Building a $100 Million Business – Step 1 – Setting Your Goals

Posted on July 19, 2012 by Bob Simpson 3 Comments

The process of setting both personal and business goals is an important step in building a successful business.  If you do some research about the best ways to set goals, you will come across the SMART acronym.  SMART goals are:

S – Specific

M – Measurable

A – Attainable

R- Relevant

T – Time Bound

Goals give you clarity and help you to make better decisions. 

We call our process for setting goals the “Sustainable Growth Curve”.  The “Sustainable Growth Curve” is a series of three-year benchmarks that lead to a longer-term goal.

In this article, we will look at the development of a “Sustainable Growth Curve” for an advisor with a long-term goal of building a $100 million AUM business.  In a future article, we will apply the same concept to a business that has achieved $100 million in AUM and is looking to grow the business to $250 million.

One important factor in achieving sustainable growth in your business is your ability to keep your business SIMPLE.  Complexity slows growth and increases the demands on the resources of your business – time and money.

There are two models that you can use to build a $100 million business:  the Solo Model or the Ensemble Model.  In a Solo Model, you have a single professional with a support team; and in the Ensemble Model, you have multiple professionals.  A single professional can build $100 million practice but businesses with more than $100 million will require additional professionals to allow growth to continue.  I will discuss the Ensemble Model in more detail when I discuss the process of growing a $250 million business.

In this example, we will look at a typical advisor who has achieved $31.25 million of AUM and has a longer-term goal of building a $100 million business.  I like to set aggressive targets and build plans to achieve them.  So let’s set a goal to grow at a sustainable compound annual growth rate of 24%.  At this growth rate, you will double your AUM every three years. 

So in this example, we have a longer-term goal of $100 million in six years with a benchmark of $50 million in three-years.

Next, we need to develop much more specific goals for our $50 million benchmark, as this will become our focus for the next three years or until our goal is achieved, whichever comes first. We like to start by examining the results of a client segmentation analysis and the development of an ideal client profile.  By segmenting your clients into two categories:  Ideal Clients and Less Than Ideal Clients, you have a great starting point. 

If you focus exclusively on Ideal Clients, you will be much more efficient and will reach your next benchmark much quicker.  Less than ideal clients will slow your growth.  They are like junk food – you know it keeps you from maintaining a healthy weight but you eat it anyway and live with the consequences.

Let’s look at the business discussed above: $31.25 million in AUM and 215 family relationships.  When we completed a segmentation analysis, we found that there were 75 (35%) family relationships averaging $333,333 to make up $25 million and 140 family relationships averaging less than $45,000 for the other $6,125,000.  

Note of Interest:  When we started doing segmentation 14 years ago, we found that the Pareto Principle (20% of clients held 80% of AUM) was the norm.  Today, we find that it is closer to 35% of clients hold 80% of AUM. 

Note of Interest 2:  Some studies show that 20 – 35% of clients generate 100% of profits.  This is due primarily to resources added to practices to service small clients.

I like to say that your ideal clients are the people who will help you achieve your business goals and that your less than ideal clients will act as an anchor to slow your growth.

I don’t like to spend a lot of time on client segmentation, as it is an old story.  On the other hand, I did segmentation when I was an advisor and doubled my business in twelve months so I am a big believer.

So, our starting point in this example is 75 ideal clients averaging $333,333.  To grow to your next benchmark of $50 million, this advisor chose to add 25 new clients (net) that meet your ideal client profile and bring his average AUM up to $500,000. 

There are two parts to achieving this:  (1) attract 25 new clients and (2) expand business with existing clients.  Some of this growth may come from upgrading less than ideal client status to ideal client status. 

Note:  The major driver of both the internal growth (growing existing client assets) and attracting new clients (through client referrals) is delivering consistently superior client experiences.

This advisor set a goal of attracting half his target of 25 new clients over three years through client referrals and half through business development strategies and tactics.   

Your Sustainable Growth Curve is simply the number of ideal clients and average AUM per client today, plus a series of three-year targets through to your ultimate goal.  The following table is an example, based on a 24% growth rate:

AUM Benchmark	Number of Ideal Clients	Average AUM Per Client
$25 million	75	$333,333
$50 million	100	$500,000
$100 million	150	$666,666

It is SIMPLE, passes the SMART test and keeps you focused. 

Once you have set your Sustainable Growth Curve goals, you set your sights on reaching your first milestone.  You will need to establish a plan to manage client relationships that will generate high levels of client satisfaction, and a business development plan to build your client, personal and business networks.  These plans should only include activities to attract the number and quality of clients in your Sustainable Growth Curve.  The more disciplined you are in being true to your client acceptance guidelines, the sooner you will arrive at your milestone.

Most advisors do not have business plans because they are too much trouble to develop and they just collect dust sitting on your desks.  This approach is very simple and allows you the flexibility to innovate your client relationship management and business development strategies and tactics as you strive to achieve your goals.

Under this approach, you set your goals for number of ideal clients and average AUM per ideal client, develop and implement your tactics and strategies and then get to work.  When you hit your benchmark, whether it be in one, two or three years, you simply refocus on your next benchmark, develop new strategies and tactics and get back to work.

To visualize how this approach will work, imagine your business if you only worked with your ideal clients.  Think of all the time (your most valuable resource) you would free up.  Maybe you can reduce your expenses because you have hired people to deal with 215 families.  Now you only have 75. 

Reallocate some of your time from servicing less than ideal clients to improving the client experience of your ideal clients, some to busines development and some to spending more time with your family or pursuing your personal goals. 

This one simple step can be the key that unlocks your growth potential.

I enjoy hearing from people who read my articles by phone, e-mail or text message.  I respond to all inquiries the same day.  If you have a problem and would like to discuss it with somebody, I would welcome your call.  I enjoy helping people solve problems and build more successful businesses.

Bob Simpson

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