Page 35 - Investment Advisor - November 2023
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THe FAST TrACK
By Angie Herbers
the real reason Your Midsize Firm Isn’t
Growing and What to do About It
you might blame flawed marketing, training or client experience, but
there’s likely a more fundamental culprit.
hy do so many midsize advi- on its growth potential has to do with the
sory firms — those with $1 speed of change in the advice industry.
Wmillion to $10 million in At its core, a financial advisory business
yearly revenues and with greater poten- will always be about providing beneficial
tial than both smaller and larger firms — and needed advice to clients. At the same
hit a growth roadblock? time, the quality and types of services
Depending on who you ask, you might that firms offer will continue to evolve.
hear that failures of marketing, training Midsize firms have a big advantage
or client experience are to blame. But as to press here: They are small and nim-
I’ll explain, there’s a different and more ble enough to change quickly, yet large
fundamental culprit. enough to have the resources needed to
Midsize firms not only have a great keep them at the forefront of the indus-
potential for growth but also have com- try’s evolution.
pelling reasons to grow. They possess But robust growth isn’t a given once
a distinct advantage because they have a firm reaches the midsize realm. Many
“Midsize firms not only more resources than small firms and run into roadblocks — demonstrated,
have a great potential more flexibility and potential to scale for instance, by the strong turnout at a
recent Herbers & Co. event focused on
and adapt than large ones. And their
for growth but also owners are usually highly motivated to this topic. Why do so many firms find
have compelling push their advantage. that their growth stalls out once they
reach a certain size?
First, when a firm hits the midsize
reasons to grow.” tier, its valuation can really expand. A marketing focus, which can be effective
Some argue that it’s due to a niche-
small firm (with less than $1 million in
yearly revenue) has a market value that at getting firms quickly off the ground
is usually flat. But once it becomes mid- but may later constrain their abil-
size, its valuation can increase relatively ity to grow. Other often-stated culprits
quickly and dramatically — expanding include a lack of capital, an outdated
up to 3.5 times revenues within just a client experience or difficulty in recruit-
few years. ing, training and retaining talent.
This reflects the fact that deep-pock- But 20-plus years of consulting has
eted acquirers are willing to pay a pre- persuaded me that the biggest and most
mium for midsize firms’ robust assets common pain point for midsize firms is
under management, stable client bases intellectual capital.
and potential for profitability. Simply Midsize financial advice businesses
put, one big motivator for owners to are often run by their founding owners.
grow a midsize business is the enhanced Many of those leaders are good at build-
opportunity for extra return — or ing and running a business, but a lop-
alpha — that they can harvest from it. sided amount of the firm’s intellectual
The second reason that owners of a capital and decision-making authority
midsize firm typically want to capitalize resides with them.
November 2023 Investment AdvIsor 33
