Principal advisers looking to build large, highly profitable businesses must choose between being a great adviser or a great chief executive officer because, at scale, they can’t be both, according to outsourcing specialists, Vital Business Partners (VBP).
In a new paper titled, From cottage industry to professional companies: VBP’s guide to scaling with confidence, the outsourcing firm claims that fast growing firms often encounter significant challenges, including declining earnings, in the initial stages of scaling up because they don’t have the resources and capability to manage the complexity that comes with running a larger business.
However, this trap is avoidable if founders can develop their leadership skills or bring in leaders with the right experience and skillset, the guide claims.
Nathan Jacobsen, VBP chief executive officer, said that businesses focused on accelerating growth through M&A and organic activity needed to remove principal dependency by having clearly defined roles and responsibilities, formal systems and processes for efficiently deliver advice, and a robust risk management framework.
“A declining EBITDA margin is not inevitable, demonstrated by at least some of the many thriving large advice businesses, but scaling a small-to-medium firms requires different choices and skills around operational efficiency, risk management, people leadership and strategy,” he said.
VBP’s guide provides insights into the process of scaling up, based on the group’s experience working with hundreds of advice firms. It aims to help principal advisers determine if that strategy is the right path for them.
Jacobsen, who is also chief operating officer of VBP’s parent company AZ NGA, said scaling up had the potential to deliver many benefits, such as operational and cost efficiencies, better access to capital, and a more structured approach to growth, but it was not for everyone.
“Building and running a successful business of scale requires a lot of hard work and significant ongoing investment in people, systems, processes and technology, which many people do not have the skill, experience or risk appetite to undertake,” he said.
For those that do, size has many advantages and we’re seeing a clear trend of businesses scaling, as heightened regulatory scrutiny and rising compliance costs put pressure on businesses to drive efficiencies and improved client outcomes.”
The VBP guide identifies and defines the two main types of advice businesses and the various challenges, opportunities and risks they face when it comes to scaling. It outlines key considerations for business owners before pursuing an aggressive growth strategy and provides a rough blueprint for scaling up.
Read the report.
This article was originally published by AdviserVoice and can be accessed here.
For more information, please contact:
Leng Ohlsson
Splash Content
M: 0409 509 516
E: leng@splashcontent.com.au
W: www.splashcontent.com.au
