Have you ever considered firing yourself? It might sound funny, but this may be one of the best things you can do for your business. The sooner you begin the decentralization process, the sooner you can begin working toward your eight-figure exit. But how do you go about firing yourself? What happens to your RIA if you’re not there to pull the levers and push the buttons? In today’s entry, I’m going to take a closer look at this idea, and what it takes to prepare your firm (and yourself) for a smooth and seamless transition. But if you’re not a financial advisor, don’t pass this by! This concept can still be applied to your business as well.
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The Relay Race and Succession Planning
Have you ever watched a relay race during the Olympics? You know, the one where a team of runners takes turns running around the track, carrying a baton? I’ve watched many of these races and became curious about where they originated. It turns out, the relay’s origins are in ancient Greece. Interestingly, it began not as a race, but as a method of delivery. You see, couriers would run along designated paths, passing a message stick to the next town’s courier.
In this manner, each one shared the responsibility of delivering important information across great distances. It wasn’t until 1908 that the first Olympic relay took place. That first race consisted of two 200m legs. Since then, we’ve seen many variations of the relay race. As the sport has evolved, so too have the methods of passing the baton. Just like different methods of passing the baton in a relay race, there are various ways to hand off leadership within a company. Let’s take a look at the two most prominent methods and compare them to the transitions used in succession planning.
Decentralization Through Passing the Baton
As you’re watching a relay race, you might notice that different teams use different exchanges. The two most commonly used methods are the American Grip and the French Grip. In the American Grip, runners run side by side as the baton is passed. Now, looking at this from a business perspective, I would say this is very similar to mentorship. The first runner runs alongside the second runner until they’re ready to take the baton and go out on their own. In this sense, you’re achieving decentralization by running alongside your mentee, preparing them to take your responsibility.
On the other hand, the French Grip is when the next runner (your planned successor) in line begins running without looking back. Once the original runner (you) reaches a certain point, the exchange is made, catching the second runner in stride. To me, this sounds a lot like succession planning. I look at this as a family business that employs the son or daughter in some form of leadership role. As they develop their own skills, they get more and more responsibility while your role decreases. Folks, that’s decentralization. If you want to see a successful transition and make the eight-figure exit a reality, you must remove yourself from the epicenter of your business as soon as possible. But why?
The Consequences of a Poor Handoff
Much like a relay race, a poorly executed leadership exchange can have severe consequences. Consider the US Olympic relay team, which dominated the event, winning 15 out of 18 races between 1920 and 2000. However, they faced a series of setbacks in recent years, including a dropped baton in 2008 and a “changeover offense” that disqualified them in 2016. Just as poor handoffs have cost the US Olympic team in recent years, a poorly planned transition in your RIA could cost you the eight-figure exit.
According to a study conducted by Franklin Templeton, 41% of the 162 surveyed RIAs identified themselves as prospective acquisition, merger, or buyout candidates, with aspirations of eventually leaving the investment advisory business. Unfortunately, 53% of these RIAs admitted to not having a transfer of ownership plan or strategy in place. Even more concerning, 11% stated that they had no intention of developing such a plan or strategy. The study rightly emphasizes the risks these RIA leaders face, not only in terms of their firm’s future but also for the well-being of their clients and employees.
A Failure to Plan is a Plan to Fail
You see, the consequences of a lack of planning and a poor leadership transition can be far-reaching. First, it puts your firm at financial risk, potentially impacting its valuation. As Investopedia suggests, a change in CEO, if handled with care and with a competent successor, shouldn’t negatively impact a company’s stock price. However, mishandling such news could lead to a drop in stock price, affecting the overall stability of the business.
Likewise, a poorly executed handoff can lead to the loss of valuable knowledge and experience from the owner and key employees. This loss can directly impact the quality of service provided to clients, leading to a decline in their experience. As a result, client retention may suffer, and attrition rates may increase. As you can imagine, this could seriously jeopardize your eight-figure exit.
In desperate attempts to fill the void left by a departing leader, companies may resort to careless or “panicked” hiring practices. But rushing into hiring decisions without a solid plan in place can further exacerbate the challenges faced during a leadership transition. Friends, these consequences emphasize why proper succession planning and an effective leadership transition are so important in the RIA space.
How to Pass the Baton Effectively for Your Eight-Figure Exit
Decentralization now is the most effective way to prepare for a successful transition of leadership. Now, I know I’ve used that term several times now, but what is decentralization? According to Merriam-Webster’s dictionary, decentralization refers to the dispersion or distribution of functions and powers, allowing for the delegation of power from a central authority to regional and local authorities.
Removing yourself from the epicenter of your firm is paramount to a successful succession plan. If your RIA’s operations solely revolve around you, I’ve got some bad news for you. You don’t own a business. You own a job. Failing to fully decentralize can be disastrous for your succession plan and hinder your ability to make a lucrative exit. Prospective buyers will view your RIA as too risky if it heavily relies on your presence and decision-making.
Steps to Fire Yourself and Prepare for Your Eight-Figure Exit
To effectively decentralize, follow these steps:
- Develop systems and processes for every function in your business. Begin by examining your current processes, such as client onboarding, and assess their efficiency and effectiveness.
- Create a system for each process, envisioning the ideal outcome and working backward to identify the most efficient steps. Streamline the process, eliminating any unnecessary steps or redundancies.
- Test and redesign each system, focusing on the most challenging or time-consuming aspects. Brainstorm ways to improve efficiency, even if it means saving a few minutes here and there. Consider this, if you shave just two minutes from an eleven-minute process that’s completed twice a day by two employees, you will have saved your firm 49 labor hours per year.
- Implement the newly developed systems with your team. Demonstrate the new processes, provide clarity, and allow your team to use them to perform their tasks. Encourage feedback and empower your employees to contribute to further improvements and efficiencies.
- Use the newly developed systems and processes to create Standard Operating Procedures (SOPs). Document these procedures thoroughly to ensure consistency and continuity within your RIA. Having well-defined SOPs can enable anyone to perform tasks effectively, even surpassing the capabilities of external professionals.
In addition to decentralization, it is crucial to build a “Two-Deep Bench” by training multiple individuals capable of fulfilling key roles within your organization. This approach not only promotes collaboration and knowledge sharing but also provides a greater return on your training investments. By empowering your employees through cross-training, you eliminate the need for costly additional hires and enhance your firm’s sustainability. Moreover, a “Two-Deep Bench” increases employee engagement, improves agility and facilitates proper succession planning.
Friends, firing yourself requires strategic planning, effective decentralization, and building a robust leadership pipeline within your RIA. By embracing these principles, you lay the foundation for a successful eight-figure exit. Remember, firing yourself does not mean relinquishing control but rather ensuring the continuity and growth of your business beyond your own involvement. Leadership development and decentralization are important parts of succession planning and will help you to maximize the value of your RIA.
I know life is hard. We all struggle with so many things each and every day, but life is good. Decentralization can be frustrating, but it doesn’t have to be. If you follow the steps included in this blog, you can make firing yourself at least financially simple. Hey, let’s go out and make it a great day!
Succession planning is a long and complex process that most people begin way too late. Reach out to our team to learn more about ways we could help you plan for a smooth transition and the eight-figure exit you desire.