A couple of years ago, Mark Tibergian wrote an article called The Cost and Benefit of Professional Management. He makes a case that while entrepreneurship holds a definite appeal, there comes a time when a growing firm involves too many moving parts. And it’s at this point where professional management becomes essential to sustained growth and the building of enterprise value.
It seems that for many firms—the tremendous growth experienced over the past two years (e.g., 96% of firms have increased their AUM; 98% generating more revenue; 83% having boosted profits, and 89% expanding the number of client households they serve) has helped accelerate this consideration. In fact, in the last three weeks alone, I’ve had no fewer than 15 clients approach me regarding their need/desire to identify and hire professional management.
What role(s) should you hire for, and in what sequence?
Perhaps most importantly, you need to develop a strategic hiring plan that closely aligns with the scaling and capacity for which you’re building. But these are vital hires—you don’t want to feel pressured to onboard someone but rather have sufficient time to find the ideal fit for your organization. First, however, you as the firm owner must decide where you want to spend your time and how your talents will most effectively benefit the firm in the future.
The position you hire will ultimately depend on your organization’s leadership needs/desires. Do you want someone to drive the vision, run your firm, and be its public face? Or are your needs more along the lines of someone to lead in executing the vision you’ve already laid out? In the former case, you’ll require a CEO to take the reins; whereas a COO will comfortably handle the latter responsibilities.
As they continue to grow, many firms gradually begin outsourcing certain functions: perhaps you engage an accountant to handle your financials and/or a compliance consulting firm to ensure you’re adhering to all regulatory requirements. Maybe you’ve designated someone in the firm to function as your ‘practice management champion’—the person whose primary responsibility is helping you execute on the business plan.
- Then, as you pass $500MM in assets on your way to $1B, you begin realizing the need to put professional management in place to avoid losing any momentum. Initially, most firms hire (or designate) a COO to implement the strategy and manage the day-to-day activities of the enterprise. Ideally, as they matriculate and grow, you should be grooming your firm’s practice management champion to assume the COO role.
- Somewhere beyond $1B, you’ll want to start exploring the addition of a CEO (we’ll cover that topic in more detail in a future blog), as well as layering in additional professional management such as department heads for the five key functional areas of your business:
- Human resources
Rather than looking at it as a short-term drag on the enterprise’s profitability, the addition of this expertise should ultimately serve as a catalyst for greater growth and enhanced enterprise value. Perhaps just as important, these new roles often empower the firm’s financial professionals to serve their clients more efficiently and effectively—without the distractions associated with day-to-day operations and business management—enabling them to also devote more time and attention to acquiring new clients.
Average Total Compensation By Position
Practicing Partner $376,078
Source: 2021 InvestmentNews Adviser Compensation & Staffing Update
Lately, more and more of the professional management conversations I’m having with elite advisors revolve around the challenges and pain points associated with managing their people. The current market environment has taken center stage, attracting and retaining top talent. And as a result, when considering professional management, rather than going down the traditional route of hiring a COO, a growing number of firms are prioritizing the need for someone great at developing teams, talent and culture—in essence, a ‘Chief Talent Officer.’
If you have an internal candidate in mind for this role, the Society for Human Resource Management (SHRM) offers two excellent certification programs you may want to consider exploring. Then, at some point after the firm crosses the $1B threshold, that individual will be better prepared to step into the role of a full-time HR Director.
Coaching Questions from this article:
- Based on your current organizational make-up and challenges, what areas of professional management do you believe would most benefit the growth and profitability of the business?
- When contemplating the addition of professional management, what precisely are your expectations for specific roles (such as CEO and COO) within the organization
- Suppose you intend to develop future professional managers from within. How can you begin to better prepare those individuals for the roles you intend them to fill down the road?
- What steps can you commit to developing a strategic hiring plan that more closely aligns with the scaling and capacity you’re building?
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