As an industry, we’ve undergone many transformations over the past few years.
(That’s almost as much of an understatement as saying Elon Musk has made a few unmet promises…)
There was a period when FOFA arrived, banning commissions. Then, the Royal Commission shifted focus to enhancing people’s understanding of what they were getting. Then, QAR arrived and basically, we’re all back where we started.
We are an industry, professional, shaped by tidal forces.
One such force as of course the exit of the banks. It marked another moment where everything changed, taking with it a not insignificant number of advisers and, leaving with them, a great deal of access to advice.
We now find ourselves in a landscape where the number of advisers has decreased significantly, restricting demand for what is still a growing supply of quality advice.
Who Is Leaving?
Interestingly, examining the data behind these exits tells a story about who left, showing it to be a proportionally larger number of employed advisers or those in smaller practices, as opposed to those who are practice owners or large firms.
This leads to an important question about what the future of advice businesses is likely to be or specifically…
Is the era of the small practice over?
I think we should start by defining what we mean by ‘small practice’.
Often, you’ll hear this term used to describe a one-person operation. To me, this is incorrect. A one-person practice is not a practice; it’s a start-up.
The Start-Up Phase
As a startup, the one-person situation is intended to be a phase to be transitioned through,’
The core idea is that as soon as you’ve reached a point as a practice owner where you have stability in some of your revenue streams, you need to hire your first employee.
Ideally, they will usually be a multifaceted operations/ business manager who enables you to focus less on the day-to-day running of the business and more on client servicing and growth activities that will take you to the profitability level you need to be at.
The Viability of Small Practices
The real question is whether a small practice – typically with an advice provider and producer and at least one support role in the back office – who intends to remain at this level is viable long-term.
It’s hard to argue that the weight of all the changes has made it harder.
Compliance requirements are more easily implemented by businesses with the resources, time and capacity to get it done. When it comes to really getting tech to work, having the time to be able to master the training, integration and sometimes coding required to really unlock the value of these tools starts to become factor. There are fewer Licensees that before charging more for their services.
Acquisition Trends
Recent acquisitive activity would support that it’s a big fish world
I’ve never seen so many smaller practices acquired by larger ones as I have in the last six months. Whether this is a good thing is still an unanswered question. But commonly, one of the reasons these smaller practices seek to be purchased or merge with larger businesses is their growing inability to deliver on one or more aspects of their business.
Does this mean the era of the small practice is over?
Well, like most things, the answer depends on what kind of business you’re trying to build and how you go about it.
Getting big doesn’t necessarily have to be a mandatory requirement, as long as you’re not ignoring one key metric; profitability.
One of my favourite quotes on the topic of growth comes from Paul Graham of YCombinator fame, who famously advised Uber and Dropbox, among hundreds of other businesses.
He was once asked in a CNN interview what the biggest mistake growing businesses or specifically start-ups make during their early phases of growth.
His answer was lightning fast: “They don’t charge enough”.
When you are a small practice, ironically, this is the point at which you are least capable of competing on price.
Even though you may see yourself unable to charge as much as larger firms with CBD offices, smart websites and extensive support teams, the reality is often this is what is needed to be able to build something that is sustainable.
Failure to do so means you get stuck in a loop of never quite having the resources, money or time to grow. It’s a slow, painful but inevitable death.
Niche Is The Key
So, if your goal isn’t to grow big, but you do want to survive in the current environment, what’s the solution?
Your best bet here is to find a really strong niche of people who have a strong need for your advice. Understand the specifics of what they need and the advice you can provide, become better at it than anyone else out there and charge a premium for it.
This approach allows you to maintain a smaller client base while still investing in what you need to do to ensure the number of hours you spend in the role is as small as it possibly can be.
If you take a moment to look around, as I’ve had the chance to do in coaching many firms like this, you’ll see many are getting on with it and quite successfully ignoring the soothsayers.
Not every business has to grow big, but if you aim to create a smaller business, there are certain things you must do and shouldn’t do.
Because if you fail to do them, then maybe your better option might be to merge or sell and take that as your path to becoming part of the band of “biggers”.
Join the Conversation
Do you agree with this? Is it your experience of growing a smaller business or merging with a larger practice? Do you believe there is still space for small, focused boutique firms?
This whole issue is something I explore in our High Performing Practice Blueprint, where I identified 25 factors that high-performing practices display more than their peers.
To access the Blueprint visit https://audere.com.au/hpp-blueprint/ or, to get access to this paper and a host of other resources that can help you evolve your own practice into high-performing territory sooner, join our free Practice Success portal by visiting https://audere.com.au/practice-success whilst membership is still free.
