SHOULD PROFITABILITY BE THE MAIN FOCUS OF YOUR BUSINESS?

Standard business dogma suggests that businesses exist to make money, therefore profitability should be your primary goal in business. We learn in business school that according to Milton Friedman "maximizing shareholder value" is the obligation of a CEO. 

You would think that since I am encouraging you to think more like a business owner that I would be encouraging you to prioritize profitability, but I am not. My 20 years of experience as an advisor have taught me to prioritize three things when making a business decision and profitability is the last on the list.

Prioritizing Profitability Leads to Short-Term Decision Making

What can I do this month, this quarter, or this year to make money? Though you might win an award, or your balance sheet might look good in the near-term, it doesn't consider the repercussions of taking on the wrong clients or agreeing to do work that doesn't align with your skillset or interests.

The three questions I ask myself when faced with any business decision are:

-Is this in alignment?
-Can this be scaled?
-Will it lead to profitability?

As squishy as it may seem, the first question is the most important. Is this in alignment? Is it in alignment with my planning philosophy? With my values? With our long-term vision?

When you make decisions that are out of alignment for the sake of profitability or any other priority, it takes you away from where you ultimately want to go and who you ultimately want to be. What happens when you hire someone who has a good resume, but doesn't align with your firms’ values? You think you are solving a problem, but you will potentially endure cultural struggles for years to come.

What happens when you sell a product with a high commission that doesn't really align with your planning philosophy? You have to face your client at every meeting and defend something you didn't believe in, in the first place. The cost of doing something that is out of alignment is often hard to quantify but sucks the joy and energy out of your business faster than anything else.  And that ultimately affects the bottom line.

Let's Talk About Scalability

In the business of advice, there are endless things we can do to add value to our clients’ lives.  But one of the questions we have to ask is can I scale that?  Can I deliver that efficiently?

For example, some advisors like to "give away planning" to get asset management clients. Asking the question, "Can this scale?" quickly reveals the folly in that business model.

In order to give away planning you have to meet the client, build some trust, gather information, set another meeting, spend time building a plan, contact them for missing information, have another meeting to present a plan that is based on very limited data that is bound to be missing things or be in-accurate.  You may need to set another meeting to present the updated plan to just get to the point when you can deliver your asset management pitch. It's pretty clear that "giving away planning" to get asset management clients cannot be done efficiently.

You can use this question to evaluate any decision in your business. If you can't scale it, if you can't build a process around it, it can't be done efficiently, and it doesn't have any place in your standard business model.

And only now do we get to profitability.

Once you determine that something is in alignment with who you are and what you stand for, you determine it can be done efficiently, you can now look whether or not it will lead to profitability.

I would suggest that the example I used about "giving away planning" was not very efficient and therefore did not have the potential to be very profitable, unless you were only hunting whales (huge clients). And if you are me and hunting whales isn't in alignment, you would know it wasn't a very good idea in the first place. See how these three questions all work in tandem?

Let's look at an alternative way to attract, vet and get hired for advice that might meet my alignment, scalability, and profitability criteria.

We offer a free Discovery EXPERIENCE to anyone in our community who may be interested in financial advice. It takes about 1.5 hours, and we help them explore their fears and values, document their goals and resources, and outline next steps to improve their financial lives.

-If it seems like a good fit to work together, we share how we work with our clients.                 

-If it doesn’t seem like a fit, we focus on next steps and invite them to come back when the time is right.

Our goal is that this meeting is valuable to them, whether or not they become clients.

We offer The Discovery EXPERIENCE to prospects and referral partners and our clients can give The Discovery EXPERIENCE to anyone in their world, after they have personally experienced it.

Let's evaluate The Discovery EXPERIENCE using our three questions:

1. Is it in ALIGNMENT? Yes, Everyone who comes in for a Discovery walks away better off, whether or not they become a client. There are no losers. I share my talents with the world and some of them become clients. It feels good to me and them.
   
   
2. Is it SCALABLE?  Yes, I invest in one meeting, only one meeting.  Either they become a client, or they don't. I don’t chase them around for weeks or months hoping that they pick me some day. It follows a specific script, and the outline of Next Steps is quick to write and deliver.
   
   
3. Is it PROFITABLE? Yes, My main job is to offer Discoveries to anyone and everyone and my clients help me do that too. Just by repeating that one action, I am able to get hired for advice. That fee pays for my time during the initial planning process and the vast majority of time there is additional revenue from implementation of my clients plans. Because many of my clients have me manage their assets, my AUM builds over time and some clients pay me yearly for advice. The more I repeat this process, the more profitable I become.

I hope that you agree that The Discovery EXPERIENCE meets the criteria of alignment, scalability, and profitability. It should, I literally created this process in response to my own need for these things in my business.

Years ago, I was so out of alignment with how my firm wanted me to prospect for new clients that I just couldn't do it anymore. I stopped telling people what I did for a living. I was so ashamed of the firm I worked for that I would pretend to be "independent" just because I happened to get a 1099 and pay my own expenses.  Lack of alignment came really close to driving me out of the industry.

The Discovery EXPERIENCE and Advice-Based Financial Planning were my own personal answers to lack of alignment. I had to build something that felt good to offer, something I believed in.  I created a process to follow that made it efficient and scalable to deliver so that I could do it over and over. And I started charging for advice and still offered implementation because that is the only way I could be profitable in the mass-affluent space I wanted to work in.

If you consistently apply these three concepts to every business decision you make, you can't help but build a smart business that you will be proud to own! Just like I am!

I hope this serves you!

-Lucila

Email me at [email protected], if you want to learn more about The Discovery EXPERIENCE or Advice-Based Financial Planning.

If you're ready to implement the Discovery EXPERIENCE in your practice, we have a course for you where you'll learn to deliver an emotionally significant initial experience and get hired for advice by the right clients in just one meeting. Enroll today. > > >