that you need to have, or acceptance that you need to have, is that you are bored with the client relationship and you need something else to do. The question is, What are you going to do and then whom is the client relationship going to? Right? Consistency.
My firms grow on an average of 19 to 23 percent, and the industry average is somewhere around 7.6 percent. They usually start there. [visual] We get them here, and then the job that we usually have, honestly, is babysitting. No. You don’t need to go to that attorney and do something new in your estate planning. You don’t need to create anything. Just put the money in your pocket and go play golf, please. It’s really that simple.
These are growth barriers and for us in the financial advisory industry. What is a growth barrier? This dark line right here is your revenue line. [visual] This light blue line right here is your profit line, OK? When we start to add stuff into the organization, whoever gets bored, the group gets bored. If you’re bored with the client relationships, your employees are probably a little bit bored with the client relationships.
What happens is, as this business grows, as the revenue grows, a combination of human behavior, which is usually boredom, and also investments that you have to make to get to the next spot requires that hockey stick, right? You make this investment; you make that investment. This is upside down here, but you make the investment here, and then you grow to the next level, and you have a good level of profit, then you get here, and you have a good level of profit. [visual]
So what happens is, at each one of these barriers, then, we can predict these barriers within the advisory industry that are widely known. At one of these barriers, you’re making an investment or you’re bored, and you have to do something else to get to the next point. So your profit margin in your business, if your revenue line is straight like this, is actually going to run in a curve unless we get you out of it, right?
So, if we can predict the revenue, the growth barriers, we can also predict what needs to happen from one step to the next step, to the next step. If I was building an advisory firm — we rarely get these, but when we do, we just got one that has zero in revenue — until we get to $350,000, the only thing we’re focusing on is marketing. The next step, until we get to $750,000 in revenue, the only thing we’re focusing on is technology and professional talent, which is operations and HR.
When we get here, the only thing we’re focusing on is client service and HR. The only thing we’re focusing on here is the leadership. These are the Top 2 things, and management. How many times did I say marketing all the way to $3.3 million and all the way up to $15 million outside of this component here? If you do it right, you only have to market one time here, and then when we get here, which is growth, when you get to $15 million, then you invest in big marketing budgets.
Most advisory firms and advisory firm owners or service-based businesses invest in marketing and sales because that’s the only thing they know, and they’re really good at it. So they get stuck in “What do I do about operations? What do I do about talent? What do I do about client service? My client service is the best. I can still sell it.” Of course you can because that’s the only thing you know. “What do I do about management? What do I do about the other components like M&A and the actual sales process?”
So as you’re building your firm, I want you to remember, if you take nothing else from this presentation today, if you’re trying to solve your problems with people and marketing, more than likely, you’re solving your problems because you’re domesticated, and what we need to do is think differently and solve it with operations, client service and then organizational structure, and organizational structure is where we’re going to go today.
So I’m going to give you four areas in your business that you can really focus on that are outside of marketing, outside of sales, and there within the leadership, corporate finance, human capital and management component. I can solve your people problem by solving a leadership problem. I can solve your management problem by solving a corporate finance problem.
If you solve all these problems, you solve all these problems and layer on actually getting rid of the sales component, one of the sales components, and your business will grow as naturally as the grass grows in the spring. It’s not a hockey stick. It’s a stairstep.
So the first step that we’re going to take is in the leadership component. How many of you understand and know what leadership is? Do you know the difference between leadership and management? How many of you like to lead?
If you like to lead, I need your hand to go up in the air. We’ve got one person who likes to lead. How many people like to manage people? OK. We’ve got one, right? So here’s the thing. I’m going to teach you how to learn to like it, because leadership is actually natural to most all people. I haven’t met a person whom leadership isn’t natural to. How many of you have children? How many of you lead your children?
There are two components to leadership. No. 1, it’s understanding your conflicts, which requires core values, and the No. 2 is knowing the difference between leadership and management. I’m going to teach you the conflicts really quickly because it’s important for you to know what side you’re on.
So there’s a triangle in your business. When you look at organizational strategy, organizational strategy is the strategy that you employ for people in your organization to grow, both profit and revenue. People encompasses all people, clients and human capital, and leadership, OK?
You’re learning organizational strategy by my teaching you these components. They will come together in the end. There’s a triangle in your business. Has anyone ever been in what’s called a “triangulated relationship”? How fun was that? It sucks. If you have employees in your business and you’re leading your business, you’re in a triangle every day.
I want you to think of your business as a person. So put a face on your business, and that face is your logo or your name. This business, its goal, the primary purpose of a business is what? To produce a profit. That’s the primary goal of the business. If you look up the word “selfish” in the dictionary, it means to do for yourself anything for pleasure or profit. So you are in a relationship, if you look at it as a relationship, with your business, then it’s selfish every day.
How many of you have worked hours and hours and hours every week to keep that business going? You know how many hours that business wants you to work? All the time it would take from you your family? It would take from you your time. It would take from you your confidence. What other things does that business take from you?
Audience: Your health.
Herbers: Your health, your balance, your wellness, right? That business is not your friend. It would take anything that you give it. What do you hold at night? Will that business hold you? No. It will run away. It will fall down if you don’t do what it wants you to do, if you are controlled by that business.
In that business, you have your leadership, and then you have your employees, right? Have any of you ever had employees who are only working for the money? It’s tough, right? It’s tough. When they’re working for the money, they’re not working for you. They’re working for the business. So anything and everything that they can take from the business, regardless, they’re going to try to do that. How many of you have had people come and push you for more money? They want more money, a better title, a bigger office, more tools, whatever. They push you for anything and everything.
The only thing that that’s telling you about those people and not the person, but their action and behavior, is that they’re just simply working for the business. They’re not working for you. When they aren’t working for you, you have all that drama that bottles up, which comes down to organizational strategy, which is money and all of that stuff that takes all of that from you. It takes all your energy and time, right?
You end up spending all your time managing. You’re not spending any time talking to clients. You’re not spending any time with clients. It’s coming from you, stealing, taking from you. I don’t want to use the word “stealing.” It’s just taking.
So what ends up happening is, if you’re sitting over here, you’re giving all of your time to the business and all of your time to these employees, and these employees are working for the business, and what’s left for you, seriously? I have worked with drug addicts, alcoholics. I have one client smoking marijuana in the office while I’m sitting there and going, “Oh, my gosh! We have to solve this problem.” One of these days, when I retire, I’m going to write a book about these great stories.
So what we have to do is we have to put a boundary up, and the boundary that we have to put up is right down the middle of this triangle. [visual] What most people don’t realize is what that boundary is. That boundary is core values. That is, how we act. How many of you do annual performance reviews with your people? How do those performance reviews go? Are they good? Do you like them? Did they like them?
Audience: Nobody likes them.
Herbers: Yeah. Would you guys sit down with your daughter or your son and say, “Look, honey. In the last year, I think you could do more chores”?
Audience: My wife’s done that.
Herbers: Do the chores for your wife. Just do them. So here’s the thing. People don’t want to be told what they’re doing wrong. They don’t. They want to be encouraged and told what they’re doing right. They want feedback, but they want to know that they’re contributing to you, to serving you, to helping you.
When you give them feedback that’s often negative, unless you’re a real pro at it, it’s hard to give negative feedback without being constructive. When you’re giving that feedback, what you’re doing is you’re just saying to the employees, “Listen. I’m going to give you that negative feedback. You’re either already working for the business, or you don’t like me, anyway. So I’m just going to start to try to control you. I’m going to try to control your actions and behaviors.”
Has anyone tried to control another person? I have. I tried to control my husband, and then I got divorced. Seriously, you can’t change people, and you can’t control people. So what happens is, when you’re giving that feedback, you’ve got this triangle going on, this action going on, and these people, all they’re trying to do is to grasp control of something. So you know what people do when they try to grasp control of something? The easiest thing to grasp is money.
If only I had five more dollars, or if only I had 100 more dollars, or if only I had $1 million, I could get in a million-dollar house, and I will be a whole lot happier, right? Have you not dealt with this with your clients? It’s the same thing. Your business is very similar to what you’re dealing with your people.
How do you solve the people problem? How do you solve a client problem? You give them what?
Herbers: Solutions, options, a strategy, right? An action plan. Does that action plan have 100 things on it for the client to go do? No. Why? Because you overwhelm them. So why the hell are you doing that to your business? All right. So, what we have to do first to get rid of this triangle within your people is get the core values in there and then measure your people on core values and core values only.
I’m going to give you an example. So I would love to be able to give these client examples, but, unfortunately, I can’t because that is proprietary confidential information. So in some of these cases, I have to use my own business. In my own business, we have one core value, and that’s go beyond you. If anyone in my business carries an ego or if they are trying to grasp for something for themselves and not focus on the client, then they aren’t scored very well and so go beyond you.
Going beyond you means you are looking at these areas: You’re focusing on implementation, you’re focusing on being holistic, you’re focusing on growth, growth both personally and professionally, interdependence, which we work together, research and being objective.
When we rate the people in our organization or do a performance evaluation, we are saying, “You need to improve more on interdependence and go read about it. You need to first get independent before you can be interdependent. If you aren’t presenting enough research, that just means that you’re not taking the time in your day to look things up and verify information.”
So, when you’re doing performance reviews, first, we’ve got to get rid of that triangle organizational structure. You put core values in there, and then you rate people on core values. Then you know what happens? You get rid of those ridiculous performance reports that aren’t working. No more performance reports.
There’s a great book out there called “Traction” written by Gino Wickman. Consulting is about core values, vision and mission. Core values is one of the most, if not the most, important elements in your business when you have people. If you don’t have these, go home and establish them.
You now have two action items. The first action item is, I want you to continue to try to solve 4 + 4. The second action item is, I want you to write down how you want your people to act.
While you’re writing down how you want your people to act, if there’s any sentence or word that you write on your piece of paper in which you aren’t acting that way, then you need to change. If you ask your people to come in at 9:00 a.m. and leave at 5:00 p.m., you’d better show up at 9:00 a.m. and you’d better leave at 5:00 p.m. Your culture is a reflection of the leaders, and you can’t ask someone to do something that you’re not willing to do.
Let’s talk about leadership versus management. Leadership is influencing, guiding and asking questions. Management is directing, doing and telling. Now, I’m going to teach you a human behavior trick. It will probably change your life if you actually process it. It will also make you incredibly lonely. Does anyone want to learn it? No one? Fine. I won’t teach it. So I’m going to teach it anyway.
When we’re managing, we’re directing and doing and telling. Most people have not learned how to speak to another person, whether that be in their culture, or to their client or to their families in a way that it isn’t projecting. What most people talk about is actually themselves, OK? Until you learn to stop talking about yourselves, you can’t truly lead.
Would anyone want to volunteer for me? Thank you. So I’m going to walk up to you, and I’m going to say, “I think that you’re ugly.”
Herbers: What do you think that I’m telling you?
Audience: I think you’re projecting yourself on me.
Herbers: Thank you. This dude’s a pro. What if I said, “I think that you’re beautiful”?
Audience: I feel like I’m going to get jealous. I’d say that’s accurate.
Herbers: Great. When someone walks up to you and says that you’re ugly, what most people do is they take it on the inside. They think in their head, Oh, he thinks I’m ugly; I must be ugly, right? So, if I walked up to you, and I said, “Hey, I want some more money,” what am I telling you?
Audience: You’re not paying me.
Audience: Not necessarily I’m not paying you, but I feel undervalued.
Herbers: Right. All they’re telling you is “I don’t feel valued.” Does value come from money?
Audience: It comes from a lot.
Herbers: Most value doesn’t come from money, but a lot of people use that for whatever reason. I’m not saying it doesn’t. I’m not saying it’s not helpful. When someone walks up to you and says you’re ugly, they’re just saying, “I feel ugly inside.” When they walk up to you and say it in a positive way, “You’re beautiful,” they are saying, “I feel beautiful inside.”
So, when you start listening to what other people are saying, which is the true essence of leadership, listening, you’ll realize that a lot of people are telling you a lot of things not about you. They are telling you a lot of things about themselves. All you have to do is listen to what they’re saying.
When you’re too busy directing, saying, “You need to go do this, and you need to go do that,” or telling someone else what to do as in “You’re just managing them because you have a problem,” when you stop doing that and you start listening, you start influencing, guiding and asking questions.
I want to do another example. When an employee comes to you and says, “Hey, I need something from you” or “Hey, I think that I would like to have a raise,” the first thing that people would do — I mean, people don’t like it when people ask for money — what leaders will do is come back and say, “Hey, tell me what I can do so that you feel more valued. Tell me what I can do so that I can care more for you. I’m not giving you a raise.”
Very rarely will people say no. Some of the best things that you can do is just say no and get to the bottom of the issue, because if you solve the bottom of the issue by influencing, guiding and asking questions, you’ll be far better off in helping your people help you. “Help me help you.” Do you remember that in “Jerry Maguire”?
When your people come to you influenced, meaning you don’t need to give them resources, you need to say, “Hey, what resources do you think that you need? Hey, what research can you do? Tell me a little bit about what you know about that. Give me an idea of what problem you’re really trying to solve.”
Don’t give the solution. Influence them, then guide them, which is encouragement: “Hey, you’re doing a good job. Hey, I think that this is great. This is an area that I think the whole team can improve,” so you’re not individualizing it. Then get to the bottom of the issue by asking questions. Stop managing, and start leading. It will change your whole culture. If you’re listening instead of managing, you’re going to learn a lot about the people whom you work with.
Now, with all that being said, there is a margin of error. The margin of error is that when people figure out how to lead and truly lead, you’ll see those leaders rise to the top because they’re not talking to you, and really great leaders are able to come up, walk up to a person and say, “Hey, I think that you’re beautiful” or “Hey, I really think that your hair is great.” I’m making it really simple because I don’t have an example for the business right now.
The bottom line is, when you get really great leaders, they stop talking about themselves, and they’re giving you information that truly is about the organization, and that conversion in your culture will change almost all the drama that you’re dealing with.
Questions about leadership versus management. How many of you have time in your business to literally go in your office, sit at you desk, put your feet on your desk, look out the window and think? A few of you. How many others wish they had that time? How many others would actually do it if they had the time?
So leaders are paid to think. They aren’t paid to do. So, imagine if you were to tie your hands behind your back and walk through your organization all day long. There is a book called “Management by Walking Around.” This is a really good leadership book. I’m sad that it’s called “Management by Walking Around.” I wish it were called “Leadership by Walking Around.” If you tie your hands behind your back, and you cannot use your hands all day in your business, and the only things that you could use were your senses — your ears, your eyes and your mouth — you would learn more about your organization, and what you need to do in your organization, than you would running around doing things all the time.
Audience: An example, in my sense, is I have actually an employee who exhibits the ability to become a leader, but he constantly needs to be told what to do. I was able to manage the last situation because, when I have conversations with him, I try to guide him, but he’s just like a puppy looking at me like, “Just tell me what to do.” How do you deal with this person?
Herbers: So I love this question because we deal with it a lot, especially in our executive leadership. So, when we’re teaching young talent to move into executive positions when they have natural leadership abilities, the first thing we have to recognize is that they were taught that. They were taught that they have to be told what to do. That makes them feel good.
So you just need to start repeating yourself. You need to build his confidence. The way to build his confidence is in two ways. The first way is to say, “I don’t know. You tell me. I don’t know. You tell me. I don’t know. You tell me.”
Audience: OK. So I’m doing it right because I tell him, “If this was your client, what would you do?”
Herbers: Right. You just keep doing that over and over and over again. They’re going to get to the point where they’re pushing back and they’re pushing back. That instance right there is a fear of failure. So then the next thing that you can actually do is push him in the wrong direction and let him fail, and then he’ll rise up.
When people don’t move into natural leadership positions, the fear is failure. When we have managers, usually the fear is actually success. Most founding advisory firm owners don’t have a fear of failure. They have a fear of succeeding or receiving.
Let’s understand corporate finance. I’m going to have to go through this component pretty quickly and then get to organizational structure, which is the core and where I will bring it all together. So I don’t know if you understand the financial formula, but the financial formula is really simple. It’s income revenue minus cost of goods sold, which is called “direct expense,” and then you get gross profit. Gross profit minus overhead expense gets you profit. After profit, you have debt service, which is paying off your loans minus the interest distributions, and then you get cash flow.
Most business owners run their businesses through the cash flow because that’s what they know. In addition, most advisory firm owners run their business on a cash-flow basis because that’s how they advise their clients, but that’s not our goal here. Your goal is ratios, percentages, think asset allocation, OK?
So the most important one, though, is gross profit, not profit. In a service-based business, the most expensive thing that you have is your people. So many people will go out, and they will market. They’ll get another $1,000 or $200,000 in production. They’ll get overwhelmed, and then they’ll go hire someone for $150,000, which you get a $50,000 profit, but over time, if you’re not growing or scaling, what you end up with is that profit margin will start eroding. So you’re hiring people for no purpose at all. Then you start working harder for less money, which is where that saying comes from.
So we’re going to play a game, and that game is the gross profit game. The gross profit game that we’re going to play is we’re going to get a ratio on gross profit. The first thing is you have to learn how to calculate them. Income minus revenue or income, or revenue minus cost of goods sold or direct expense gets you gross profit. This cost of goods sold or direct expense in a service-based business is all of these things, OK? Payroll, salaries, bonuses, benefits, payroll taxes, payroll benefits and fees, and then service providers, if you’re paying anyone for referrals.
So, if you take all of these things, the cost of your labor, and you put them into one bucket, you total that number. You total that number, you’ll get this number right here. [visual] You take your revenue income minus that number, and you get gross profit. That’s really the only thing that you need to focus on right now, unless you’re using way too many paper clips.
Our goal is to get this gross profit percentage — forgive me if you know this already — and you take 400 into 1 million and you get your ratio, which is this: 40 percent. More than likely, the vast majority of your firms have a cost of goods sold of 60 percent, and your gross profit is 40 percent. The game we’re going to play is, we’re going to flip it around.
We want your cost of goods sold or direct expense to be 40 percent, and we want your gross profit to be 60 percent. We can increase your profitability without firing anyone, really, without growing all that much, focusing on client service alone, and flip these numbers. How we flip these numbers is through good compensation structure, good organizational strategy, good position descriptions, which is a good strategy around people. We can do this without being those awful consultants who come in and fire people.
Play the game of flipping these. You do this, and you start a domino effect down here. [visual] That domino effect is really good. You can go have a boat in the Mediterranean or whatever multiplies you.
So, if you write this down, my income revenue, 100 percent. [visual] That’s an error, 40 percent, 60 percent; 40/60, just remember that. My goal is 40/60. The game I’m playing is 40/60. My vision statement of the company is 40/60. I’m not going to hire any more people. I’m going to solve the problem.
Ninety percent of advisory firms and service-based businesses are way overstaffed. The reason they’re overstaffed is because they get busy. They don’t have time to think. They’re always thinking about the client. They don’t have any time to put their feet up on the desk, up on the chair, and think. When you think, I’ve got to hire someone to solve this problem, you start thinking differently. Then when you think, Well, I’ve got to just grow my way out of the problem, then you start thinking differently.
So hiring more people is not sustainable. I’m not going to get into analytics. We can actually predict now what the actual problem is in service-based businesses. I don’t have time to go through this, but we can essentially scale you and say, “Listen. Through the analytics, we can get all of these dots in the right place, and when we get all those dots in the right place, then we have a really good machine.”
This is what’s called “organizational strategy.” I want you to throw out your business plan. I want you to throw out what you think you should have as goal, vision, mission, and I want you to go home. I want you to buy a sketchbook. I want you to buy some colored pencils. I want you to put your feet up on your desk. I want you to stare at the window and think, and then I want you to start to draw.
I want you to draw something like this: no names in it, no people in it, only thinking about your organization. This organizational strategy is a proven organizational strategy, specifically for advisory firms, but we also can take this, and we can add insurance, and we can add tax, and we can add disability insurance, and we can add long-term care insurance, and we can add all sorts of things around it, and all the clients still get served.
The first thing that you have to do is figure out how you’re company can multiply without adding different positions. We want it to multiply itself naturally, right? The hardest thing to do is to multiply yourself. The question is, Why do we want to? So why don’t we multiply teams, or why don’t we multiply groups, so that it doesn’t depend upon one person?
These are three different departments. We’ve got the investment management department. We have something called centralized client service and operations. We have advisory and financial planning. I’m going to explain these to you really quickly so that you get an idea of what you can go home and draw.
When you’re drawing, I want you to draw circles and diamonds or squares, not triangles, and then I want you to fill in those triangles. You might not be able to see this, but there’s a light circle here, and there’s a light circle here. [visual] There are two diamonds here and a light circle here.
In this investment management department, we basically have four positions. This whole department can multiply itself. What happens is this portfolio technical specialist moves up to a research analyst. This research analyst moves up to a portfolio manager. Then we start hiring from the bottom and go out. So a research analyst can move over here to a portfolio manager, and then it just keeps multiplying. I’m going to show this on the whiteboard in just a minute with the advisory function because the advisory function actually works for any service-based business.
Then we have a client service department. This is called “centralized client service.” Centralized client service means that all the service work you do that is not a recommendation, this is really key, goes into a bucket. Anyone in the client service department can pick it up, as supposed to a client service person being attached to an advisor or attached to a team.
When you have people attached to anything other than a department, it stops the growth cycle. It stops people from growing, and it starts to create this push and pull of “I need attention. I need attention.” We can’t do that. Well, we can do that in an organization, but you don’t want to do that in an organization because that increases your management function. Centralized client service brings everyone together and breaks people up at the same time.
Your advisory department — these are called diamond teams. Ten years ago, we created diamond teams to work very much like a baseball field or how a baseball game works. Diamond teams are a team of four people, four advisors, working with the same group of clients. One diamond team can produce a minimum of $2 million in revenue, and we have some diamond teams that produce $6 million in revenue. We’ve got one firm out here on the East Coast that produces around $7 million in revenue. He has one diamond team and two client service people. That’s a pretty good profit margin. He takes me to his house in Costa Rica. I tell him, “Thank you.”
So the diamond team is a team of four. How this works is you’ve got an associate down here on the end. [visual] The associate has two jobs: attends meetings, delegates work, period. Attends meetings, delegates work, period. Attends all the meetings so that you can learn to communicate with the client, and delegates all the work to the client service department. Period.
The lead advisors, moving up the career track — and the reason that there are two here is because our goal is to train people really fast. So, when you train people really fast — and I hate to compare it to children, but these are really good examples. To train a child often takes two parents. It’s a lot easier when there are two parents, but when we have an associate down here whom we’re trying to groom up or get the knowledge that they need to communicate with a client, this structure gives them three parents.
We can take a 21-year-old right out of CFP score or a 21-year-old who has gotten their license, and we can make them a lead and a senior — a lead within 18 months, a senior within two years. Some of the best producers in the country come out of diamond teams.
Audience: Is that 18 months and then another six months, or 18 and two?
Herbers: Eighteen months and then another.
Audience: Another two years?
Herbers: No. No, no, no. Two years combined. We can get them to the senior level, but we don’t start them by teaching them to sell. That’s wasting our time. We need to actually team them to keep the client first. So it’s taking the whole model, and it’s turned on its head. In the old financial services industry, you come in as a salesperson, you grow up, and you have a full client base, right? It’s the opposite in a diamond team. When you have a bigger team, you bring them in as technical people, meaning they have a baseline knowledge of financial advice. You teach them how to work with the client, and then they retire being salespeople. So we groom them up, and we groom them in, bring them in with the knowledge and pull them up.
They all function in a team, which means that if this advisor is gone, the rest of the advisors can fill in. If we lose one of these advisors, all we have to do is move the associate up or we just hire another advisor, but the clients don’t feel like they have anything, that they’ve lost anything because the client knows that they’re actually attached to not advisor 1 or advisor 2 or advisor 3. They don’t call the office and say, “Hey, I want to talk to John.” They call the office and say, “Hey, I want to talk to someone on Team 1.” When you attach a client to not a person, it actually makes the relationship feel bigger, and it also makes the relationship more accountable and better.
Audience: With the lead advisor and the senior advisor, what’s their difference? What’s the differences between them?
Herbers: Great question. The lead advisor spends 80 percent of their time giving recommendations to the client and 20 percent of their time on marketing and sales. The senior advisor is the opposite of the lead. They spend 80 percent of their time on marketing and sales, and 20 percent of their time with clients. So you literally come into the organization, you get full with clients and then you give them away, all within a team.
The financial planning department can be anything down here. [visual] It’s just an illustration. We can have an insurance component. We can have a tax component. We can have an estate planning component. These people do not sit in front of clients. Only these advisors sit in front of the client. These are here for support, but they are very specialized support, and really good technical people in the back.
Audience: These compensation strategies are in dollars. Does that mean percentages?
Herbers: Yes, I’ll get to that question. I’m not going to write it on the board because I don’t have time, but rarely does a client service person go from here to associate advisor and up. We draw the line and we say, “We’re hiring client service people” or “We’re hiring professional people.” We’re not going back and forth.
Audience: One more question. Can the advisory folks be part of the investment management, or you don’t suggest that?
Herbers: Yes, actually. So associate advisors can go over to investment management, and they can go down.
Audience: Same time? Double duty?
Herbers: That’s hard. So, when you’re a small organization, sometimes you have your associate advisor’s name in this box and name in this box. [visual] Remember that when you take an associate advisor’s name, let’s just say his name is “Jim,” and if Jim’s name appears here and it appears here, you’re slowing his growth, and you’re doing it on purpose. So what I would suggest instead is you take a client service person and you put him over here, a client service person and you put him over here as a specialty. They can do research. They can learn that. They can also do the portfolio technical specialist stuff like trading here. The only problem is that you’ve got to hire the top portfolio manager. Remember, anytime you give your associate advisor, lead advisor or senior advisor another duty in your organization, you are slowing their growth. Period.
When we get organizational strategies in large firms and even small firms, what we have is the associate advisor’s name appear here, here, here, here, here, here, sometimes down here. [visual] They wonder why that associate isn’t growing. Well, you set him up to fail all because you needed support. Yes?
Audience: Do you have a graph similar to what you had with the marketing expense technology for how many staff people are appropriate based on a level of revenue or amount of clients?
Herbers: So you can do that in your gross margin. You can work backward from there. I’m going to get to that in a minute. I have a fancy little slide for you guys. These are the traditional structures where you have a lead advisor, associate and client service attached to one person, or you have this hierarchy. If you have this in your organization right now and your client service revolves around it, you just have to tear it down and insert in this, and then the circle for centralized client service. [visual]
The firms that I’ve worked with that refuse to break up this client service person take this client service person and move them over to what we call an “island life.” They don’t grow very fast. It’s very hard to break up with the client service people. I’ve found in doing organizational structures.
Going to a diamond team structure replicates itself. I’m going to show you how it replicates itself real quick. If you build one diamond team, that diamond team will multiply and multiply and multiply, and you never have to worry about — never say never — but you really never have to worry about your professional team anymore. You can grow as fast or slow as you want to. OK?
So, when we have a diamond team that looks like this, I want you to keep this in mind, that first, you have you. This is usually you up here. [visual] I want you to go out and hire an associate. This associate — the only thing that they’re going to do is attend meetings with you and delegate work. It’s really painful because all you get is a shadow. You don’t really get much help other than that shadow. OK?
Then that associate, because they’ve shadowed you for 18 months or less, moves to a lead position, and now they can take clients. So now you’re transferring clients to them. You’re not adding any more clients. You’re just transferring clients to them. Once they move to this position, you hire another associate, and that associate follows around that lead. Then this associate down here — this is the third associate we’ve hired. The first one went here. The second one is here. [visual] Now, this associate moves here, moves to the lead position, and you’ve now hired your third associate.
Now, you have one diamond team. Now the team starts to multiply. So you have one full diamond team. I’m just going to do the diamonds here. Now, your leads want to go somewhere. So your lead breaks out, and you do the same thing. You’ll hire the associate. They follow them around, delegate work. That associate moves here. The next associate moves here. If you’re really good, both of these leads will break out, and you’ll end up with three diamond teams or four diamond teams, and they just keep multiplying themselves. I have a degree in family studies and human services. It’s a culture of making babies, for lack of a better term.
Audience: I’m looking at this, and this is an advisor who wants to grow an organization, but I hear these advisors who make millions of dollars a year, and they have one assistant or they have one person working with them. Where does that model fit in some of this?
Herbers: That model is just exactly what they want to do. I mean, it’s just them. They’re client-based. That’s what we call a highly productive solo firm, and they just have support around them. When you get down to it, what they’re doing is they have a term called a “cash cow.” What they’ve done is they’ve made all their client relationships center around them. They’ve added support underneath. It’s a solo practice because there’re not other advisors, and they’re just milking the cash out of it. There’s nothing wrong with that.
The problem is that if you get to a point where you get really overwhelmed and you have clients coming in, there’s only one thing you can do, and that is you have to say to people who come in, “I’m sorry. I’m not working with any new clients anymore,” because they have failed to invest in their talent. There’s nothing wrong with running your business like a cash cow. What you are giving up in running your business as a cash cow is enterprise value.
Your business has absolutely no value if something happens to you as the advisor. When you start to invest in people, then you might have $1 million, let’s call it $2 million in production today where you have one assistant; you start investing some of that money in people, and your business now becomes worth $2 million, $3 million, $4 million, $5 million, up into the tens of millions, too, which is what happens in ownership.
Ownership at the solo level is owning the fact that you built something, and it’s really great, so you can either turn people away or you can keep milking it. If you continue to grow it, then you’ll have the value of that business of which you will get paid for in the end. There’s no right or wrong answer.
Audience: That answered my question.
Herbers: Yeah. It tells you the priority, the priority that, if you have a lot of advisors or certain advisors who are just solo and they have support underneath them, all they’re telling you is that they just want a cash cow. They want to milk the business. The reason they’re actually doing that is because they don’t know corporate finance. They are running that business like a cash flow.
Audience: On that model, it sounds like the theme is constantly having to prospect or find new clients. Then I understand departments are given down and given to a lead, and then we can find more prospects and clients for my practice.
Herbers: So what happens is you’re generating clients here, and you’re generating clients here. [visual] I’m doing a presentation tomorrow called “The Death of a Rainmaker,” but as these diamond teams multiply, what ends up happening is the rainmaking function and the sales function literally disappear because you have enough clients in volume that they’re sending enough referrals that you don’t have to go out and get clients.
So then what happens is these senior advisors get into the executive position. So all of the people who are bored right now are spending 20 percent of their time with clients and 80 percent of their time running the business, which is a really cool place to be. It’s fun.
Audience: Can I ask you a question around that? How does that part sit with the part you said about you need to be sitting there from 9:00 a.m. to 5:00 p.m.?
Herbers: What do you mean?
Audience: You just said, “Oh, it’s really cool that you’re spending 80 percent of your time on the business and 20 percent working with the client.
Herbers: I get it. So what I’m talking about is delegation of position, what you do in the business versus action and behavior. You’ve got what you do, and what you do is scaled and different, and then your actions and your behaviors. If your actions and your behaviors are you showing up past 9:00 a.m. and you leaving at 4:00 p.m., or if you show up at 7:00 a.m. and leave at 10:00 p.m., those actions and behaviors are telling someone something. That’s a lot different than what you do in the business.
Many people get the two mixed together, and they use the excuse “Oh, it’s really OK that I’m not taking responsibility for the role that I’m playing in the business. It’s really OK because I’m the owner, and I’m the senior advisor, and that’s part of my duty. So my action and behavior is OK.” There needs to be a line down the middle between what you’re trying to get everyone else to do, which is lead, and have really good actions and behaviors that are focused on the culture and the business versus the position that you’re playing. That’s how that all works together.
The senior advisor does go out and play golf, but he doesn’t make the excuse that he’s not in the office at 9:00 a.m., because he was out playing golf the day before. He doesn’t run out the door unassigned or unplanned in the middle of the day because there’s nothing to do so that he can go play golf. That’s the difference between the action and behavior and the position. Other questions about that?
Audience: So should we tell our staff, “I’ll get in the office at 7:00 in the morning, but I’ll leave at 4:30 or 4:45 p.m. to be able to get my kids and be with them. I want to spend time with them”?
Herbers: OK. So, if that is your goal, then everyone in your office should have that same flexibility, and then you’re fine. If you’re doing that and then you’re saying that everyone in the office needs to come in at 9:00 a.m. and leave at 5:00 p.m., and you’re leaving at 4:30 p.m., they don’t have the same privileges as you do, so then you’re in conflict. You’re telling them, you’re communicating, something different.
We had a study years ago, and this goes to this point. We had a study years ago that we have what’s called “open vacation,” which means there is no vacation policy. You can take as much or as little vacation as you want to. What was really interesting about open vacation policies versus actual vacation policies is when we opened up the vacation and we said, “You can take as little or as much vacation as you want to,” you know how much vacation was actually taken compared to the policy? We had to force people to take vacation.
Audience: I just did that in my office, and my guy hasn’t taken a vacation yet. Why do we want a vacation?
Herbers: Right. This goes back to human behavior. When you give someone the freedom to be, they often give you the freedom to be too.
Audience: So that leads me back to an answer. They know for the most part, and I feel that anytime they ask and need to take off or want to go to an appointment or see a family member or whatever, I never say, “No, you can’t do that.” I tell them, “Yeah. Go ahead.”
Herbers: Yeah, and they don’t need to ask anymore.
Audience: So that’s the open vacation policy kind of thing?
Herbers: It’s a freedom to come and go. Professional offices work with professionals. When you’re a professional, you have the freedom to come and go. So, if you go home and you create a professional office that isn’t managed, directed and controlled, what you end up with is a group of leaders, and you end up with a group of professionals who act ethically, who do the things that they need to do, who maneuver around schedules. They get things done. So, again, you just give them the freedom, and then you will get the freedom as well.
Audience: So maybe you need to go back and say, “You don’t need to be here between 9:00 a.m. and 5:00 p.m.,” or you can say, “Our hours are 9:00 a.m. to 5:00 p.m., but if you need to take off, it’s OK.” I mean, how do you restructure that?
Herbers: I would just go in and say, “Hey, listen, you guys. I want you to have the freedom that I have. I have the freedom to come and go as I please. How are we going to work together to get the phones covered and the clients who drop in covered? How are we going to do this?”
Audience: I had the same issue. The foreign thing for me is that someone answers the phone at 9:00 a.m.
Audience: Bingo. Exactly.
Audience: So what I did was I went out and got a virtual receptionist that’s costing me $400 a month who answers the phone on a Monday, Wednesday and Friday. Now my staff can take the kids to school in the morning. They could do whatever they need to do in the morning. As long as they get in at a reasonable hour, we’re all good.
Herbers: So things like what you’re explaining, the phone is being answered, no one has to worry about that 9:00 a.m. to 5:00 p.m. stuff, that’s the stuff that makes differences in cultures. That’s the stuff that actually gets your gross margin down because they stop asking for money. So this is a career track of the diamond team. You can get the slides and look at it. It’s pretty self-explanatory. It shows you from the bottom up, but I want to get to comp structure.
I want you to know compensation strategy is serious business. It is serious business. People would do what they are incentivized to do. If you incentivize them wrongly, you will kill your culture. The vast majority of advisory firms are incentivized poorly. When they’re incentivized poorly, you get a whole slew of problems that you couldn’t even foresee. Money talks and sometimes, and most of the time, it would talk negatively if you do it wrong.
If I have any advice beyond whatever I have already given to you, try not to design your own compensation strategy because just like your client, your client comes to you to get an objective opinion on their particular financial situation to work through those human behavior issues that they have in regard to a lot of different things.
When it comes to your own compensation strategy, you aren’t objective. I wouldn’t try to design it as such, but I gave you a salary table so that you can see what all those positions right now are getting paid.
This is an average cost of living area, and an average cost of living area is a cost of living of 1. [visual] So, if you look up the cost of living adjustments, and let’s just say you live in Peoria, Illinois, and your cost of living is 0.8, then you need to adjust all of these down 0.8. If you live in San Francisco and it’s 1.2, you’d have to adjust all these up to 1.2.
So what happens is you have a base salary. This is low level, average level, high level. [visual] How you determine that is on the career track that I showed you. Anyone who has a designation or license gets one additional point for that designation. So, if this associate advisor is a high-level associate advisor, it’s $82,000 plus $5,000 if he has a CFP or a license. Then here’s the variable comp.
These variable comp components can be designed in all sorts of ways, and they need to be designed based on the company goals. I’m just giving you what the comp is, what we’re seeing as the comp table within all of these positions based on that organizational strategy.
Now, with that being said, the best compensation structure is the one that you designed for your company. So we take this information. We never give information like this to an employee and say, “Here’s what the average tables look like so that you can compare what you’re getting paid here to someone else down in wherever.”
What we do or what I suggest that you do for your business is you sit down, and you say, “What is a senior advisor worth to me and my company?” You design the comp structure. All the employees want is to know clarity in their money. They want to know that they can move from here to here to here. Do you know who has the control over that? You do. It doesn’t matter what the industry is doing. It doesn’t matter what the industry benchmarks are doing. None of that matters.
When you start comparing it, they’ll start comparing it, and then they’ll leave. People stay at companies not for money. They stay at companies for culture. They leave companies because of money. What I mean by that is they leave because they’ve said, “I don’t feel valued here in this culture. So I’m going to go somewhere else that values me.” At the end of the day, it comes down to the family that you’re creating, the culture that you’re creating, and you have the power to design it however you want to. When it comes to variable component, it’s very hard to design for yourself. I could do a whole day of presentation on teaching you incentive comp.
Last but not least, understanding management. We’ve already talked about moderation, going up the steps. When you’re working with your employees, I want you to ask them, and this will help you, “What are you trying to accomplish?” Then you tell them, “Hey. OK. I get it. You’re coming to me to get an answer on how to do an investment strategy and whatever. What is the first thing that you think that you need to learn? Great. Go learn it. Here’s what I know about it. What is the next step you need to take? What is the next step you need to take?”
In your business, look at your business as taking one step at a time, not sitting down in an all-day strategy meeting and trying to figure out everything all at once. The best businesses today move. They’re having meetings every week, and all they’re doing is taking one step, and then the next step, and then the next step. The days of big strategy meetings going off-site all day talking about everything are pretty much over. We learn to do this within the organization week after week, day after day.
The last is the importance of balance. This can apply to your entire life. There is thinking and doing. Many people, because they need to distract themselves from whatever they’re feeling, have to do a lot of things. So they’re clear over here. Real things happen when you swing the other way and you start thinking. When you start thinking, you’ll stop doing so much, which feels like procrastination, and then, all of a sudden, you’ll live in the middle.
This is where you want your cultures to live, and this is where you want your people to live. Words, what you’re doing and actions create balance, focus and fullness. The only way to get your business consistent is to get it balanced. The only way to get your business balanced is to first get you balanced and then your people balanced.
When people are asking for a raise, all they’re asking is, “Where am I going? Where am I going? Where do I go from here?” They’re saying, “I don’t know where I’d go. So I don’t feel valued. I’m just riding around in a car, and you’re driving around in circles, and I don’t know where I’m going.” So, if an employee comes and asks you for a raise, you need to sit down with yourself, and you need to say, “Wow! They don’t feel valued because I’m not clear on where I’m taking this company.” Then figure out where you’re taking that company, and you’ll create really great employees.
4 + 4 to me is 44. It’s really that simple. Questions?
Audience: Ben here asked a while ago about when you had your first line with diamonds and circles. How do you know what income levels you need where you go from one advisor and assistant to one advisor, a lead advisor?
Herbers: That all depends. I mean, if you’re a solo owner, that all depends on how much money you want to take home, right? So, for many advisory firm owners, we do something called protecting owner’s income. So I’ll ask them, “Hey, how much is enough?” They’ll say, “$250,000 a year is enough.” I’ll say, “Great. We’re going to grow you all the way to make sure that you have $250,000, and then that $250,000 is never going to be depleted.”
In doing that, we end up at $550,000 to $650,000. So you’ve got to decide that. Some owners come to us and say, “We want half a million.” “Great. Well, we’re going to have to grow you to $1.2 million before we hire anyone. So you’re going to be operating like a solo shop, and we’re going to milk the cow and then we’ll fix it later.” So you have to decide that.
Angie Herbers is the founder and CEO of FourPointe Consulting.