Look at almost any financial publication these days and there always seems to be a mention of one or more firms getting bigger from organic growth, merger or acquisition. Just from the sheer number of mentions you get the impression bigger is better and a good measure of success. This idea isn’t unique to the wealth management industry. Everywhere you hear about “growth,” “being great,” or “leading the industry” as necessary to survive in business.
With this in mind, should every financial adviser aspire to rapid growth? Should business owners put growth as their first goal? Must advisers continue to build their client base, managing more individual relationships, or gathering more assets without limit? Perhaps not.
déjà vu, all over again
When I was a kid in high school, I found the major factor in getting good grades was just doing the work: study, do the homework and reports, and prepare for tests. It took me a while it figure it out. In fifth grade, I got F’s in five out of eight subjects. But, I soon discovered “behavior and reward” and by the eighth grade I was getting A’s and B’s. By the end of high school, it was pretty much all A’s. That’s where I learned a good outcome is possible if you simply adapt and do the work. Doing the work, executing the plan and following through led to most of my accomplishments and to my early belief that hard work equals success.
I’ve observed individuals wanting and even demanding more, but at the same time, unwilling to do the work necessary to get those rewards.
In today’s work environment I’ve observed individuals wanting and even demanding more, but at the same time, unwilling to do the work necessary to get those rewards. When these folks don’t get what they want, the entitlement-minded often become either discontent and disruptive, or give up and move on to something else. I used to believe that everyone who moved on, had a different work ethic. But I realized after reading a Harvard Business School study, I was missing an important element: emotion.
The emotional component of growth and change
Harvard Business School professor Jay Lorsch and a team of researchers recently reported that a company’s culture doesn’t form work processes (HBR, April 2016). Rather, corporate goals and the resulting work processes and procedures develop a company’s culture. In short, their research found if your company goals change, your processes and procedures change to accomplish them and corporate culture then adapts.
You may be thinking “Nonsense! I’ve grown my company for 20 years and nothing has changed except a small amount of technology, additional staff, and clients. And yes, we moved offices twice.” What you’re actually saying is that you haven’t noticed the changes because they’ve happened so slowly, and you’ve been focused on day-to-day issues rather than on the longer-term changes to your organization.
What you may not realize is you haven’t set the kind of goals that drive significant process and procedure changes. Your staff and you have been able to absorb incremental growth without too much pain.
Everyone has an emotional work comfort zone.
Everyone has an emotional work comfort zone. The range of your comfort zone may differ from that of your colleagues. I suspect if an individual was pretty good at a wide range of subjects in school or engaged in competitive sports or activities that were challenging, had a wide range of friends and acquaintances and did well at college, or in their first job where procedures, processes, and culture were unlike high school, they probably have a fairly wide comfort zone for change.
On the other hand, if they were exceedingly good at a smaller number of subjects and perhaps had a few very close friends, their comfort zone for change is narrower. And their comfort zone has a direct bearing on how much change they are willing to tolerate before they change jobs or companies.
Grow or no?
Erick Beinhocker, in his book “The Origin of Wealth,” discussed the groundbreaking research of the Sugarland economic computer model. Simulated people in the electronic society (bots) were given decision-making capabilities to enable them to find and accumulate electronic sugar, which sustained their life. Using at first simple decision tools, then with increasingly complex decision capabilities for the bots, complex economic models for an entire city of bots were built, and simulations of their entire lifecycles were run.
Beinhocker found that in simple models where bots were permitted only a few economic decisions, they perished or reached a certain level of economic prosperity beyond which they could not go. But when the model allowed the bots a broader range of decisions and actions, there was a wider gap between the greatest economic success and failure, and the overall wealth of the bot community increased as the range of allowable decisions increased.
The only thing that separated those who merely got by, from those who prospered, was the range of decisions the bots were allowed.
What does this mean to my goal setting?
People aren't bots. Different people respond differently to changes in goals, processes and procedures, and work environments. For most, changing company goals slowly causes little disturbance. The same is true when changing the federal discount rate very slowly so as to not create economic turbulence.
Sometimes goals change quickly. What happens then? Most professionals will try to adapt when presented with a new event or economic opportunity that forces them outside their comfort zone. However, when you force an individual too far from their comfort zone, that once-loyal person will likely: stay and grit their teeth while doing things the "old way," hampering effective business operation; or depart the firm; or seek a new position within the organization to meet their expectations.
For example in the three-year period after my old firm changed its growth goals and compensation system while simultaneously instituting new procedures, some 20% voluntarily sought a different job; 27% were assigned new responsibilities; and 13% were let go. Before you wince and say “Kautt really blew it managing those people,” understand this: the inevitable downside of rapid growth and goal modification is personnel disruption in every organization.
Rapidly changing your company’s goals will lead to cultural changes. This is likely to force even hard-working people with no entitlement mentality outside their emotional comfort zones, resulting in an organizational turnover. The rapid change may put you outside your comfort zone as well! This could be exactly what your organization needs, but remain acutely aware of the impact on your organization from significant goal changes. Is it really necessary to change horses in mid-stream?
Getting bigger without well-thought-out goals doesn’t guarantee business success, nor does hiring hard-working people with no thought to their emotional makeup. Arbitrarily or substantially changing goals, processes or procedures does not guarantee success either, and may lead to organizational turmoil if you are unaware of each staff member’s comfort zone for a change.
For best results, develop a carefully thought out business model and strategy with specific, measurable and attainable goals. Communicate the goals and get buy-in from all your staff, along with training and familiarity with new processes and procedures for effective engagement by all staff, so you can say “Getting bigger is better for us!”
