Building Better Org-Angie

8/2/2019 Building Better Org-Angie

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Building Great

Businesses byCreating GreatEmployees

by Angie Herbers


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P4 | 2

Ath Nt & Ackndmnt

As the reader will see, what follows is not written like a white paper, in the conventional sense. Teres areason for that: the P4 Principles that youll be reading about are not conventional business managementwisdom. Instead, they are practical principles derived from many years of solving real-world problemsto create very successful independent advisory practices. Over the years, I have found that to get myclients to suspend their conventional thinking and embrace these principles, I needed to explain themin unconventional ways. So, what youll read here are the same alternative explanations that resonatedwith my advisor clients.

It took a very special group of people to embrace my unconventional vision for how this paper shouldbe written and structured. With that I would like to thank Bob Clark, eresa Conde, Janet Clark,Denika Almburg, Drew Zink, Scott Sears, Molly Spain and mostly, my clients who all worked withme to bring the vision I had for this research to completion.

At Ani H, Inc.

Angie Herbers, Inc., is a business management and human capital consulting rm located in Manhattan,

Kansas. Our company focuses on working with business owners, particularly nancial advisors, whohave a desire to grow. We specialize in working with advisory rms to develop great employees throughthe use of proven training programs, compensation and benet packages, productivity tools, employeemotivation, and succession planning. Troughout her career, Angie Herbers, Founder of Angie Herbers,Inc., has helped over 600 nancial professionals develop organizational structures, grow revenues andincrease rm protability. A strong advocate for proactive business management, Angie applies herknowledge of practice management through speaking, writing, research and consulting services tonancial advisory professionals.

Since 2005, Angie has been a monthly columnist for Investment Advisor magazine andAdvisorOne.com where she shares her research and consulting work with the advisory community.In 2007, Angie was named among Investment Advisormagazines 25 Most Inuential People in theAdvisory Community. Angie received her Bachelor of Science degree in Personal Financial Planningwith a minor in Business Administration from Kansas State Universitys Certied Financial Planner(CFP) registered program. Angie is currently a Facility member for Kansas State Universitys CFPregistered undergraduate, graduate and doctoral programs. She is also an active member of the FinancialPlanning Association (FPA).


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P4 TABLE OF CONTENTS | 3

TAble of CoNTeNTs

Forward 04

Preface 05

Part I Introduction: The Automatic Manager 08

Part II The P4 Data 09

Part III The P4 Principles 12

P1 Preparation 12

P2 Pay 17

P3 Perks 20

P4 Productivity 26

Part IV Conclusion: Unexpected Results 28

Building Great Businessesby Creating GreatEmployees


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P4 FORWARD | 4

fad

rom the time Angie Herbers started explaining her P4 Principles to me nearly two years ago, I knewthat she was on to something important for independent advisors. Having worked with Angie for

years to help her articulate her practice management strategies, I have always been impressed with thedepth of her knowledge about how advisory practices and small service businesses actually work, and her

penchant for nding practical solutions for common, yet dicult, problems. Her P4 Principles are theculmination of over ten years of working with hundreds of independent advisory rms, of instinctivelyknowing that employee-oriented rms would, in the end, be the most successful, and gently guiding her

owner/advisor clients to the same conclusion.

o my mind, P4 is as profound as it is simple: Create a rm that trains, supports, and compensates itsemployees to succeed, and that rm will succeed beyond expectations. o those who would say thatsmerely common sense, I would ask why, if its so common, do so few businesses employ any one of these

principles, let alone the combination of all of them? In her own consulting work, Angie has been ableto convince only half of her clients to use the P4 Principles, which ironically has lead to the dramaticcomparisons she found in her clinical study. While her research isnt a massive statistical study like manyof those we nd in our industry, it is a hands-on study, by someone with intimate knowledge of the rmsinvolved, and no need to rely on unsubstantiated data, provided by who knows whom.

Te power of P4 lies in her data, and in the clear dierences between the success of her P4 rms comparedto the others, and what the P4 rms do to attain that success. As youll see, theres no gray area here:All the P4 rms do virtually all the same things, while virtually none of the other rms do any of them.

Whats more, all the P4 rms got the same results: great employees who virtually manage themselves,working together to create great advisory practices. As Angie herself found, creating a P4 rm requires aleap of faith that some owner/advisors arent willing to make. But for smaller service businesses such asindependent advisory rms, I predict that Angies employee-centered P4 Principles will set a new standardfor success in the years to come.

Bob ClarkEditor At Large

Inestment AdvisorMagazineSanta Fe, New Mexico

f


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P4 PREFACE | 5

Pac

remember it clearly: It was a winter afternoonand I had just completed the last of my ve

advisor coaching calls for the day. It had beenan exhausting day, and I had zero motivation tocontinue working. So, I just sat there lookingout my window thinking about my last call:One of my clients had been complaining again

about one of his chronic problem employees andseeking my advice on a solution for this particularemployees continual lack of motivation.

As a business consultant, my specialty is helpingsmall companies, particularly independentadvisory rms, manage their employees (humancapital management, inconsultant-speak). So, as youcan imagine, I had always

been perplexed by a smallnumber of employees at myclient rms who had beenchronically problematic overthe years. Tis day was noexception. As I was thinkingabout this employee and theothers, a startling notionhit me: All of the dicultemployees worked for thesame rmsabout half ofmy clients businessesandsome of those rms even hada history of problem employees. On the otherhand, the other 50 percent of my clients neverhad any problem employees at all. So, I beganto wonder why, and I decided to search for theanswer. I gured it had to be something simple.As it turns out, I couldnt have been more wrong.

My consulting business is designed to build long-term, high-touch relationships with my clients.All our clients talk to us at least every other weekfor an hour, and in between, we regularly talk tothe employees at those rms, as well. On thatday, I had been working with most of my clientsfor about ve years, so I already knew a great

deal about these companies, their owners, andtheir employees through my personal consultingrelationships with them. Plus, I had a lot of dataabout them in my les which I gured wouldlead me promptly to the simple answer as towhy half of them had problem employees andthe other half had none.

At rst, like most traditionalbusiness management books

would suggest, I thoughtthe problem had to be themanager. You know thesaying: hire or train agood manager and you willhave great employees. ButI quickly concluded thiscouldnt be the case: Basedon my experience with myadvisor clients and theiremployees, I knew that noneof them are what you wouldcall good managers in any

business-school sense, and they all know it. Infact, thats why they hired me to help them inthe rst place.

So, if it wasnt that some of the owner/advisors were better managers than others, what could

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it be? My next thought was that the dierencebetween the rms had to be the employeesthemselves. I posited that some rms weresimply better at hiring good employees thanothers. When I looked at the data, however, Ifound a very dierent picture.

I have my clients quantify employee performanceevery year, I had some valuable information toponder. Tey rate team members from 1 (lowest)

to 5 (highest) on ten factors, including theemployees ability to focus on client needs, to takeresponsibility for getting results, their leadership,communication skills, organization, intuition,decision-making ability, time managementskills, teamwork, and interpersonal skills. Ten,we average their scores to get one rating for eachemployee, with 5 indicating a great employee

and 1 pointing to a problem employee, likethose I was concerned about.

o quantify each rms success at hiringemployees, I looked at the average rating at the endof the rst year on the job for all the employeesat all my client rms. As seen in Figure 1, forthe half of my rms with no problem employees,the average employee rating was 2.90; for therms with chronic problem employees it was

3.54. Tat meant the problem rms wheresignicantly better at hiring employees, not worse. Ten, I averaged employee ratings ofboth groups of rms after the employees wereon the job for four years. What I found shockedme, and it will probably shock you, too. Intheir fourth year evaluations, those goodhires at the problem rms had slipped down toa 2.63 employee rating, while the mediocrehires at rms without chronic employee issues were up to an astounding 4.33. (I consideranyone over 4.0 an excellent employee.) I wasdumbfounded. Te problem rms were takinggood employees and making them mediocreat best (and problems at worst), while the no-problem rms were taking mediocre employeesand consistently making them great.

If it wasnt hiring and it wasnt the manager, whatelse could be causing this dramatic dierence?As part of my consulting process, I make sure

that all my client rms had job descriptions,organization charts, career ladders, process andprocedure manuals, and compensation programs,and that they undertook regular performancereviews. None of them were good managers, andthey all worked with me. Yet, despite all thesesimilarities, there had to be a dierencea bigone, even if it wasnt obvious. My curiosity was

P4 PREFACE | 6

Figure 1

GREAT HIRES VS. GREAT EMPLOYEES

No-Problem Firms Problem Firms

5

4.5

4

3.5

3

2.5

2

1.5

1

0.5

0

Employee Rating

After 4th Year

Employee Rating

After 1st Year

*Ratings range from 1 (a problem employee) to 5 (a perfect employee,with 4 or higher indicating superior employee performance).

2.9 3.54 4.33 2.63

RATING*


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P4 PREFACE | 7

thoroughly piqued: I needed to know what wascausing this huge gap in employee performance.All I knew for sure was that the answers werehidden somewhere in my client database. So, Ilaunched an intensive research project to gureout what made half my clients turn out top-notch employees while the other half sueredwith mediocrity.

THe ANswer

Five years after that day, I can now say withoutquestion, that I know what makes exceptionalemployees, who, in turn, contribute to greatadvisory businesses. What we discovered werestriking dierences in the way the two groupsof clients approached employee programs. Tesuccessful rms all designed and implementedemployee programs in the same way, with four keyelements all working cohesively together in onesystem. Ive come to call this the P4 Principles:Preparation, Pay, Perks, and Productivity. Each

of these rms oered their employees all fourkey elements, designed in the same way, withthe same mentality: a work environment thatprepared themselves and their employees forsuccess (Preparation); thoughtfully designedcompensation packages and incentive structures(Pay); benets that provided motivation to theiremployees (Perks); and tools designed to helpthem succeed (Productivity).

Te good news for small business owners andindependent advisory rms is that these elementsare not overly complicated, dicult to integrateinto a business, or very expensiveespeciallywhen compared to the high costs of hiring staremployees, chronic employee turnover, lowemployee productivity, unhappy employees,and usually hiring one consultant after anotherto solve these problems. In fact, the increasedsuccess of P4 rms far exceeds any additionalcosts of implementing these important principlesin any company.

The successful rms all designed and implemented employee programs in the

same way, with four key elements all working cohesively together in one system.

Ive come to call this the P4 Principles: Preparation, Pay, Perks, and Productivity.

P1 Ppaatin:A work environment that prepared and trained owners and their employees

for business success

P2 Pay: Thoughtfully designed compensation packages and incentive structures thatconnected employees to something greater than themselves

P3 Pk: Lifestyle benets that provided employees motivation and a balance betweentheir working and personal lives

P4 Pdctiity: Technology hardware and software designed to help employees workfaster and build closer connections to clients


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P4 PART I INTRODUCTION | 8

Pat I Intdctin: Th Atmatic Mana

hat Im about to tell you about creatinga successful independent advisory rm is

exactly the opposite of what is taught in businessschools and preached by business gurus: Currentconventional business management wisdom saysthat great businesses result from creating greatmanagers. While that might be true in large,

publicly owned corporationsthough now, Iseriously doubt itit is certainly not the caseamong independent advisory rms.

If you own an advisory business or haveever worked in one, you might think thatbecause advisor/owners rarely have managementtraining, they would have the greatest needfor it. I have to admit, thats what I thought, too.But in my work with hundreds of advisory rms

over the past ten years, Ive come to realize thatmost owner/advisors will never become greatoreven goodmanagers, in the conventional sense.

Te good news is that to have great businesses,they dont need to be good managers. But, theydo have to build businesses that create greatemployees, and then stand back and let theiremployees help them grow the business theyvealways dreamed of having. o build a businessthat literally manages and grows itself, owners ofsmall companies need to implement all four keyelements, what I call the P4 Principles into theirrms: Preparation, Pay, Perks, and Productivity.Each principle is essential to creating anenvironment that supports a rms employeesand helps them maximize their contributions tothe success of the business. As a result, creating agreat business.

I know this may sound simplistic, idealistic, oreven a bit new age, but believe me, its the mostpractical business strategy that youll ever hear.Whats more, you dont have to take my wordfor it: Weve spent the past ve years conductingresearch to determine what makes the mostsuccessful businesses function so well. I think

youll agree that what weve found is nothingshort of striking.

One reason that these principles are notconventional wisdom is that getting informationfrom small business owners is exceedinglydicult. For the most part, small businesses arenot public companies, so their nancial data isntreadily available on any database. Whats more,theres little incentive for most successful owner/

advisors to participate in industry surveysand even if they do, judging by my own clients,they rarely take the time to look up actualgures. Instead, they wildly ball-park numbers,unintentionally inating or deating them.

Ten theres the problem of expenses andprots, which small business owners have a taxincentive to manipulatemaximizing costsand minimizing the bottom linewhich oftengreatly skews their true nancial picture. Sincemy rm has access to the true nancials of anumber of client advisory rms, and can drawaccurate assessments of the success or failure ofvarious business structures and strategies, wewere able to get a clearer picture of what factorscontribute to their success. Tese factors arentcomplicated, but the results of employing themare dramatic and not hard to implement.

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Pat II Th P4 Data

P4 PART II P4 DATA | 9

e should point out that I arrived at theP4 Principles and their resulting success

by working with my clients quarter after quarter,year after year; addressing problems as theycame up and nding workable solutions, ratherthan from back testing a body of data or fromapplying a pre-conceived management strategy.

Until I actually conducted a study of solutionsvs. results, even I hadnt realized that the moresuccessful rms all took the same advicenor that those rms were dramatically moresuccessful. It was only after the fact, that I boileddown the strategies that were consistent amongthe most successful rms into the P4 Principles.

By pure coincidence, it turned out that roughlyhalf my client rms employ all of these P4

principles, while the other half employ virtuallynone of them, with almost no overlap. I havenoted that while today, both the P4 and theNon-P4 rms average just over $1 millionin annual revenues, with an average of veemployees (not including the owner(s)),the P4 rms started out somewhat smaller.

It is therefore likely that smaller, less establishedrms are more receptive to major changes inthe way they do business, which is unfortunate. As youll see, the rms that adopted the P4Principles early in their development are farmore successful, by virtually every measure.(After discovering the P4 Principles, we haveimplemented them in larger rmsrangingfrom $3M-$10M in gross annual revenuewiththe same, if not better results.)

THe MArgIN of suCCess

Te data comparing the success of P4 rms withNon-P4 rms is nothing short of amazing. Asyou can see in Figure 2, during the turbulentthree years ending Dec. 31, 2009, the P4 rmshad much more success by every measure than

the Non-P4 rms. Te P4 rms had 14% annualrevenue growth (vs. 3% at the Non-P4 rms),and 15% annual increases in owners income (vs.-10%). Ten, in 2010, the P4 rms averagednearly three times the revenue growth and morethan double the growth in owners income thantheir Non-P4 counterparts.

3yr* 2010

P4 Firms Non-P4 Firms

GROWTH IN

GROSS REVENUE

3yr* 2010

GROWTH IN

OWNERS INCOME

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

-10%

Figure 2

SUCCESS COMPARISON

*The 3 year average includes years 2007, 2008 & 2009

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Figure 3 shows that the dierences between P4and Non-P4 rms extends both to the goals oftheir respective owner/advisors and to the levelof success at reaching those goals. Notice that theowners of P4 rms were interested in growingtheir rms (revenues) or improving their lifestyles(or both) by working less, while the Non-P4 rmowners were exclusively interested in increasingtheir own income. Tis myopic view of successtranslated into an owners mentality (shown in

Figure 3) that not only hurt rm performance,but reduced their chances of attaining their statedobjective. None of the Non-P4 rms hit theirowners goals, while all the P4 owners attainedtheir goals during every period measured. Plus,ironically, they signicantly increased theirowners income as a result, which is exactly whatthe Non-P4 rms wanted to do, but didnt.

Ten there is the issue of the time owners spendworking in their rms. Some would predict thatthe more time a small business owner or managingpartner spends working in the company andmanaging its people would be a determinate oftheir nancial success and ability to achieve theirgoals. As shown in Figure 4, the P4 owners spent60% fewer hours working in their businessesduring the weeks when they worked, and whenthey took vacations, took twice the number ofweeks o than their Non-P4 counterparts.

KeYs To P4 suCCess

Te striking dierences in growth, ownersincome and time in oce between P4 andNon-P4 rms further beg the question whysome rms are successful, while others arenot. As we have seen, P4 success cannot beattributed to either better hiring practices, better

Figure 3PrIMArY goAl of owNers

Owners average weeks of vacation per year

Owners average hours worked per week

31 hours

54 hours

9 weeks 4 weeks


0 10 20 30 40 50 60

Figure 4

A CoMPArIsoN of owNers TIMe off

on'Pimay ga

P4fim

Nn-P4fim

More Revenue 50% 0%

More Revenue

& Time O33% 0%

More Time O 17% 0%

More Income 0% 100%


Owners Who Achieved Goals

100%

0%

0% 25% 50% 75% 100%


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management, or HR processes and procedures.But other data does hold the answers. Figure 5provides some insight into why the P4 rms areso successful: Employees at P4 rms were morethan four times (83% vs. 19%) more likely toreceive a great employee rating (4.0 or higher),which means that more than 4 out of every 5employees at P4 rms are great employees;while not quite 1 out of 5 employees at Non-P4rms are great. Figure 5 also shows one of

the primary reasons why there is such a largediscrepancy in employee greatness: On averageonly 3.4% of all the employees at P4 rms ndsomething to complain about each year, whilemore than one out of three Non-P4 employees(38%) le a complaint each year.

Among other things, this increased happinessat P4 rms translates directly into employeetenure: P4 rms have no employee turnover,while their Non-P4 counterparts exhibit annualturnover of, once again, more than one in threeemployees (34.6%), with more than two-thirdsof those star hires being terminated by theowner for poor performance. Losing one-thirdof the employees at a small business every yearhas a devastating eect on virtually every aspectof these rms; from the quality of client service,to the workload of the principles (who areconstantly hiring and training new employees,in addition to their regular jobs), to lower

protability (higher hiring and training costs anddecreased productivity), to a damping of overallemployee morale. Just the dramatic dierence inturnover goes a long way toward explaining thevastly better performance of P4 rms.

aken together, the P4 rms had lower employeeturnover, much higher annual growth in revenueand owners income, a much higher rate ofachieving their owners goals, and during allthis success, their owners worked far less duringthe weeks when they work, and took a lot morevacation when they didntand they were alldoing the same things to get these results. Whenit comes to statistical conrmation in businessmanagement, it rarely gets any better than this.

Employees Rated Great(4.0 rating or higher on annual performance evaluations)

83% 19%


Employee complaints per year

3.4% 38%

Employee Turnover

0% 34.6%

Figure 5

MeAsure of eMPloYee HAPPINess



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P4 PART III PRINCIPLES | 12

PArT III Th P4 Pincip

hile the basic tenets of the P4 Principlesare simple, they require owner/advisors

who want to implement them to unlearnmany of the employee and business managementpractices they have relied on in the past. As weexplore the details of implementing the four keysto creating great employees and successful rms

(Preparation, Pay, Perks, and Productivity), we will also share some surprising ndings abouthuman motivation and the power of focusingon employee happiness. Perhaps the moststriking of the unexpected consequences of ourresearch has been the concept of developingan atmosphere that promotes AutomaticManagement of employees. Instead of tryingto hire great employees, P4 companies createand implement a consistent, enduring, cohesive

program that allows employees to self manageand feel prepared, equipped, empowered, andmotivated to help their rms grow and succeed.

P1Ppaatin:Tere are two parts tothe rst P4 Principle, Preparation: Preparingbusiness owners to support the success oftheir employees, and preparing employeesto be great. In order to have successful, self-managed businesses, owners must rst create anatmosphere that supports employee greatness,and then develop a training program to creategreat employees. Preparation is by far the hardestof the four P's to implement, but it is also themost important. Preparation was the last of thefour elements we discovered in our researchbecause its the least tangible and hardest toquantify. But once I realized that all my P4 clients were also those who focused on supporting

their employees to succeed, it became the gluethat brought all the pieces together. Lets startwith the rst step, preparing owners to create abusiness that supports their employees.

AN owNer's MeNTAlITY

Te hardestand most commonly skippedstep in successful business management is the work that owners have to do on themselves.Most people will say owners need to work onbecoming better managers; our research actuallyshows that owners need to focus instead onbuilding a viable business that supports theirworkforce. Its the hardest step because buildinga company that supports its workforce to be great(instead of just supporting its owner(s)) is rst

about owners looking in the mirror and askingthemselves some very hard questionsand thentaking the time to really think about and nd theright answers to them.

Te biggest and most important question is:Do you really want to build a business? Tismay seem like a stupid question, but believe me,its not. Te importance of the answer to thisquestion became abundantly clear throughoutour research. All of the rm owners we studiedin our research said, Yes, we want to build abusiness; but when it came time to take thenecessary steps to build that business, half ofthem werent so willing. Its very easy for all ofus to say we want to build a business, but myexperience has shown that wanting to do it andactually doing it are two very dierent things.When working through the research, the glaring

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dierence between P4 companies and Non-P4companies was the mentality of the owners. AsFigure 3showed, 100% of the Non-P4 owners wanted to increase their income, rather thangrow their rms revenue. In contrast, my P4owners took the time, faced the hard decisionshead on, and changed themselves to build theircompanies, even if it meant taking a giant stepbackward, before they could move forward. Asweve seen, for them it wasnt about the money,

the owners income, the prestige of saying you arean owner, the fancy car or home, or the lifestylethat owning a successful business can and doesbring them. It also wasnt about being a better

manager. It was all about personal growth, andabout the growth of their businesses. Teirmentality and how they treated employeesreected their goal of truly wanting to build astrong, viable, enduring business.

When I delved into the data and started realizingwe had two very dierent approaches to building

businesses, I assessed the owners thinking touncover the dierences in their mentality. Teresults of that assessment concluded that 100% ofthe P4 company owners had all of the followingbeliefs about themselves, their business and howthey supported employees. (I should point outthat most of the P4 owners didnt have all ofthese beliefs on their own: but they were open

minded enough to listen toand to trytheseideas until their own success convinced them.)

Employees should be allowed to do their jobstheir own way (not the way the owner thinksthey should do it).

It is very essential for a business owner tocommunicate the 'why' to their employee's:Why they are passionate about their businessto their employees, and why what the rm

does is important.Employees should be encouraged to take risks,

and to make mistakes so they can learn fromthem, without fear of negative consequencesor criticism.

Employees should be encouraged to constantlycome up with new and better ways to do theirjobs without prior management approval.

Employees should be allowed to managethemselves without oversight.

Every employee's unique strengths should betreated as individual.

Employees are considered just as important asthe rms clients.

All employees need to know why their roleis important to the success of the company.

No position in the company is consideredmore or less important than any other.

o reach their success, P4 company owners tookthe time to prepare themselves to support great

employees before they did anything else. Tey worked on themselves rst, learning to coachand mentor their employees rather than critiquethem, giving their employees permission to askquestions and try new approaches, overcomingthe urge to micro-manage, and learning to trustthat when properly supported and providedwith incentives, their employees will want to do


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a good job and contribute to the success of theirbusiness. Ten, the P4 owners took what theylearned, coupled with the sole goal of building abusiness, and created programs in their rms totrain their employees to be great.

eMPloYee TrAININg

We all know that training is the key to topperforming employees. Why, then, do so few

owners take the time to actually implement aformal training program? Or, if they do, why is itthe last thing, not the rst thing, they do? Mostbusiness owners will implement hiring processes,compensation programs, job descriptions, careertracks, and performance reviews before theyever develop a training program. I have cometo believe this is a byproduct of business ownersnot properly planning and preparing themselvesto support great employees. ypically, businessowners will get busy with the work they aredoing, decide they need to hire someone, hiresomeone, and then throw their new employeeinto the business, to sink or swim on their own.Ten, when the employee becomes unhappyand underproductivethe owner creates acompensation program, career tracks, and givesperformance reviews. Often, the employee willstill be unhappy, and eventually leave or get red.Ten, the owners are left asking themselves why?

Te answer is that the employees are set up tofail. Without the proper trainingspecicallyintensive training in their rst three months onthe job and then a continual training programthroughout their tenureemployees are leftto gure out how their rm works and how tomake a positive contribution. Some actuallysucceed, but many more of them fail. Tis model

may work in larger brokerage rms, where thesink-or-swim method is often used to identifypeople who can sell product, and 80% turnoverrates in the rst 5 years are built into the rmseconomics. But in an independent advisorybusiness, even an annual 20% turnover rate isthe path to mediocrity, at best.

Te solution is eective training. Te critical rstthree months in a job are when new employees

learn how to work within the rm, how to dotheir new jobs, and most importantly, how tobecome self-managed employees: that is, how tomake a maximum contribution to the rm with aminimum amount of managing from the owner/advisor. Te only way to deliver that is througha well-thought-out training program, which100% of the studied P4 companies provide.

gooD & bAD TrAININg ProgrAMs

Te key to getting results like those in P4 rmsis to understand that there are also eective andineective training programs. While no tworms have exactly the same training programs,there are elements that are essential to make atraining program eective.

Te rst step toward creating great employees isto teach them to teach themselves. Everybodyloves a resourceful employee, but the truth is

being resourceful is often taught. Te key todoing that is to give employees permission totrust themselves. Tat is, to get the most out ofemployees, its essential to communicate the corevalues of your rm, including permission for youremployees: 1) to make mistakes (its how theylllearn); 2) to speak up (if you dont know whatthey are thinking, you cant help them); and, 3)



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to ask for more responsibility (theyll know whenthey are ready to grow). In return, owners needto ask for only one thing: that employees honortheir word by keeping the promises they make.

aken together, each of these permissions willenable new employees (and existing employees,too) to gain condence in themselves. Teyllcome to realize that they dont have to beperfectthat its okay to make mistakes, as long

as they own up to them, do what they can to xthem, and most importantly, learn from them.Teyll also learn that its okay not to know, andfar better to learn to be resourceful and nd theright answers than to pretend that they do knowsomething they dont. In this type of businessenvironment, employees will learn to trust theirown instincts about what they can and cant do,and theyll learn that to earn the trust of others,they have to act honorably.

Learning to really trust themselves empowersemployees to learn on their own (with minimaleort from owners, principals, or supervisors), tovirtually manage themselves, and to nd ways tocontribute to the success of the rm that the rmowners never even considered. Tis is the keyto having an ultra-successfuland enjoyabletraining process. And it can be achieved in arelatively short period of time.

Once youve shown new employees how to learn,you need to teach them about their new rm.Tey need to learn the technology you use, andhow you deliver advice to clients. Often this steprequires a little more from the owner/advisorthan a list of what employees need to learn. Teyneed access to other employees, and time to readthe rms operations manual, which details all of

your processes and procedures (something youshould have before you even consider hiring.)

Ten, employees need to learn about theirown job. Ive found that giving new employeesgeneral information about what their job entailsis of little value, since they have no concreteframe of reference to understand what you aretelling them. Instead, a from the ground uppractical approach works far better, with much

faster results. Start by giving them one task thattheir job requires. Encourage them to ask anyquestions they have, and to trust themselves by

doing it the best they can. Ten evaluate how theydid, and give them feedback. Tis is key: Be sureto use their mistakes as learning opportunities(not as an opportunity for criticism).

Teir mistakes are how youll know the limitsof their knowledge and skillsand are theiropportunity for growth. Next, have themattempt a similar task and check to be sure themistakes are corrected, but dont correct themistakes for them. Have them repeat similartasks until they get them right consistently. Allalong, while encouraging them to ask about


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things they dont understand. (Its far moreecient to answer specic questions than it is tolecture in generalities.)

Creating self-managed employees meansenabling them to learn everything they need to dotheir jobs well, and not hurting their condenceby putting them down and not giving them theopportunity to correct their mistakes. Sometimes,its creating the right motivation. More often, its

giving them permission to trust themselves and

to learn their own way. And it always includesproviding constructive feedback about what theyneed to do better. No matter how you do it, onceyouve created motivated employees who believein themselves and know how to learn, the job ofan owner/advisor becomes much, much easier.And their rms become much more successful.Doing this requires a plan and that plan canand should be created far before you even thinkabout hiring someone in your business.


spptin rach Ppaatin

To support our P4 research weve collected outside research that comes to similar conclusions. In

his book, Delivering Happiness: A Path to Prots, Passion, and Purpose, Tony Heish, the CEO

and founder of Zappos.com writes about the success of their culture. Zappos' human capital

processes have nearly a total focus on the happiness of their employees, under the theory that

happy employees are more productive and more able, and willing, to contribute to the success of

their rm. Heish distills the Zappos experience and other research into four Elements of Happiness

that can be clearly seen throughout the P4 Principles, and the P4 rms themselves. Happiness is

really about just four things, he writes: Connectedness, a vision or meaning, perceived control,

and perceived progress.

People want to be connected to something greater than themselves, nd meaning in doing it, feel

like they have some control over it, and feel like they are making some progress while doing it. Our

own P4 Preparation is all about preparing owners and preparing employees to be great employees by

making both the owner and the employee happy. Preparation and training is not just about teaching

employees technical knowledge, how to use the rms technology or how to talk to a client. Its

about building programs that teach people (including owners) how to make themselves happy in

their jobs: programs that teach people how to better communicate; how a business grows and how

a business declines; what it means to work in the companys culture; and about the clients and what

the clients want and need. We know from the P4 research that the training program is a critical

element in employee happiness, and consequently, in business success, and if owners of advisory

rms want to see results similar to those of P4 companies, they will start with the most critical and

the most dicult of all the steps, Preparation.


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administrative assistants) along with theiremployee score. Next to each employees nameand performance score I wrote down their rmsbonus structure: Revenue-based, prot-sharing,and/or merit-based. Ten I set the sort functionon high to low performance and hit enter.

Tere it was, staring me in the face: Virtuallyall of my great (level 4 and 5) employees werepaid revenue-based bonuses. In fact, motivation

and performance correlated very neatly intogroupings based on bonus structure: with

revenue-based at the top, prot sharing in themiddle (levels 2 and 3), and merit-bonusesand arbitrary bonuses at the bottom (levels 1and 2). Te evidence was very clear: revenue-based bonuses are a much better motivator ofemployees than the other structures.

Next, I looked at the eect those high-performingemployees had on the success of their rms. Icompared the revenues of each rm at their

lowest point following the 2008 Meltdown withtheir revenues at year-end 2010. As a group, themerit bonus rms averaged an 11.8% revenuerecovery from the Meltdown to 2010, the protsharing rms recovered to the tune of 19.1%on average, and the revenue-based bonus rmscame back an average of 34%. Te increasedmotivation and performance of the workforcecreated by revenue-based bonuses (includingthe quarterly disclosure of rm revenues) has

an extremely high correlation with the revenuegrowth of the rmat least when it comes torecovering from a major catastrophe. And I dontsee any reason this revenue growth advantagewouldnt hold true during other times as well.

Te data is clear: Frequent, regular incentivepayments (at least quarterly) based on a rmssuccess are highly motivational. o increaseemployees drive to nd ways to help boostrevenues, we typically use a tiered payout system:the higher the revenues, the larger each employeespercentage share of revenue. Additionally, thesetypes of compensation arrangements eliminatethe need to pay high salaries, which onlymotivates people for a short time, if at all. Onthe ip side, paying too low a salary or low wagesundermines employee motivation. How do you



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pay a fair wage, without breaking the bank ofa small business but motivate employees to begreat? You connect total compensation to theoverall success of the business. Great employeesare created by connecting them to somethinggreater than their own abilities. Te combination

of fair, but not over-the-top, salaries andrevenue-based bonuses are an essential elementto the success and the growth rates our researchuncovered in companies who had implementedall of the P4 principles.


spptin rach Pay

While very little research has been done on the most eective bonus structures, there is researchwhich supports the principles of getting employees connected to the performance of the business

(i.e., something greater than just their own performance). According to Daniel Pink in his book Drive:

The best way to pay people is to pay them a fair enough salary that it takes the issue of money o the

table. Once people have what they consider enough money, you often wont be able to motivate them

further with more money unless they are getting paid for a bigger purpose other than themselves.

Revenue based bonuses get employees connected to the overall vision of the company and its

growth, which requires a team eort, not just an individual eort. Many human capital consultants

and great leaders know what was best said by Dee DiPietro, founder and CEO of Advanced HR, Inc.:

Money is only a baseline to real motivation employees must have a higher purpose for the work

they do and only then will incentives work. Revenue-based bonuses connect compensation with the

success of their rm, and the help it provides to its clients.


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P3Pk:As the name implies, perks arethe things that businesses are not required togive their employees but that enhance their livesand create a strong bond with the company. Inour work, weve found an even more compellingreason for oering perks: Our research showsthat oering the right perks increases employeehappiness, motivation and commitment. Onthe other hand, failure to provide the right perkscreates a negative image of the rm in the minds

of employees that can never be overcome, leadingto poor morale and high turnover rates.

Te two most important and basic perks aremedical insurance and retirement. In short,companies just need to oer them, period.Contrary to popular belief,and possibly commonsense, simply oeringthese benets is far more

important than whetherthe rm pays for all or partof them. As far as I can tell,this is a function of theindustry were in: Junioradvisors are trained thathealth insurance and saving for retirement at anearly age are essential elements of a sound nancialplan, while other advisory rm employees get thesame message early in their tenure. Employeesin this industry just cannot live with themselvesif you dont provide what youre telling yourclients they need to have. Its like working for anoverweight doctor who smokes and provides beerand pizza to his employees for lunch every day.

Tink about the message youre sending to youremployees if you dont oer retirement or medicalplans: Either you dont really believe in the

advice youre giving your clients, or the nancialfuture of your employees just isnt important toyou. Te lack of company sponsored medicalinsurance and retirement benets is among themost common complaints I hear from employeesof my few client rms that do not provide them.

Now, before you start giving me a lot of pushback about how a small business like yours cantaord expensive health or retirement plans,

the good news is that our research shows thatemployees are far less concerned about who paysfor what than they are with just having accessto these plans. And, if you think about it, thatmakes sense: Tey understand that theyre not working for JP Morgan, so theyre not looking

for comparable benets, butthey also understand thathaving access to a grouphealth plan can substantially

reduce their costs ofinsurance, particularly ifthey have a family. As forretirement, they like thepay-yourself-rst aspect ofpayroll deductions. Plus,

when youre on a tight budget, the dierencebetween pre-tax and after-tax contributions canhave an impact on ones lifestyle.

Some advisors will argue that employees woulddo better contributing to a Roth IRA, and Imnot saying that a Roth wouldnt be better undersome circumstances. But, since we usually dontknow the spouses income or retirement plan(so they may not even qualify for a Roth),and pre-tax contributions can matter, thepsychological impact of a company-sponsoredplan is well worth the cost. Plus, the rm can

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save on payroll taxes on those contributions andthe rm owners can use the plan as part of theirown retirement and savings plan.

Te other benet of oering health insuranceand retirement for a business surfaces when itstime to recruit. As I said, young advisors arevery interested in both of these perks. In fact,its very hard to hire anyone these days withoutthem. Tis means if you dont have a good

answer to the question do you oer health andretirement benets?, your job candidates willbe limited to folks who cant be choosy. While

weve seen that its not essential for a great rmto hire great employees, picking from the otherend of the barrel certainly doesnt help. o becompetitive, you must oer these two benets.

One nal note on health insurance: I am a rmbeliever that employers should not pay 100% of

the cost of medical insurance. Employees needto have skin in the game; trips to the doctorseem to escalate when there isnt an economicincentive to be sure they are necessary. Whatsmore, when employees are sharing the monthlycost, they see when the premiums go up, andthey appreciate that their rms are paying more,too. Teres a reason why most carriers include

those $20 or $30 co-pays; even a little skin inthe game is often all it takes to eliminate thosefrivolous visits, and time away from the oce.

lIfesTYle PerKs

While a retirement plan and health insurance arejust bases that owners have to touch, the secondgroup of perks, which I call lifestyle perks, areone of the great discoveries of the P4 program.

Tey form a collection of benets, or perhapsfreedoms, that allow employees to merge theirworking lives into their personal lives in a waythat makes both parts of their lives better,producing happier more motivated employees. As I said in the Preparation section, happyemployees are simply better employees. Yet,no matter how great you make their workingenvironment, if an employee isnt happy in theirpersonal life, its hard for them to be truly happyat work. And while owners cant x employeespersonal problems (and shouldnt even try),by oering the right perks, they can create a working environment that minimizes conicts with home life, which often can be a majorsource of personal problems.

Te key to these lifestyle perks is an ownersmentality that trusts employees to makeresponsible decisions about whats right for them,and right for the rm. Its a mentality that shifts

the owners role from parent-like rules settingand monitoring, to one of mentoring and trust.It sends a message to employees that says: Yougure out what you need to do to balance doingyour job with having a happy personal life.

For many business owners oering lifestyle perksis a leap of faith that many business owners


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are uncomfortable with, at least at rst. But,in my experience, owners who try it quicklyrealize theyve been underestimating theiremployees. A funny thing happens when ownersgive employees the responsibility for makingthemselves happy while they get their jobs done: job performance goes up, and time away fromthe oce goes down. In fact, owners suddenlynd themselves in the role of forcing employeesto take enough vacation to prevent burn-out,

and telling employees to go home and spendtime with their families.

As it turns out, even the biggest slackers usuallystart to take their jobs more seriously. Tose whodont are quickly set straight by their co-workerswho thrive on their responsibility to the rm anddont want to see the owners trust abused. Oneof the surprising consequences of the lifestyleperks (and other P4 programs) is that employeesactually begin to manage themselves and eachother, freeing owner advisors to focus on servingclients and growing the business.

Weve identied eleven of the most eectiveand common lifestyle benets that work thatemployers can oer, and Im sure there aremany more out there. But before owners freakout, our research has shown that the magicnumber of perks a company can oer to maketheir employees happy is six. I call this program

that we implement in rms the "Lifestyle Six"program. It doesnt seem to matter which sixperks employers oer, rather that by providingthat critical mass of perks, the owner has showna willingness to let employees tailor their ownlifestyle and trust that they will do so responsibly.Here are brief descriptions of the eleven lifestyleperks that owners should chose from:

fleX TIMe Tese days, its a pretty commonlyaccepted practice to let employees set theirown work schedule. For small business owners,this is one of the key elements in shifting theirmentality from micro-manager, to employeementor and coach. One of the greatest sourcesof employee stress (and one of the most easilyeliminated) is conicts between work schedulesand other important activities such as: childrensschooling, daycare, a spouses demanding

schedule, commuting, car pooling, continuingeducation, volunteer work, etc. If shifting anemployees working schedule an houror eventwo hourseither way (or even both ways, witha longer lunch hour) can make their life lesscomplicated, they will be able to focus better,work harder, be happier, love their job more, and

will never forget how your exibility improvedtheir life. Yes, ex times need to be coordinatedto be sure all the rms needs are met, but theeort that it takes will pale compared to thehappiness you create in your employees.

oPeN vACATIoNTis is the one that requires thebiggest leap of trust, and consequently, the onethat owners have the most trouble with. o beclear, Im talking about allowing each employeeto decide how much paid vacation time theytake and when they take it (coordinated withother employees). I know, it sounds crazy. Butlet me ask you this: Who decides how much


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vacation you, the rm owner(s) take? Do youspend so much time out of the oce that ithurts the rm? Of course not. So, why wouldyour employees? In fact, a funny thing happenswhen you give employees the freedom to takevacations: they take less vacation time. Why? Forone thing, when you oer use-it-or-lose-it annualvacation time, its human nature to use it, just soyou dont lose it. Give employees as much timeo as they want, and they tend to want less. In

fact, as I talk about in the Part IV-UnintendedConsequences section, as a P4 employer, one ofyour biggest problems will be getting employeesto take enough vacation so they dont burn out.

ProvIDeD luNCH or oTHer MeAls Manylarge corporations provide meals for employeesto eat in the oce. You should, too. Often,employees will eat while they are working, buteven if they dont, their time away from work will be much less than if they go out. Whatsmore, when employees eat together, they usuallytalk about work. It doesnt have to be fancy orexpensive, but oering a small reward for notgoing out for lunch (or staying over dinner orbreakfast if they come in early or stay late), canresult in a major increase in productivity.

bereAveMeNT TIMe offTis is time o whenemployees suer an emotional loss, no questionsasked. Its not just for a death, but for any grief

in their life: a divorce, marital strife, the illnessof a spouse, family member or close friend, etc.Its an expanded version of a mental health dayfor employees who need some time away to dealwith their emotions. Te truth is that during orafter emotional trauma, employees usually arentmuch use in the oce, anyway. And time awaycan help them recover more quickly. Again, this

is a call that only the employee can make at thetime. Most employees will never use it, but byoering it, an employer sends an importantmessage about their value to the rm.

feMAle AND MAle fAMIlY leAve As Imsure you know, this perk is legally required oflarge businesses, and just a good idea for smallbusinesses to oer, too. Having a baby is a life-changing event for a whole family, and taking

time o to sort it all out is good for an employee'spersonal life and their productivity, and for thebusiness. Tis is one of the times when workand personal life usually come into conict, andforcing an employee to choose their work canresult in long-term issues that can aect theirpersonal lives, too. Its far better for businessesto let employees decide how to best balance theirwork with a new member of the family.

TIMe off for voluNTeer worK Many ofthese perks become moot for rms that oerunlimited vacation time. But even for thoserms, oering paid time o, no questions asked,for charitable work sends the right message.Owners need to resist the temptation to createa list of prescribed charities; volunteer work is amatter of conscience for employees, and attemptsto meddle will only create resentment from folkswith strongly held inclinations that dont parallelyours. Employees who want to give back to

their communities (however they dene them)tell you something about them; when rmsencourage giving back, it also sends a messageabout them, not only to their employees, but totheir communities, too. Tis is a low cost/highreward benet that many employees probablywont use, but they like to have, and it denitelysends the right message.



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PAYINg for, AND PAID TIMe off for,CoNTINuINg eDuCATIoNTis perk is reallya must for professional rms. When professionalemployees make the eort to obtain and maintainprofessional designations, it increases the rmsexpertise and credibility. It can also broaden therms referral network. Once again, this benetworks best when owners resist the temptation tocontrol employees inclinations: any professionaldesignation is better than none, supporting

employee choices sends a good message at verylittle cost, and increases rm's credibility.

PAYINg for furTHer eDuCATIoN, AND

ProfessIoNAl resourCes Tis perk isrelated to the one for continuing education, andthe same comments apply. I understand that ifan owner is going to foot the bill, theyre goingto want more say in the nature of the educationor resource. Still, the more broad the latitude,the better. Most owner/advisors would probablydraw the line at sending an employee to, say, lawschool (although I have a client who did), butusually advisor education isnt very expensive,and to not pay for it sends a very bad messagethat education is not important to the rm.Tis perk should apply to non-professionalemployees as well, but with careful managementof expectations. If employees are planning toadvance their careers through further education,they need to know how their education plans t

in with the growth plans for their rm.

TIMe off for CoNTINuINg or furTHer

eDuCATIoN THAT Is NoT relATeD To worK

Employers often have a hard time with thisperk, too, but the reality is that few employeeswill ever use it. Also, when combined with extime, it rarely results in much real time o. Te

real benet of oering this perk is sending themessage that as part of a rms commitment tothe happiness of its employees, the rm supportsemployees eorts to improve themselves. Again,its a low-cost perk with a powerful message.

grouP DIsCouNTs Its a growing practiceamong rms to negotiate employee discountswith local venders; health clubs, country clubs,nutritionists, counselors, technology stores, etc.

Sometimes these arrangements are directly inthe best interest of the business, such as healthclubs and tech stores, but more often, theyrejust a nice, no-cost perk for employees. It sendsthe message that the employer is thinking aboutthe welfare of his or her employees, and youd besurprised how many employees rate these perkshighly. Whats more, it gives advisors a reason tochat up local business owners who may be futureprospective clients.

sAbbATICAl TIMe off What Im talkingabout here is a substantial amount of paid timeo every few years. ypically, rms will oeraround ve weeks sabbatical after ve years ofemployment. Tis perk is important for P4rms, in which employee burnout is a constantdanger. Encouraging employees to take the timeto truly get away from their jobs from time totime improves relationships, increases judgmentand productivity, and restores a sense of

perspective to their lives. Tis perk should reallybe a requirement at advisory businesses, and likeother forms of time o, P4 owners often ndthat they have to virtually force their employeesto take sabbaticals. Tese benets also apply torm owners, who also need to set an example bytaking periodic sabbaticals to recharge, or to justtake an extendended break to gain perspective.



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Firms send a powerful message by oering at leastsix of these lifestyle perks: Doing so says that thecompany trusts its employees to balance theirlives and to do a good job. It is results-orientedmanagement that leads employees to literallymanage themselves. One hundred percent of theP4 rms studied oer six or more of these perks, with ex time, open vacation, and providedlunch being the most common perks. Conversely,only 20% of the Non-P4 rms oer six. On the

results side, as seen in Figure 7, none of the P4employees abused these policies (and when afew people started to push the limits, the otheremployees quickly stepped in and told them toy right.) In a P4 rm, everyone is accountable toeveryone else. Our data shows that P4 employeesaverage 14.5 days a year out of the oce, whileNon-P4 employees average 19 days, or 24%more. And, nearly all of the Non-P4 employeesask for additional vacation or days o every year.Oering lifestyle perks that allow employees totake responsibility for their own happiness, makeP4 rms better, more successful businesses.


spptin rach Pk

There is a signicant amount of research that supports lifestyle benets in the workforce and their

enhancement of productivity. Leading this research is the Families and Work Institute. According

to its 2008 National Study of the Changing Workforce: Over 69% of employees have high job

satisfaction, if they have access to benets that oer exibility in the workplace. 72% of employees

with high access to exibility are not at all likely to try to nd a new job. Also, these employees

were more productive and actually worked more hours than their restricted counterparts; Those

employees who had access to the exible benets were only spending 12.9 days out of the oce

versus those employees that didnt have exible benets who were spending 15.4 days out of the

oce. Thus, employees in the US appear to use exibility sparingly, yet they are picking jobs and

staying at jobs that oer it. The FWIs research mirrors our own data on P4 vs. Non-P4 rms.

Figure 7overvIew of lIfesTYle PerKs AND

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P4Pdctiity: Te fourth P isProductivity, and its the simplest of the fourP's to understand. Heres the point: Tere isprobably no stronger message that a business cansend to its employees than the quality of the toolsit provides them to get their jobs done. oday,that means cutting-edge technology and trainingto use more of that technologys functionality.Obsolete or barely functional technology saystheir job is not important and their time isnot valued. Tats the wrong message. odaysemployees view their technology the way youngBaby Boomers felt about their company cars: aclunker meant they were losers working for anunsuccessful company.

Te impact of providing technology and trainingis clearly seen in the data in Figure 8: All P4rms provided laptops for their employees,hired technology consultants, and maintainedcutting edge hardware (iPads, smart phones,

dual screens, etc.) to support their businesses. Whats more, all P4 rms have a technologystrategy that anticipates both the addition ofnew technologies and the replacement of oldhardware and software as they become obsolete.In fact, 80% of our P4 rms actually set asidea technology escrow fund to cover the cost ofkeeping their tech current. P4 rms also providecontinuing training on their rms softwaresystems and platforms, resulting in P4 employees

utilizing 90% of the rms software functionalityvs. only 20% utilization for employees ofNon-P4 rms. Te bottom line is that the cost ofcutting edge technology and training is minimalcompared to the way it will make employees feelabout themselvesand their rms. Our datashows that employees of P4 rms rate their rmscommitment to technology 4.6 out of 5, whileemployees gave Non-P4 rms a 2.9 rating. Tat

meant the P4 employees feel their rms providethem with essentially all the quality technologythey need to excel at their jobs, while employeesat Non-P4 rms did not feel they were getting

technology tools to make them more successfulat being productive in their jobs. Simply put,employees felt that their rms where providingthem with clunkers.

We know for sure that the P4 rms embracedtechnology to make their workforce productive,but having worked with these rms for quitesome time, I also know that how the technology


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spptin rach Pdctiity

Networkmagazine oered advice in a recent article about employee satisfaction and technology:

The client relationship management software played a vital role in the employee job satisfaction.

Our ndings show that if employees have a superior way to get better connected to the client then

employees felt more connected to the company. Software that helps employees understand theclient better, get closer to the client and stay connected with the client gave them more satisfaction

in their jobs because they were making meaningful connections to real people who the employees

were able to help in better more personal ways. Additionally, Pennsylvania State University has

conducted research on technology and its eects on employee satisfaction, performance and

inuence. Their overall results were the following: The results indicated that technology created

interdependence among workers and were strongly related to contributing to autonomy among

employees thus signicantly increasing job satisfaction.

was viewed in these rms was important, too.In every company today, we have two importantelements to technology: hardware, which is thecomputer, printers, scanners, copier, monitors,iPads, smart phones, etc; and software, Windows7, Oce 2010, the Customer Relationshipsoftware (CRM), the portfolio managementsoftware, the nancial planning software, etc.Te P4 rms had two primary goals with regardto their technology. First, they invested in thebest hardware, ensuring that computers, phones,printers and iPads were new, cutting-edge andup-to-date. Hardware, regardless of conditionor obsolescence, is replaced every two to threeyears. Slow functioning and old hardware wasunacceptable to P4 rms, and while it was stilloperational, faster hardware was embraced andupdated often.

Software on the other hand was a little dierent.P4 rms took the time to research new software

programs and implement solutions that tthe culture of the rm, their procedures, the

employees, and most importantly, getting theemployees connected to clients. Instead offocusing on always having the greatest, best, mostup-to-date software, they focused on getting themost use out of the software they had. Tey tookthe time to pick software that worked for therm, fully trained employees to use it, and thenensured it was used to its full functionality. TeNon-P4 rms tended to do just the opposite.Tey would invest very little in hardware, makequick decisions on software, changed softwareprograms frequently, and then spent very littletime training employees on how to use it.Ten, by the time employees had learned thenew software on their own, they would changesoftware again, some of which just would notrun smoothly on their dated hardware. Tebottom line: P4 rms that were strategic abouttechnology hardware and software purchasescreated highly productive, great employees who were connected to their clients. In turn, this

strategy ultimately determined the rms overallsuccess and their ability to retain top talent.


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P4 PART IV CONCLUSION | 28

PArT Iv Th Cncin: unxpctd rt

he law of unintended consequences doesntonly apply to negative results: As youll

see below, the application of P4 Principles toadvisory rms was also benecial in ways wehadnt anticipated. As is often the case with ideasand research that are more far reaching thanthe creators realized, the benets of applying

the P4 Principles went far beyond our originalexpectations. As it turns out, the success of theP4 rms resulted as much or more from resultsthat we hadnt considered as they did from those wed hoped for and discovered. Te primaryadditional benets of P4 include a reduced needfor traditional management by the owneror managing partners, a vast reduction in theimportance of the hiring process, shortenedtime required for new employee training,

elimination of the annual reviews, solvingchronic NextGen communication problems,and creating a strong sense of teamwork amongall company employees.

elIMINATe eMPloYMeNT revIews

After evaluating the P4 data, I thought about whether I (in my role of consultant), and thebusiness owners themselves actually treatedemployees now at P4 rms dierently than wedo employees at the other rms. Ive concludedthat we do: not out of any predetermined plan,but simply because they are much easier tomanage. As weve seen, P4 rms have far feweremployee problemsthe employees knowtheir jobs, understand how they contribute tothe success of the rm, look for other ways tomake the rm better, and tend to do the best

job they can because they have the P4 humancapital management structure in place to guide,to motivate, and to manage them.

Consequently, we have now stopped doingemployee reviews at P4 rmswith theexception of a 90-day performance review for

all new employees. For one thing, we dont havemerit raises (a bonus based on individual goals) tocalculate, because thats built into their revenuebased bonuses. Every year, we simply ensure theirbase salary is fair based on their position in thecompany, the size of the rm, and their region,and let the bonuses do the rest. Whats more,because the employees are highly motivated todo a good job, they almost always do a good job.Tey dont need or ask for feedback, direction,

or guidance. If anything, the information tendsto ow the other way at these rms, with theemployees constantly making suggestions abouthow things could be done better.

At rst, we stopped doing annual reviews on thegood employees, since they obviously didntneed them. Ten I realized that at my P4 rms,all the employees were good, and we stoppeddoing reviews altogether. I had one employee askto have an annual review, but she got tired ofhearing how great she was doing and droppedit. Occasionally, Ill get a new client who insistson doing annual performance reviews, but aftera year or two of having nothing to talk about inthose meetings, they have dropped them, too.

Also, I realize now there is a certain degree ofpsychology behind performance reviews. I have

T


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found, in the Non-P4 rms that employees wantperformance reviews for two reasons. First, theywant to build a le for themselves because theyknow they are going to look for another jobsomeday and would like to share the results (ifgood) with their future employers. Second, atsome level they know they are not doing thebest job they could, but dont know whethertheir owner/boss perceives it. Point is, whenemployees know they are doing a good job, they

dont need validation from their boss to proveto themselves that what they are doing is good.Teir praise is coming from within. Its thosewho know they are not performing to the bestof their ability who need praise from the outside. And when communication channels are wideopen, P4 employees know exactly where theystand with the boss, and other employees.

THe HIrINg MYTH

When it comes to hiring employees, virtuallyevery owner Ive ever known wants to hire astar: some youngster with a resume that willknock yourand theirsocks o. Tat strategyalmost always turns out to be a big mistake.Heres why: When small business owners hirestars, they expect them to hit the groundrunning, to come in and start making signicantcontributions to the rm almost from day one.But all companies are dierent; their culture is

dierent and so are the ways they deliver adviceto their clients. Expecting a new employeeeven a starto gure out how to work withina new rm in a short period is almost alwaysunrealistic. Consequently, the star is set upfor failure right from the start. When they dontlive up to those unrealistic expectations, theyreusually met with disappointment, and often,

considerable criticism. It can take even the mostresilient employee to overcome that, and even ifthey do, it can take years.

When less than stellar employees are hired,the owners typically allow them more time tobecome acclimated to the rm. Simply, theirtolerance for mistakes with the new employee ishigher, and more importantly, the owner spendsa lot more time training them to do the job they

were hired to do. As weve seen, how rm ownerstrainor dont trainnewly hired talent withintheir rst three months will determine not onlytheir job performance throughout their tenure,but their ability to contribute to the success ofthe rm, and often, will determine the success ofthe rm itself.

elIMINATe NeXT geNerATIoN eMPloYee

CoMMuNICATIoN ProbleMs

In my experience, many of the problems thatarise between younger employees and olderowners come from a lack of open communicationbetween the two. By truly preparing anemployee through eective training programs,next generation employees are encouraged toask questions, share observations, and makesuggestions from the outset of their employment,so many of the traditional frictions simply dontarise. Whats more, a relationship that is based on

support rather than criticism smooths the wayfor open communication, which was evident inthe vastly lower number of complaints P4 rmshad from their employees. Finally, the focus thatP4 rms have on a exible work environment,and providing cutting edge technology goes along way to winning the hearts and minds ofyoung people everywhere.



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CreATINg A TeAM ATMosPHere

By allowing employees to take responsibilityto learn their jobs and to do their jobs, wevefound that they tend to reach out to each otherto a far greater degree than in a typical oceenvironment. Whats more, the revenue-basedbonus gives all employees a stake in the successof the rm, which translates into an increasedinterest in the success of the other employees.Te result is a cooperative environment in

which employees are highly motivated to worktogether: helping, training, and even supervisingeach other. Not only does this greatly reduce themanagement burden of owner/advisors, but asit turns out, vastly reduces the amount of timeowners need to spend in the oce, while vastlyincreasing overall employee productivity.

eMPloYee burNouT

For all the great things P4 principles do forcompanies that implement them, they do havea few negative results for employees and ownersalike. As I mentioned, often the biggest problemthat P4 rms have with employees is burnout:P4 employees love their jobs and the people theywork with so much they tend to work too longand too hardeven with all the lifestyle perksand exible working hours available to them.Its a good problem to have, but managers and

owners still need to address it. Encouragingand forcing, if necessarytime o not onlyhelps the employee but it prevents one otherserious problem we uncovered.

Te second problem can be employees gettingtoo close. Since employees at P4 rms oftenmanage themselves, they also frequently spend

a great deal of time managing and connectingwith each other. Tis type of connectivity createsa strong bond and team atmosphere, which isa great thing. But, if you take this bond andcombine it with employee burnout the result canlead to an emotional aair. An emotional aairis an aair of the heart, when two employeescreate a bond so strong that they start imaginga life together outside of work. Tis is oftenan illusion that two employees create in theirheads, believing their personal lives with each

other will be just as great and supportive astheir connection within the work environment.Emotional aairs can lead to full blown aairs, which are very dangerous to a business anddestructive to a highly productive team, becausethey create secrets and favoritism, and they canadversely aect employees home lives, whichvery often has an eect on their work. P4 rmswere twice as likely to have employee burnout,and we also uncovered a number of emotional

aairs within these rms. o help avoid theseproblems, a rm owner needs to be sure thatemployees take enough time o to spend withtheir families. By oeringand enforcingtheLifestyle Six, a balanced home and work life canreduce the need for employees to seek additionalemotional support at work.

owNer guIlT

Finally, one of the most interesting andunexpected outcomes of our P4 research is theguilt trip that some owners and partners putthemselves through on an almost daily basis.Tink about it: Owners are trained (or atleast led) to believe that the harder you work,the greater your results; Te more you lead ormanage, the better your team; Te more you



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are out rainmaking, the more your business willgrow; Te more you reinvest in your company,the more you will get out of it (which translatesinto; the more owners income you defer, thefaster your rm will grow), and nally, themore eort you put into the hiring process,the better your employees will be. Owners havebeen hearing this traditional management jargonfor decades. Its ingrained in their heads, so inmany ways, the P4 strategies, and their results

violate the work ethic that many owner/advisorsbelieve to be true about managing.

As a result, when my P4 rm owners watchedtheir owners income double, their growth ratesand prot margins soar, while their workloadand time in the oce decrease by half, simply byimplementing an inexpensive and uncomplicatedfour-point structure, they started to feel guilty.Tey reached every goal they wanted to achieveand to that end, they experienced the emotionalequivalent of disbelief. Frankly, it wasnt untilI started sharing with them the results of thisresearch that they began to let the guilt go, and

started believing in something dierent thanthey were taughtthat traditional managementtheories in todays business world are certainlyawed, and in some cases they are just wrong, atleast for advisory rms.

Te message of our P4 research is abundantlyclear: Businesses that prepare their employeesto succeed, tie employee compensation tothe success of the rm, create a exible and

supportive work environment, and supply thetools necessary for employees to excel at theirjobs, create great employees, who in turn, creategreat businesses. Building a P4 company is allabout owner/advisors forgetting what theyvebeen taught about how to manage in the past.

Te P4 Principles are simple: All they requireis that rm owners come to terms with the factthat what and how they implement employeeprogramsnot how they manage or recruitemployeesdetermines whether their employeeswill be great employees and whether their rmwill be a great rm.



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