Building a $250 Million Business – Setting Goals

Wednesday, July 25th, 2012

by Bob Simp­son, Syn­chronic­ity Per­for­mance Consulting

Last week, I posted an arti­cle “Build­ing a $100 Mil­lion Busi­ness – Set­ting Goals”.  Many of the con­cepts dis­cussed in this arti­cle apply to busi­nesses at any stage of devel­op­ment but the strate­gies and tac­tics to achieve the goals are quite dif­fer­ent for a busi­ness that has achieved $100 mil­lion in assets under man­age­ment and has set it sights on $200 or $250 million.

The major dif­fer­ence is that a busi­ness on its way to $100 mil­lion can be man­aged by a sin­gle pro­fes­sional and is much more focused on growth, whereas a $100 mil­lion plus busi­ness requires that more resources are focused on client reten­tion and sat­is­fac­tion and a team of pro­fes­sion­als is required to man­age the client relationships.

In Jan­u­ary, I posted an arti­cle enti­tled “What Is The Com­pound Growth Rate Of Your Busi­ness and What Is That Cost­ing You?”  I inserted a spread­sheet that allows you to enter infor­ma­tion about your cur­rent busi­ness and what-if sce­nar­ios based on com­pound growth rates.  In our exam­ple, a $62 mil­lion AUM busi­ness grow­ing at a three-year com­pound growth rate of 7.43% will grow to $127 mil­lion com­pared to $384 mil­lion at 20% com­pound growth over a ten-year period.  Pre-tax income for the 20% growth busi­ness is an astound­ing $8.8 mil­lion greater than the 7.43% growth busi­ness, assum­ing sale of the busi­ness at the end of the period.  Spend a few min­utes and do the cal­cu­la­tions for your business.

The prob­lem with $100 mil­lion plus busi­nesses is that they hit a ceil­ing of com­plex­ity that slows growth.  You are gen­er­ally deal­ing with large num­bers of clients and have more staff to man­age.  As a sin­gle pro­fes­sional, you are pulled in too many direc­tions and you sim­ply run out of time.

If, as a result, you can’t ded­i­cate the time nec­es­sary to build and strengthen rela­tion­ships with your best clients, your busi­ness growth will decline at a time that it should accel­er­ate.  Indus­try stud­ies show that a high per­cent­age (60 to 80%) of new clients come from client refer­rals so it is log­i­cal that the more clients an advi­sor works with, the more refer­rals he should receive.  But growth rates decline as busi­nesses mature.

A $100 mil­lion advi­sor that we worked with told me in a meet­ing that when he was new in the busi­ness, he pro­vided all his clients with great ser­vice but as his busi­ness matured, he was unable to ded­i­cate the time to his best clients and client refer­rals had almost stopped.  As a result, his growth stopped.  By mak­ing a few sim­ple changes, he was able to break the log­jam and his busi­ness exploded to over $300 mil­lion over the next four years.

The process of devel­op­ing a Sus­tain­able Growth Curve for a mature busi­ness is of equal impor­tance to a newer, devel­op­ing busi­ness.   Your Sus­tain­able Growth Curve is sim­ply the num­ber of ideal clients and aver­age AUM per client today, plus a series of three-year tar­gets through to your ulti­mate goal.  The fol­low­ing tables are exam­ples based on a 15% vs. 20% growth rate for a $100 mil­lion business:

* Bench­marks have been rounded to the near­est $25 million

In both exam­ples above, we have increased the num­ber of clients by 25 over the three-year peri­ods but we have higher aver­age AUM per client in the 20% growth exam­ple.  We pre­fer to increase qual­ity of clients vs. quan­tity of clients to pro­tect capacity.

Set­ting your 3-year bench­marks is only a start­ing point.  AUM can be con­verted into rev­enue by apply­ing an aver­age fee-rate.  You can take this a step fur­ther by apply­ing indus­try sta­tis­tics to esti­mate your major expenses.  Three major expenses incurred by advi­sors are offices expenses (10% of rev­enue), staffing (20%) and busi­ness devel­op­ment (5%).  These can vary based on the style of firm you clear your busi­ness through.

The biggest shift that a firm needs to make to sus­tain growth in a mature busi­ness is the shift from a solo model to an ensem­ble model.  A study by anthro­pol­o­gist Robin Dun­bar reports that the max­i­mum the num­ber of peo­ple that a per­son can know and keep social con­tact with is 150.  So, some­where between 100 and 150 clients, you need to take on an addi­tional pro­fes­sional and assign rela­tion­ship man­age­ment respon­si­bil­ity and make the shift to an ensem­ble (multi-professional) model.  I will dis­cuss this in a future article.

By tak­ing a few sim­ple steps, you will be able to break the log­jam and get your busi­ness on a more pos­i­tive growth path:

1. By iden­ti­fy­ing the num­ber of ideal clients you work with and aver­age AUM per client, you can find your loca­tion for your present con­di­tion on your Sus­tain­able Growth Curve
2. Take steps to sim­plify your busi­ness and reduce non-profitable clients to recover capacity
3. Iden­tify the num­ber of clients and aver­age AUM per client for a sin­gle or mul­ti­ple three-year benchmarks
4. Assign an aver­age fee rate and esti­mate your rev­enue for each benchmark
5. Esti­mate your costs using indus­try stan­dards and esti­mate your prof­itabil­ity for each benchmark
6. Develop Client Rela­tion­ship Man­age­ment and Busi­ness Devel­op­ment plans to retain and attract clients meet­ing your Sus­tain­able Growth Curve stan­dards to achieve your goal

I enjoy hear­ing from peo­ple who read my arti­cles by phone, e-mail or text mes­sage.  I respond to all inquiries the same day.  If you have a prob­lem and would like to dis­cuss it with some­body, I would wel­come your call.  I enjoy help­ing peo­ple solve prob­lems and build more suc­cess­ful businesses.

Bob Simp­son

Direct Line:  905−502−0100

Toll Free:      866−646−6002

E-mail:  bob.simpson@synchronicity.ca

Text Mes­sage:  905−502−0100

Web­site:  www​.syn​chronic​ity​.ca

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