Introduction
The theme of this newsletter is Evaluate your Business Model.
Are you perfectly happy with your business – if you are like me, you are probably never satisfied. But how does one objectively evaluate their own business. If you are familiar with First Principal Thinking you will know that Aristotle said “start with the first basis of which a thing is known” – basically start from scratch whenever you want to make something better. In the next section I attempt to help you start at zero and construct a business model. After which you can compare your desired business model with your current one.
What is a “good” Business Model and Where to start?
The best way to think of a business model is to think about the goals that you would like to accomplish going forward. Is your current model achieving that effectively and efficiently?
Some of these goals could be a different target market, more revenue, more positive cash flow, increase the valuation, scale your business, find better employees, better service processes, etc. Comparing the ideal to the current will highlight some of the shortcomings.
Where do you start?
The first step is thinking about your current clients and what they expect from your business and what they are getting. It is very important to have a clearly defined Customer Value Proposition (CVP) and be sure to be delivering it through all channels. Consider the different steps in the client process from finding the right clients, to onboarding them and being sure your system is performing to expectations. Often a simple survey initially to get a broad sweep of the current client base.
Your business has a job to be done which will solve an important problem or fulfill an important need for your targeted clients. Your offering – which satisfies that need – is defined by both what is sold but also by how it is sold. Clearly, sold can be substituted by service.
A mostly ignored variable in the financial advice industry is the Profit Formula. The profit formula defines how your business creates value for itself while providing value to your clients. Top line Revenue does not necessarily mean the client is experiencing value. The cost structure and the accompanying margins are rarely analyzed and evaluated to identify areas that can be improved. Once you have a stated CVP; one should work backwards and identify what the variable costs and gross margins need to be to deliver. Now you will have an idea of how much your business has to be scaled to hit those targets.
A key variable to consider when designing your CVP and your Profit Formula is the Key Resources you have and/or you might need. Resources include – people, technology, products, financials, etc. so you are able to deliver the promised value to your target market. The focus has to be on the key elements that create value for the clients and the company. Those resources should help you differentiate your firm from the competition.
Successful companies have Key Operational and Managerial Processes in place that allow them to deliver value in a repeatable and scalable way. Selling and servicing clients and prospects should be with a carefully considered and proven process. The successful company’s processes will include the rules, metrics and compliance parameters. The key is operating the same in every step of the process.
Conclusion of Business Models
In a nutshell – a business model should be understandable, scalable, differentiated, adaptable, profitable and sustainable!! Not easy but doable.
Next Step Marketing
A business model should clearly describe your best clients and, assuming you want more of them – your target market. Knowing your target market allows you to have an idea what their needs are, where they are and probably the issues that concern them.
When advisors would tell me they wanted to move upmarket to high-net-worth clients – first thing I ask is where do they hang out? At the most expensive golf club? Yacht club; etc. Are they comfortable in that market.
I have known a few advisors who were able to move into that market by hosting different charitable events related to a sport/hobby they knew very well. One advisor because he had a background in cycling hosted a large fund raiser cycling event. He was able to get much free advertising and promotion and was very successful. He not only moved in the high-net-worth market but into the ultra-high net worth market.
Another advisor recruited snow mobile enthusiasts to pay and donate to participate in three day snowmobile trips (annual event).
Both of these endeavors raised 7 figure charitable contributes over a relatively short period. More importantly they met people who had a similar interest and over time converted them to clients.
One word of warning – be very knowledgeable in the particular endeavor – you will lose credibility if you are a novice.
From the American Marketing Association:
75% of all marketing executives believe a personalized experience – such as an event – can drive sales and repeat business, also
16% planned on using events for the first time in 2024.
My experience is that event marketing is the most effective strategy in the financial advice industry. A couple of caveats are – don’t blow your brains out financially and don’t give up after one. Also, if you are not an extrovert, this is not your best marketing plan.
