You took the risk to become independent, hung out the shingle, and spent a myriad of sleepless nights worrying about how to build a business that paid the mortgage. A few bumpy months led to a smoother ride over the years; you now have a strong entity and responsibility over the lives of your clients and employees. As you stabilize, concern shifts from survival to how to perpetuate something that has become bigger than you. Your focus becomes generating growth that secures your future, as well as that of those onboard.
With Growth Comes Challenges
Floyd Green, Founding Partner at Cornerstone Wealth Management in Raleigh, North Carolina faced one of the biggest challenges of his life. Unexpected circumstances forced Floyd to quickly reduce his work hours from 45 to 20 hours a week. Too young to retire and with a staff that had “come to expect a paycheck,” he had to consider how to ensure his business not only survived, but thrived, without him as the sole growth engine.
Thanks to existing relationships, recruiting advisors who shared his vision, values, and passion was the first hurdle cleared; deciding how to effectively incorporate them into the ownership structure would prove more difficult. The issue was not only one of compensation, but also cultivating the motivation and mentality required to be an owner amongst Floyd’s key producers. He wanted to encourage ownership of outcome, a decision-making mindset that considers the future impact on the business.
Proven Growth Strategies
In search of sound advice regarding the eventual succession of his business, Floyd comments on the volume of advice out there. “There’s a lot of different answers to it and a lot of conflicting answers to it. Candidly, it was stressful.” Floyd met the FP Transitions team and realized, “They know how to do this.”
FP Transitions Founder, David Grau Sr., JD, advises to structure your business and its organizational, entity, and compensation systems so that there is no way for an individual to do well unless the organization succeeds as a whole. Relying on the old wirehouse compensation model of “Eat What You Kill” (EWYK) only disincentivizes ownership behavior and thinking, as it is tied exclusively to the top line production. “We found ourselves having conversations we’d preferred not to have,” says Floyd reflecting on how his former compensation model led to concerns over who was going to get paid rather than taking a team approach to servicing clients. With compensation now tied to the bottom line, as well as the top line, managing partners can focus on growing the business as a cohesive unit while increasing profitability.
In order to gradually transition ownership and leadership, you must first build a business with enterprise and revenue strength that key employees want to invest in. With a share in profitability, employees have the opportunity to own a piece of what you’ve created over time. By providing a means by which to purchase ownership shares, the founder also secures a reliable income stream well into retirement.
Cornerstone Managing Partner, Kelsey Oltmans, reflects on the enthusiasm the partners share in making ownership decisions together. “Before, you would have heard something really strong and a lot of passion from Floyd. But, now it’s more our passion.” Shared passion and a sense of personal investment energizes a practice, thus serving as the catalyst for the next growth phase. Watch the Cornerstone team’s success story below to hear about valuable lessons learned along the path to building an entity of enduring and transferable value.
For further reading, please take a look at our popular white paper, Building a Business of Enduring and Transferable Value.