Welcome back to the 117th episode of Financial Advisor Success Podcast!
My guest on today’s podcast is Josh Patrick. Josh is the founder of Stage 2 Planning, an independent RIA in Burlington, Vermont that specializes in working with small business owners.
What’s unique about Josh, though, is the way he’s been able to leverage his own personal experiences as a small business owner, before transitioning into financial planning as a second career, to create a deeply specialized advice process for small business owners and command retainer fees in excess of $50,000 a year from his clients.
In this episode, we talk in depth about exactly what Josh does to earn monthly retainer fees of $4,000 to $5,000 per month from small business owners, the 5 core areas that he advises them on, including setting clear values and culture, becoming operationally irrelevant in your business, learning how to really delegate effectively, how to set up effective business systems, and how to divide up the profit of the business into cash flows for lifestyle, emergency funds, business growth, and a retirement plan, and the way he’s made his expertise known through a combination of blogging, podcasting, and public speaking to create a steady flow of small business owners who seek him out and are willing to pay his fees for the value they perceive.
We also talk about how many of these same business management principles map onto the business of being a financial advisor as well, where most financial advisors hit the ceiling themselves by failing to apply Josh’s 5 principles of effective business, Josh’s strategy for advisors to differentiate their firms while not making the firm too reliant on any one key employee or advisor, how advisors can create a guarantee that reduces a prospect’s fear of signing on but without running afoul of regulators, and how most experienced advisors could apply a version of the 80/20 rule to their own practices to make themselves significantly more financially successful while simultaneously lessening the demands of the business on themselves.
And be certain to listen to the end, where Josh talks about the biggest challenge that he sees most financial advisors struggle with, the inability to delegate key tasks in client relationships, and how to overcome it by recognizing that in the end, even if team members make mistakes, there’s still crucial learning opportunities, especially since the truth is that in the end, clients will rarely actually leave over a single mistake anyway, and whether they do or not is primarily a result of how the firm handles the mistake, not the mere fact that it happened in the first place.
What You’ll Learn In This Podcast Episode
- How Josh got his start in the industry. [12:43]
- How Josh’s business is structured and what they do [21:57]
- Why he says a privately held business and an MBA should never be in the same place. [24:36]
- Josh’s five principles of effective business. [29:10]
- The four areas of profit business owners need to pay attention to. [38:48]
- Josh’s value proposition for his clients. [56:58]
- Where his clients come from. [1:09:48]
- What most advisors are missing. [1:13:48]
- The biggest challenge a wealth management firm has in trying to become a real business. [1:22:52]
- What he wishes he had done differently. [1:33:30]
- What comes next. [1:37:46]
- What niche management is really about and the best way to get business. [1:41:37]
- How he defines success. [1:44:37]
- How advisors can create a guarantee – without running afoul of regulators. [1:00:45]
Resources Featured In This Episode:
- Josh Patrick
- Stage 2 Planning
- The Sustainable Book by Josh Patrick
- The Sustainable Business
- Sustainable Business Podcast
- Traction by Gino Wickman
- Certified ScrumMaster
- Sudden Money Institute
- Pinnacle Advisor Solutions
- Private Capital Markets
- 7 Habits of Highly Effective People by Stephen Covey
- Stu McLaren
- Profit First: Transform Your Business from a Cash-Eating Monster to a Money-Making Machine by Mike Michalowicz
- The Trusted Advisor by Charles Green
- Deming’s Fourteen Points
- Year of Yes: How to Dance It Out, Stand In the Sun and Be Your Own Person by Shonda Rhimes
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Michael: Welcome, Josh Patrick, to the “Financial Advisor Success” podcast.
Josh: Thanks, Michael. I appreciate being here.
Michael: I’m looking forward to the episode today because you have, I think, a very interesting, I call it niche advisory business in our world, of working with small business owners. And I feel like a lot of advisors in our industry say they work with small business owners, but, you know, that was essentially how I started in the life insurance world. But working with small business owners really just meant, we’ll sell you the life insurance for your buy-sell plan whenever you need that. Like, that was the angle. That was the way in. Like, I didn’t know anything about business consulting or how to make a business work or how to really sell it or exit or anything else, but, like, when you were ready to have that buy-sell conversation, we had the coverage for you.
And you are very much immersed in actually talking to small business owners and running an advisory business around those conversations. And so I’m excited just to talk about what you’re doing and what it looks like and maybe how it’s a little bit different than what we traditionally do in financial planning firms.
Josh: Sure. Yeah. My background is a little bit different than most people that get into an advisory business. This is a second career for me.
Josh: My first career, I owned an operating business that I grew from 1 employee to 90 employees, and it was in the wonderful world of vending and industrial food service. We fed people who worked in factories. And I started that business when I was 24 and made about every mistake that could possibly be made by a young business person, starting with the worst thing that can ever happen to a 24-year-old going into business.
Michael: Which is?
Josh: I was really successful for my first two years.
Michael: Oh no. Just take all that possible overconfidence bias and just pile it on.
Josh: Oh yes. And I did it in spades. And then reality coming…after that first two years, I thought my great success was because of my fabulous business skill. The truth was, I was just lucky. And then reality set in, and then two years later was on the precipice of bankruptcy because I didn’t know how to read a cash flow statement. I have a degree in American history. And degree in American history teaches you how to think critically, write critically, and read critically, it teaches you nothing about running a business.
Michael: Right. Likewise. I enjoyed my liberal arts degree very much, but high on the critical thinking skills, low on the practical application.
Josh: Correct. So, I could read a profit and loss statement because that was sort of self-explanatory, I could sort of understand a balance sheet, but I had no idea how to read a cash flow statement. So, because we were so successful, we were growing at a huge clip, and I bought over $1 million in vending machines for 3 years in a row. Now, vending machines don’t show up on a profit and loss statement.
Michael: Right, because you’re buying hardware. You’re buying equipment.
Josh: Right. It’s a depreciation of equipment, which goes into your balance sheet, and the actual expenditure for those vending machines, you have the cash coming in from borrowing and the cash going out for buying the vending machines. Well, the banks weren’t funding 100% of those vending machines. So I didn’t realize it, but my payables went from 30 to 45 to 60 to 90 to 120 days, and then the phone calls started. And the phone calls essentially were, “If you don’t pay us in the week, we’re shutting you off.” And shutting me off would have put me out of business. So I had to learn to be very creative very quickly. And on top of that, during that period, I had an embezzlement going out with my controller.
Josh: So when I say every mistake that could be made I’ve made, I’m not kidding. Oh, and on top of that, I was arguably the most arrogant worst boss that ever existed. I took personal responsibility for nothing, and I blamed my employees, and I yelled at them almost every day because they were such idiots. Now, the truth was they weren’t idiots, I was the idiot.
Michael: But somehow the business survived miraculously.
Josh: Well, yeah, because, well, you know, if you own your own business and you have a personal guarantee and you’re staring at a couple of million dollars in debt, you have to get creative pretty quickly. Otherwise, you’re economically ruined.
Michael: Right. I guess that’s part of why they do that whole personal guarantee thing. Like, you may or may not really be able to make good on it, but it is very motivating to not actually have to declare bankruptcy and prove a point.
Josh: Right. And on top of that, I was in the same business as my father, and my father kept thinking I was a big shot and would tell me that every time he got a chance.
Michael: Just to build that young male self-confidence thing even further.
Josh: Yeah. Well, he was kind…that’s a different story altogether. But the truth was, there was no way I was going to let my business go out so he could say, “I told you you’re an idiot.”
Michael: And so, it does make an interesting point of just that distinction around business that I think we barely experience in the advisor world. Like, just the difference between a profit and loss statement and a cash flow statement, because for most of our businesses, they’re pretty much one and the same. We don’t do a lot of finance transactions and capital transactions in the advisory world because we get our revenue in, we pay our staff, it goes right to the P&L, and that’s that.
Josh: We don’t have receivables really except for a quarter, and it comes in in one check from, you know, your custodian or wherever yours is coming from. You know, the wealth management business is a really simple business. There aren’t many moving pieces to it. When I compare wealth management to a blue-collar business, like a construction company or a vending company or a manufacturing company, there are a zillion moving pieces that make the business much, much, much more complicated. Also, in wealth management business, a 10-person firm can easily make 1.5 million bucks a year. And the profit margins in wealth management are obscene compared to the rest of the world. You know, my best year in the vending business was 5.5% bottom line
Michael: Five and a half percent is the margin. Like, that’s awesome because you got the half. It wasn’t just 5%, it was 5.5%
Josh: I mean, my average year was 2% or 3%.
Josh: I only know of one vending company in the history of the vending business that had over a 10% bottom line.
Josh: And that’s true for most distribution, most manufacturing, and most construction, is to just… So to make $1 million, you’ve got to be doing 15 million, 20 million bucks a year, whereas in the wealth management business, to make $1 million, if you’re doing $3 million or $4 million in top-line, you’re going to have at least $1 million in your bottom line.
Michael: That’s an interesting way to put it. If you sort of take profits back into margins to get to top-line revenue, just to say, you know, when advisory firms run 25% margins or higher, some do 30%-plus, $3 million or $4 million of revenue is enough to bring $1 million of profits to owners. But when you run a 5% margin, like, you need $20 million of revenue.
Josh: Right, to be the same place.
Michael: In a world where I guess, you know, and I’m imagining just, you’re doing…when you’re doing a lot of that work, you know, vending machines and the like, you know, you’re not exactly running the other nice part of our advisory business, which is, “Oh, one client, like, oh, that’s $5 grand a year or $10 grand a year or $15 grand a year,” right? Like, I don’t even need a huge number of clients to actually get sometimes to a couple of million dollars of revenue to get to $1 million of profits. Whereas you have to grow and scale and volume up a lot more in most other businesses because you don’t get the same kind of average revenue per client or per customer that we do in our business.
Josh: It sort of depends on the business. We did in our vending business because we fed people in factories. You know, our sweet spot was 200 to 1,000 employees.
Michael: Okay. So if you can get in front of that factory and get a contract in the first place, like, that’s a lucrative contract.
Josh: Right. And we would often have cafeterias in there and vending machines. You know, to do $15 million today, my business when I sold it in ’95 was doing $6.5 million. That’s about $15 million in today’s dollars. And I had 90 employees to get there.
Michael: Wow. All right. I’m just fascinated by that. So when you sold the business at $6.5 million of revenue and 90 employees, whereas in our advisory world context, $6.5 million of revenue, you’ve probably got 15 employees, maybe 20 if you’re a little staff-heavy by industry standards.
Josh: Yep, that’s about right. And by the way, that $6.5 million today would be $15 million in my vending company today, because I sold my vending company in 1995, so inflation. You know, we were selling candy bars for 50 cents back then, now they’re a buck and a quarter.
How Josh Got His Start In The Industry [12:43]
Michael: Interesting. So you had kind of a full career cycle of building this business, running this business, selling this business. So how did you end out in an advisor world advising people with businesses like this? It’s just one of these like, “Wow, I did it and that was horrible, and I wish there were more people that knew what I wish I knew, so I’m going to go do that and teach all the other people what I know.”
Josh: No, that’s not how this stuff ever happens.
Michael: Okay. Yeah, I’m assuming not. So how did you get to this world?
Josh: Well, I sold my…when I was selling my business, I was 44 years old. I knew I wasn’t going to be able to retire, so I had to figure out what’s next. Nor did I want to retire. So I looked at opening a software company and then I would have to deal with software and engineers, which would have been terrible. I looked at doing public speaking as a career because I did a fair amount of it and I didn’t want to be on the road all the time. And I happened to have a great life insurance agent and I really liked the way she sold her product. So I said, “Hmm.” So I called her up, and she was with, you know, one of the large mutual companies, and I went through the interview process. She said, “Well, this will be fun.” So I went into the life insurance business, and I rapidly learned that if I wanted to service my target market, which are private business owners, they need this stuff besides life insurance. But lo and behold, the life insurance company I was working with didn’t want me to do anything besides life insurance.
Michael: Right. Well, and it’s worth reflecting, particularly then, in today’s world, it’s fairly common for insurance companies to have a broker channel as well and get a fairly wide product shelf and you can do a whole bunch of different stuff, but back in the ’90s, I was starting the tail end of that as well, like, you came in for life insurance, you only did life insurance. Like, if you hit a certain level of production, 10 years of experience, maybe someone would deign to allow you to do something beyond just the company product, maybe.
Josh: Yeah. And they didn’t like what I was doing at all because I was…you know, they would teach us, say, “Well, ask for 15 minutes.” And I’d go into a business owner’s office and two hours later, I’d walk out, because I knew how to talk to these guys. And it wasn’t like, “Okay, you harangued me enough,” I actually brought value to the conversation because I understood what their issues were and how to talk about it. So after two years, I left the life insurance business. I didn’t leave the life insurance business, I left the life insurance company and opened my own wealth management firm. Which allowed me to open up outside business activities, and I ended up doing a lot of business consulting along with wealth management for our business owner clients.
Michael: Okay. So help me understand a little bit more what this transition looked like. Like, were you…did you go to a broker-dealer? Did you launch an RIA to do this? Because you said you were still holding on to some life insurance business as well. Like, what did you structure to try to create?
Josh: I joined an insurance producer group and joined their broker-dealer.
Michael: Okay. And I guess they were at least willing to allow you to have this outside business activity where you were going to start doing the consulting stuff.
Josh: Yeah, they were actually quite good about it. You know, they let me do stuff that a traditional broker-dealer would cringe at. I mean, I’ve had a blog for over 10 years. I’ve written over 1,200 blog entries.
Michael: That would have been very kind of avant-garde cutting edge for a broker-dealer even 10 years ago.
Josh: Yes. So I’ve been blogging for a long time. I ended up being a blogger for “The New York Times,” they let me do that. I started doing some seminars, they let me do it. They let me basically do whatever I wanted, as long as my outside business activities didn’t talk about investments or insurance.
Michael: So that was the dividing line. Just as long as you want to do your business consulty thing and don’t cross our product line, because then we have to look at everything you do and slap your ass, like, just don’t cross that line, you can do what you want in your outside business activity around consulting. And I guess essentially then you said your New York Times column and your blog and all the rest, like, those aren’t advisory things, those are outside business activities.
Josh: Right. And all the revenue that I got from my advice business ran through their RIA. So they got their cut.
Michael: Okay. Including consulting fees?
Josh: Yeah, consulting fees.
Michael: So effectively, it was really only your…I guess, like, your writing persona was entirely outside, but then the advice that stemmed from it still came back in under the RIA?
Josh: Right, but they never looked at what I did. They just took the piece they took.
Michael: Right. And I’m sure it was very cost-efficient for them.
Josh: It was very cost-efficient for them. Well, they kept telling me they were losing money on me.
Michael: Right. Now, you’re talking about it in past tense, I’m presuming eventually there was some subsequent transition?
Josh: Yeah. Two years ago we left the broker-dealer world and opened up our RIA-only firm.
Michael: Okay. And what led to that transition?
Josh: The broker-dealer was sold to another private equity group. I looked at the underlying portfolio what the private equity guys were doing and it was a bunch of scummy companies like payday lenders and things of that nature. And I said to myself and the other people in our firm, I said, “We don’t want to be here because eventually, they’re going to start forcing this junk down our throat.” And we were really…you know, we were at that point 90%, 95% fee-only anyhow, so we might as well open our RIA up and leave the broker-dealer world. And you even have more flexibilities in our RIA by a long shot than you do in the broker-dealer world. So it was an easy decision for us, it just took a couple of…it took a long time to get there.
Michael: Because, just, of building your own systems, of, like, transitioning your revenue model so you didn’t need the business you were doing there?
Josh: No, I was convincing the other two folks in our firm that this was a good idea.
Michael: The choice of business ownership.
Josh: Well, you know, I kind of believe that the wealth management world works best, in fact, all companies work best when everybody is on the same page. So if it takes a little bit longer to get everybody on the same page, I highly recommend doing that. You know, I’ve been reading a book a week since I was 19 years old, and there’s a book called “Traction” by Gino Wickman.
Josh: And I highly recommend that book. Highly recommended. Because, you know, Gino Wickman talks about getting everybody on the same page. And it’s a big deal to do that.
Michael: So for folks who are listening or curious, you know, this is episode 117 of the podcast, so if you go to kitces.com/117, we’ll have a link out to Gino Wickman’s “Traction.” I will highly recommend it as well. I read it a couple of years ago. It was very transformative from my look at business and how I run some of my businesses. And we’ve actually been implementing some of their tools in some of our businesses over the past year.
Josh: Yeah, they have great tools. And the great thing they have is the concept of the visionary and the implementer, which I think is just a really important thing, is that too many businesses, and this is one of the issues in the wealth management business, is that most wealth management firms I see are full of implementers and have no visionaries. So that visionary role is a really important thing. I mean, it’s a role I often play for clients, is I play is that of “rent a visionary.”
Michael: Yeah. And, you know, whereas I…you know, Gino’s book struck me because I realized like, I live in a world of almost pure visionary. You know, they have some assessment tools and like, you know, how much do you lean towards visionary or an implementer/integrator type, and I’m like, I scored one point shy of the maximum on the visionary side. Because there are some questions like, I guess, the most extreme visionaries will bulldoze the rest of their team and not even…and, like, ignore what input or feedback they’re getting. And I actually take feedback from my team. So it was the one area where I didn’t score the maximum.
Josh: And if you’re a visionary you don’t take feedback from your team, you’re headed for a disaster.
Michael: But it was powerful for me of just realizing like, “Oh, I’m one of those people that just sees all these visions of opportunities, well, you can actually go find people that just like doing all the integration, implementation stuff that follows.” Like, “Great, I’m going to get me one of those.” And now I’ve actually gotten several that I’ve worked with for a lot of our businesses.
Josh: Yeah. And if you don’t want to have them in-house, you can go down the virtual assistant path, because that world is a really interesting world these days.
How Josh’s Business Is Structured and What They Do [21:57]
Michael: So talk to us a little bit more about your advisory firm itself. I mean, you’ve said you’ve gone through a couple of iterations and evolutions of it as, you know, the licenses and the channels have changed, but just, what is the business itself?
Josh: The business itself is actually…it’s a very small business. I mean, we don’t really have…we don’t have a huge book of business. You know, we’re up in Burlington, Vermont, and I would say Burlington, Vermont, probably the wirehouses have 85% to 90% of the market. And, you know, it’s just is the nature of the beast is that the amount of wealth in the state is not huge. People who have significant wealth tend to use Morgan Stanley because they have a really good team in town and know how to do that, or they’re going out of state because they don’t think they can get the sophistication they want in town. So my personal practice is very small. I don’t have a lot of clients, but I have a lot of high-touch with the clients I have.
Michael: Okay. And so, what does that look like? Like, what’s the model? What do you do for clients? How do you deliver it? How do you charge them?
Josh: I charge an AUM fee if I manage money, but I also go to clients and say, “I will provide all the financial advice you want on a flat fee and we are taking all products off the table. In other words, you don’t use me for investments, you don’t use me for insurance. I will consult with you to get the right person to help you with that, but it’s not going to be me.” And a surprisingly large number of business owners choose that path with me because they want complete independence.
Michael: And so, like, you literally give them the choice? Like, “I can advise with you, but you also have to put assets with us and here’s what it costs,” or, “I can advise with you and I’ll charge you a separate flat fee, and then you’ll go elsewhere, which means you might even have to pay someone else to do that stuff on top of my fee, but at least I’ll be independent.”
Josh: Right. Yeah, that’s how I do it. And I would say about 50/50, about 50% of my clients just pay me a fee, 50% of my clients will pay me an asset management fee, but that 50% also might be paying me a consulting fee if I go past the normal asset management work.
Michael: And what are typical, I guess, either fees or account sizes? Like, what’s typical for the size and scope of an engagement?
Josh: None of my investment clients have less than $1 million with me. And my one-on-one consulting fees where I do intense work one-on-one with people is between $4,000 and $5,000 a month.
Michael: Four and $5,000 a month?
Josh: A month.
Michael: That’s a big number.
Why He Says A Privately Held Business And An MBA Should Never Be In The Same Place [24:36]
Josh: It’s a big number and it’s big value. Let me give you an example. One of the clients I worked with when I first started working with them was doing $140,000 a year. When I left working with them 15 years later, their profits were $2.4 million a year. So yeah, they’re paying me a lot of money, but they also are getting a lot of return. Another one of my clients, we worked together, we sold the business to a private equity firm, five years later we turned around and bought the business back from the private equity firm for half of what he was paid.
Michael: Well, I guess buy low, sell high. Like, he did that in reverse.
Josh: Well, he sold high and bought low.
Michael: He sold high and then bought back low.
Josh: Yeah, back low. Actually, it’s one of my favorite things to do because private equity, you know, they tend to use discounted cash flow to value businesses. And if you have a 20% growth rate for 3 or 4 years, the private equity guys think that goes on forever. And that’s what they use for the growth factor in their discounted cash flow analysis. So they’re overpaying for the business by a dramatic number. So it’s a way to actually position your business to be sold to private equity for a dumb number. And then if you have a way of sticking around for five or six years, you can often buy the dog back.
Michael: Just because eventually, growth rates come back to earth, right? I guess that’s…I mean, it’s not even necessarily that you’re doing a bad thing, it’s just the business gets larger, at some point, it’s really hard to keep the same growth rate because the denominator gets smaller.
Josh: Well, they can’t keep the growth rate, but also, private equity tends to load up their portfolio companies with a lot of stupid expenses and stupid rules. And the big private equity guys know what they’re doing. The little private equity guys, as a rule, don’t. They think they do because they’ve got, you know, nice business degrees, but the truth is, a privately held business and an MBA should never be in the same place.
Michael: That’s kind of a harsh statement. A privately held business and an MBA should never be in the same place?
Josh: I will tell you that I have never seen a business with under $50 million in sales where the MBAs don’t have to be retrained to lose all their MBA training and understand that that business has limited resources.
Michael: So the problem with the MBA is just, it looks great on paper, “This initiative will have a good ROI.” We just keep spending resources for ROIs and then not everything turns out as expected and…
Josh: The MBA training is, we’re going to give a simple problem and make it complicated. And in a private business, you have a complicated problem and you need to make it simple.
Michael: So can you give me, like, an example or just some context?
Josh: Yeah. Well, an example is, you know, let’s talk about discounted cash flow. I’m in a privately held business, I want to buy my competitor. My MBA is going to use discounted cash flow, which is likely going to give me a bad number to buy with. I’m going to look at trailing returns and do some sort of a blend on the last three years and multiply that times some sort of EBITDA multiple. My trailing return EBITDA multiple, I can do at the back of an envelope in five seconds. Discounted cash flow is going to take me hours to do and is going to be complicated, and nobody, I’ve yet to have anybody explain to me how discounted cash flow works and what cost of capital actually means. Now, I get the cost of capital is 35%, 40%, okay, explain to me what that means. And better yet, explain that to a private business owner who has been concerned about manufacturing widgets and not doing finance. So that’s where the challenge comes in.
Michael: And so MBAs are doing all these elaborate calculations of projecting growth rates and making discount rate assumptions so they can try to do the cash flows, and the private business owner just comes and says like, “You’re doing $1 million in profits, I’ll give you a couple of times that. I’ll pay it back over a few years. I can do the math to it.”
Josh: Yes, basically, that’s it. And the private business owner will put all sorts of contingencies in there because they know, after they bought a couple of businesses that they don’t, it’s likely to fail. You know, I’m not opposed to the education part of it, it’s the complication part. You know, business is basically a pretty simple thing. You don’t need to make it as complicated as we do.
Josh’s Five Principles Of Effective Business [29:10]
Michael: So talk to us more about what this advice process or value proposition looks like, where you’re charging these ongoing consulting retainers and giving business owners ongoing monthly advice.
Josh: Well, essentially, what we do is we look at, you know, five areas of a business. We look at, do you have clearly articulated values for your business? In other words, what are the values that you run your business by? All businesses have values, all businesses have culture, most business owners have never bothered to take the time to articulate what it is. And by doing that, you’re giving yourself a tremendous amount of tools to help run your business with. You know, for example, for me, any business I’m involved with, personal responsibility becomes a core value. The other side of personal responsibility is I’m going to blame you for my mistakes or I’m going to justify my behavior.
So in my food service company, we used to have to say, are you above the line? Which is personally responsible. Are you below the line? Blaming and justifying. Now, because we had that solid value, it was easy for us to look at performance and say, “Where are you?” And if you’re below the line, what do we need to do to get above the line?
You know, I tell the story a lot. I had a commissary person. Our commissaries made our food for our vending machine. They made 14,000 units a week that we sold through our vending machines.
Michael: Wow, that’s a lot of food production.
Josh: Yeah, it was a lot of…you know, it was a sort of a complicated business. As I’ve said, you know, wealth management is simple, you know, the other stuff is not. And I went in there and I saw Tanya, and Tanya was making these sandwiches and was the worst garbage I ever saw in my life. So I went up Tanya and said, “Tanya, what’s up with those sandwiches?” And one of our sayings was, if you wouldn’t eat it yourself, don’t serve it. So I said, “Tanya, would you want to eat those sandwiches?” And she said, “No.” And I said, “Okay, why are you making them like that?” And she’s now studying my feet very intently, by the way. And she looks at me and then she’s looking at my feet, said, “Well, you made me do it because you had made me do it fast.” I said, “Tanya, I just walked into the facility, how could I have made you do this? You’ve been doing this for the last hour.” And then she looks across the room to our manager who was wrapping sandwiches and she said, “Well, she made me do it.” I said, “Really?” And then she, “mmmrph, mmm, mmmph.”
We went on this for about 10 minutes. And then after I kept at it, and I usually would come in and start screaming, but for some reason, I decided to ask questions. And after doing this for…asking questions about 10 minutes, she stopped studying my feet, her physiology completely changed, and she straightened up and said, “Well, I guess it was my fault.” I said, “Okay, now, what are you going to do about it?” She said, “Well, I’m going to remake them.” From that point on, she went from being a marginal employee to being one of my best employees. So that’s taking the values that we had as a company and using them as a tool. So we do that.
The second thing is, is that, to build a business where you’re successful, in my opinion, and this is one of the real challenges in the wealth management world, is you have to become operationally irrelevant in your business if you want to ever sell your business for real value. Because a buyer doesn’t want you, they want your cash flow, they want your systems, and they want your people. They don’t want you. They’ll tell you they want you, but they really don’t. That’s one of the great lies. So you need to become operationally irrelevant. Well, to become operationally irrelevant, you need to become a delegation ninja, which you need to be really good at delegating. Now, the problem with that is everybody I’ve ever met, when they first try to delegate, they are a total abject failure.
Michael: I was certainly guilty as charged when I started delegating. I’m probably only marginally better now, but it was definitely bad early on.
Josh: Yeah, when people first delegate, they don’t delegate, they abdicate, meaning they give a job to somebody, they walk away and never check to see if it was being done.
My first mentor had a great thing called EIA, which stood for expect, inspect, accept.
Michael: Expect, inspect, accept.
Josh: You started off with an expectation, you inspect to make sure you’re getting it, and then you accept the work. Or you go back and reset your expectation. So that’s a really good way to delegate because now you’re checking back in with the person and you’re giving them some support. But when you just abdicate and you walk back and you say, “Well, delegation doesn’t work, I have to do it myself.” And that’s why companies never grow. Most companies never grow past 10 to 15 employees because the owner never learns to delegate. When they never learn to delegate, they’re obviously never going to become operationally irrelevant, which means they’re really killing the enterprise value of their business.
Now, the other thing that goes along with it, as you learn to delegate and as you’re becoming operationally irrelevant, you need to have a dashboard that’s predictive, not historic. Most people, the only numbers they ever look at in their business are the numbers that tell them what happened yesterday, otherwise their P&L and balance sheet. Your P&L and balance sheet are really basically not very useful for running your business. It’s good to look at it and you want to pay attention to it.
Michael: Right. But they’re backward-looking. They pretty much only tell you if you’re out of money you’re already doomed.
Josh: Right. So you need to build a dashboard that’s showing predictive about what’s going to happen in the future. So those numbers never come off your P&L or balance sheet. They’re other things. How many sales calls are your salespeople making? What’s the amount of proposals they’re putting down? What’s the amount of proposals that are closing? You know, in our business, you know, getting new businesses is an activity. It’s a sales activity. Well, are we managing that activity properly, and are we going to be having problems in the future by looking at that?
You know, if I work with a construction company, I’ll be looking at what their backlog is. I’ll be looking to see what their proposal level is. I’ll be looking to see what the percent of proposals or bids to closing happens. And if those numbers start going off in the wrong direction, we usually have 90 to 120 days to fix it.
Michael: Okay. So these are all kind of sales and marketing-heavy key performance indicators essentially. Like, how’s your funnel? How’s your growth funnel doing?
Josh: Right. And how is your operational funnel doing? Are you doing the right stuff to have really happy customers? Are your margins correct? Are you charging the right amount for what you’re doing? You know, when I work with people who start off in the advice business, you know, who are charging…you know, trading dollars for hours, they often think they’ve got 2,000 hours a year to sell. Well, they don’t. At best they have 1,200 hours, but they probably have 800 hours to sell.
Michael: We actually just recently did a study on financial advisory time usage and found the average advisor if you add up just anything remotely client-facing or client-touching ends out just over 50% of their time, about 1,000 hours a year.
Josh: Yeah. So you’ve got another 1,000 hours a year. So if you think your breakeven is, “I’m going to spend…get $100 an hour for 2,000 hours,” you’re…
Michael: Then ain’t going to work.
Josh: …50% too cheap already. So essentially what I do is I help business owners… You know, Susan Bradley from Sudden Money has this great term which I love. It’s called a thinking partner. So I kind of view myself as a thinking partner for a business owner. And frankly, the folks who’re going to pay me $4,000 or $5,000 a month, they’re already making a half a million dollars a year. Somebody making $200,000 a year is not going to be able to write a check for a half a million dollars. So we’ve developed some products now for that group that help them move down the road where maybe they can get to the half a million bucks and they’ll hire me for one-on-one stuff.
Michael: So I’m curious, what are the rest of the areas you’re going through them with? You said setting clear values and culture, becoming operationally irrelevant in your business, building your predictive dashboard.
Josh: Setting up systems to have appropriate systems for your business, and then looking at the…and the systems can be literally everything.
You know, one of the stupid things I decided to go and do is I became what’s called a “scrum master.” And a scrum master is what you become if you learn agile technologies, which is how software is developed today. Now, you may notice that every two or three weeks you have to restart your Google Chrome browser because it stops working. And the reason is Google has just updated Chrome, they just haven’t told you they’ve done it. Because every two or three weeks, they release a new product, and they’re using agile technologies to do that. Now, I help business owners figure out how they can use scrum in all sorts of businesses because it’s a really useful tool.
The Four Areas Of Profit Business Owners Need To Pay Attention To [38:48]
And then the last thing is, which is really a result more than it is an input, which is there are four areas of profit that business owners need to pay attention to. And at best they pay attention to two of them, and they never really fully fund all four areas, so they’re always cash-starved. So, one of the things that we focus on a lot is helping people figure out how to create enough excess cash to have a healthy business.
Michael: So what are these four areas then that kind of bring it down?
Josh: First is lifestyle, because you have to live, second is an emergency fund because all businesses are going to have good times and bad times. And the reason most businesses go out of business is they don’t have the ability to have cash, so you need to have an emergency fund. The third thing is a fully funded growth plan, whatever that is. Businesses are either growing or they’re shrinking. They never stay in the same for a long period of time. So if you don’t have a fully funded growth strategy, which is marketing, sales, whatever you need to do to grow your business, you’re going to have a problem down the road. And the final is a fully funded retirement plan. Because only about 1% of the businesses in this country will ever get the owner to retirement all by itself.
Michael: That’s a striking statistic. Only 1% of businesses will actually get owners to retirement?
Michael: I feel like we kind of hold entrepreneurship up on the pedestal of like, “This is how everybody is supposed to get to retirement.”
Josh: Well, you can do it, but by fully funding your retirement plan, you’re pre-funding your buyout. So if I get you to put enough money away early enough, you’re going to end up… I mean, we have a thing called the Four Boxes of Financial Independence, which is a tool I use. And the two most valuable assets usually for business owners leaving their business is the real estate they run their business in, because they can continue renting it, and their qualified plan. Because if I have a business making $300,000, I’m going to end up with maybe $1,200,000, maybe 1,500,000 when I’m done, and that’s a really big number because most businesses don’t get close to making that much money. You know, there’s 28 million businesses in the United States, only 300,000 do more than $5 million a year in sales.
Michael: That’s kind of a humbling number right there.
Josh: Yeah. So the numbers get really small really fast. And that’s why I say only 1% of the businesses get there without doing other stuff. So the typical business owner will sell their business for $500,000, $600,000, $700,000. If after taxes and fees, and they’re going to lose 40% of that to taxes and the fees, they’re left with 300,000 bucks. Take 4% of that, you’ve got $12,000 a year.
Michael: Yeah, that ain’t getting you very far.
Josh: That’s not getting you very far.
Michael: That’s kind of depressing really fast.
Josh: Yeah. Yeah. But if I have a piece of real estate and a piece of real estate is worth $50,000 and I paid it off because I had been running it for 15 years or so, that’s $50,000 worth of cash flow every year. So my real estate potentially on an income basis is worth four times what my business is worth in retirement.
Michael: It’s an interesting framing to me the dynamic of the power of owning your real estate in your business, you know, because I…I mean, to me at the end of the day, like, wearing my business hat, I will have a rent expense. It’s going somewhere no matter what. It will fund someone’s, you know, building mortgage and build their real estate equity. So I can either send it to someone else, or if I’ve got any financial wherewithal, I can send it to me, and I’ve essentially…you know, the fixed rent cost I was going to have to spend it anyways builds my real estate equity.
Josh: Right. Right. And often what happens is you’ll find business owners will buy the building they operate their business in, and they realize that they like that and they’ll buy other buildings. So they start building sort of a real estate empire to go along with their operating empire.
And then you get to qualified plans and most businesses in this country have less than 25 employees. And the question I often ask business owners is, “If there are no rules, how much money would you like to save for retirement every year?” And whatever number they come up with, there is a plan that fits that. Whether it’s a cash balance, hybrid plan with a 401(k) profit-sharing plan. Or if they’re young, like I’ve got a guy who’s 29 years old, he’s buying his father out right now, we’re going to a safe harbor plan. He’s going to have $4.5 million likely in his retirement plan irregardless of what happens to the business when he gets to 65.
Michael: Right. Because as you were kind of saying earlier, I mean, until you work with really, really large businesses, like, a business even with $10 million or $20 million of revenue and maybe 2 or 3 owners, like, single-digit profit margins for a lot of businesses, there’s probably only a couple hundred thousand dollars of profit per owner. You’ve got to live. You’ve got to fund your emergency fund. You’ve got to cover your growth strategy and the rest. Like just, you’re probably not going to be trying to save all that much more than what you can at least creatively get in some interesting qualified plan designs.
Josh: You know, if you’re 50 years old, I can design a plan that you get 200,000 bucks easily for you. And there’s a fair amount of businesses that create with, you know, five, six, seven employees. There are service businesses that create that sort of free cash flow. So it’s really…you know, it’s kind of a fun thing. If you can work with private businesses and you’re in the wealth management business, I really encourage folks to become experts at everything about qualified plans, because it’s sort of like a magic bullet to do that.
And the other thing I’m going to encourage people in this business to do, stop talking to your clients about the reason to diversify because all their eggs are in one basket. Your clients don’t buy that argument. I can tell you this for a fact. I’ve been around business owners for a long time on both sides of the table, they just don’t buy it. Now, the way to get them to do the qualified plan is say, “You’re never going to be able to stop working unless you have a qualified plan.” And if you have a way to prove that to them. And we do use our four boxes thing. Then they’re going to want to say, “Okay, how can I max my plan out?”
Michael: So you wouldn’t make the case for small business owners to diversify all their business per se. At best you’re just going to try to get them to say, “Hey, take a portion of your profits. You know, you’re covering your lifestyle, you’re covering your emergency fund, you’ve got a growth plan, let’s put the rest aside and just start pre-funding your future buyout in case it doesn’t quite get the number that you’re hoping to get.” And, you know, lo and behold, mathematically you are now diversifying them out of their business with their profits.
Josh: Right. It’s a sneaky way to do it. You know, you have to use the language that the person you’re talking to will buy. And the truth is, most private business owners know more about their industry and their business than you do as an advisor. And if they have any brains at all, they’re going to know when their business or their industry goes south. I mean, I sold my vending company not because I hated the vending business, I sold it because the industry went south on me, and I knew it years before it really got bad.
Michael: Well, and it does strike me, and I’ve watched this play out with both business owner clients and now kind of experience it from the other end as I build businesses myself, you know, just the, if you can create a successful business, and that’s a giant if because as noted, like, many don’t or they never get particularly large, if you can create a successful business, the growth rate and the wealth creation that happens in that business, like, you have a good point, you will never convince someone to diversify out of it. You can’t come close to replicating the wealth creation that they’re getting in their business if they’re building a successful business enterprise.
Josh: I mean, I don’t care what business it is. If I have a business that’s making $5 million a year and I’m able to sell it for 30 million bucks, I’m going to pay, let’s say just for fun, $10 million in taxes and fees, I’m left with $20 million. I’m going to have $800,000 in cash flow, well, that’s that not $5 million, it’s 800,000 bucks. So, you know, I’ve been involved in the exit….you know, the business exit planning world for 20-some odd years and ran across John Brown from Business Enterprise Institute 22 years ago and joined his tribe. And for 22 years I’ve been hearing about this tsunami of, businesses are going to be sold. It hasn’t happened. It’s not going to happen. And the reason it’s not going to happen is two reasons. One, the business owner stays in perma five, which means that they know there’s something wrong that they’re not able to retire, but whatever is going on will magically appear and reveal itself over the next five years and they’ll be able to retire.
Michael: Okay, that’s perma five. That the solution to my business challenge is just a few more years away.
Josh: Right. And if I come back two years later, it’s still five years, two years after that, it’s still five years. Sorry, I named that perma five.
Michael: I mean, frankly, I feel like that’s something we see a lot in our advisory business as well. I mean, I know a lot of young advisors that are in the seventh year of a five-year succession plan that’s now really five years out. Maybe sorta.
Josh: Well, the second reason that people don’t sell their business, now, there are people who can afford to sell and they don’t sell, and M&A people will tell you this happens a lot, is that the business owner starts going down the road of selling their business, and they have that letter of intent that lands on their desk and they stare at it, and they stare at it, and they stare at it and they don’t sign it. And the reason they don’t sign it is because they look over the edge and they don’t see a compelling future. They like what they’re doing.
Michael: The income goes away, the money goes away, my purpose goes away. Like, right now I’m head honcho of my business or whatever it is, after that, I’m just some dude or dudette who sold a business and doesn’t do anything now. It creates identity crisis.
Josh: Yep. I mean, when you sell your business, you’re going to have seller’s remorse. I used to think I could help people avoid it. I’ve now come to the conclusion I can only help people manage it. Again, Susan has got this great model for change, which is, we start with the anticipation, we go to an ending, we go through passage, which is really messy, and then we have a new normal that finally happens. Now, the problem with business owners is business owners live in anticipation forever. They think about selling their business for years and years and years and years, and as a result, they think they’ve actually done the planning to what they need to do because they thought about it. So when I go through that with a business owner, they’ll often say, “Oh yeah, I get that. That makes sense to me.” So it’s a kind of an…it’s a really important model, in my opinion. And passage is where seller’s remorse happens, because you’re going from one state to another.
You know, when I sold my vending company, I would be getting, on a weekly average, 7 to 10 calls from people wanting to talk to me about stuff in the business. The day I sold my company, the phone stopped ringing. And my first meeting at that…first time I went to that insurance meeting where nobody knew me, nobody cared about me, nobody wanted to talk to me was a very, very, very lonely day, because I was a big deal in the vending business.
Michael: Right up until you sold and then you weren’t.
Josh: Then I was nobody.
Michael: And so that seller’s remorse is less around the dollars and cents of the sale, it’s just the…
Josh: It’s never around the dollars and…it’s almost never around the dollars and cents. It’s almost always about, “How am I going to fill my time now? I’m not a big deal. Nobody wants to talk to me. Nobody loves me.” I mean, that’s the sort of thing that goes in is say “What’s the use of living?”
Michael: Well, and indirectly, this is part of why I’ve been particularly bearish or just disagreeing with all the industry commentary for years in our world that there’s supposed to be this, like, giant wave of advisors that are supposed to start selling in mass in the next few years because they’re eligible for their Social Security checks and, you know, 60-something is the age you’re “supposed to” retire. And I just look and say, why would you retire? Like, we make, particularly if you’ve been doing it that long, you make great money. You can simplify the business if you’re not happy with some things. I’ve seen a few advisors that actually tried to get ready to sell the business, so they finally put the systems in place and the rest, and then the business got so much easier, it was like, “Well, I was going to sell, but now that I’ve got it ready to sell, I really don’t want to sell it because this just got really good again.”
Josh: That happens to me all the time. People walk in my office and they say, “I want to sell my business.” And I’ll say, “When?” They’ll say, “Yesterday.” And then I say, “Well, we can take you through this process where we can get your business ready to sell.” And by doing that, we help them build what we call a sale-ready business. And it means we get them out of the day-to-day operations altogether. And then three years, four years down the road say, “Okay, you’re ready to sell, you want to go to market?” And they say, “What? Why would I want to do that? I’m having too much fun, I’m making too much money, and I’m not interested in selling.” Now, in the wealth management world, there’s a strategy that I don’t hear anybody talking about, and I call it the wind down strategy. Are you familiar with the 80/20 principle?
Michael: Eighty percent of your profits come from 20% of your clients?
Josh: Eighty percent of any result comes from 20% of your inputs. It’s across the board. So if I’m in the wealth management business, I’m going to say 80% of my profits come from 20% of my clients. Well, if I give away those 80% of those clients and I just keep the 20%, I’m now down to working 1 day a week. And if I go to a company like yours, like Pinnacle, which could provide all that back-end stuff for me, I can get rid of my office and my back-end, and now it’s me with maybe a part-time assistant in my office, I’m going to most likely end up making more money than I was when I had a full book of business.
Michael: And in a minuscule fraction of the time.
Josh: In a minuscule fraction of the time.
Michael: Our Pinnacle Advisor Solutions outsourcing platform, we built primarily for those advisors. You know, your $10 million to $50 million, there’s a healthy asset base. You can drastically simplify the practice by winnowing it down and get to just an amazingly comfortable lifestyle practice with remarkably little work and really good income. And, like, it’s not free income, it’s the cumulative value of what you’ve been building and reputation and business relationships for 10, 20, 30 years. But it’s an amazing thing to just sit tight on and hold on to. I mean, we’ve got an advisor in her early 80s who’s just now maybe thinking about winding down.
Josh: Right. And by the way, as time goes on, you can 80/20 your 80/20. I just had Perry Marshall on my podcast a couple of days ago, and Perry is Mr. 80/20. And what he’s talking about now is no longer 80/20, it’s now 80/20 of the 80/20, which is your top 5%.
Michael: Works out to 96/4.
Josh: Yeah, create almost all the activity in your business. In my opinion, selling a wealth management business is the bad solution, unless you have a health issue or there’s a good reason to do so. But most of us are going to be healthy into our 70s and probably 80s.
Michael: Knock on wood.
Josh: That’s my hope. You know, I’m 66 years old, I have no interest in stopping what I’m doing. I love it. I actually keep starting new initiatives.
Michael: Take us back for a moment to this, you know, charging clients $50,000 or $60,000 a year for…what do you even call it? Like, it’s really not business coaching per se. You’re not really in a coaching role. I feel like you’re in a more direct consultant role but, you know, not the industry consultant kind of consultant that I think most people think of with consultants. You’re sort of a, just a general like, how to actually run your business like a business.
Josh: Yeah, I’m a strategic guy. I work with you on the strategic part of your business where the real money is made. There’s a guy named Rob Slee, who is probably one of the smartest M&A guys I know. And he’s written a whole bunch of books, including “Private Capital Markets,” which if you’re in the business world and you really want to be serious about servicing business owners, read that book. You’ll have to slog through it.
Michael: What’s it called again?
Josh: “Private Capital Markets.”
Michael: “Private Capital Markets.” Okay.
Josh: Actually, it’s “Private Capital Markets 2” because he updated the book.
Michael: All right, we’ll make sure we put a link to it.
Josh: But Rob has a concept, he calls the $5,000 per hour job. Most of us spend most of our time doing stuff we can hire somebody else for $25 an hour. But every once in a while we do something that is actually worth $5,000, $10,000 or maybe even $100,000 through a decision you just made. And that’s the strategic part of your business. So once you decide, “I want to be strategically excellent,” there are things you need to do to get there. And we help people do that. And that’s high, high-value stuff.
Josh’s Value Proposition For His Clients [56:58]
Michael: And so how do you explain that value? Like in our advisory world, I think a lot of us are, you know, we’re trying to charge a couple thousand dollars in planning fees a year, not a month, and still struggling with, like, articulate the value of personal financial planning to justify this X thousand dollar fee
Josh: Well, first of all, personal financial planning, in my opinion, and I hate to say it is because we’re in the financial planning business.
Josh: I’m going to say that planning is great, plan stink. We focus on the financial plan, not on the planning. And the planning is where the value is. So if you’re focusing on creating a document, your client doesn’t see the value in that. But when you’re working sitting side by side with them in the planning process, that’s where the value is. You know, when I do a financial plan, I don’t sit in my office and do the financial plan, we put the stuff up on the screen and the client tells me which lever to push where because they’re involved in the plan, and they love that. So when we get together, it’s not a plan, it’s a planning session. So value is in the planning, not in the plan.
Michael: Well, and it reminds me of, you know, the story I tell sometimes of, you know, the world of Build-A-Bear, where, you know, teddy bear is, like, a cheap commoditized business. I can buy one off Amazon for a couple of dollars and it seems like a little drone will just drop it in my hands. And, you know, Build-A-Bear is a teddy bear store where you come in and make the bear. So you bring your little one along and you pick the fur and the stuffing and the clothing and the accouterments and the eye and the nose, and you saw a heart inside, and it’s adorable, put a name on. And you turn, like, a $10 teddy bear into a $100 bear construction experience.
And what’s always struck me about it is just, like, the fundamental audacity of that model to say, “Hey, I’ve got a great idea for a teddy bear store, let’s charge 10 times as much as everybody else, but the person has to make it themselves.” And what does that look like in the planning world when you say, instead of charging someone a couple thousand dollars for a plan, what if you charge them five times as much but they had to make it in your office?
Josh: Yeah, and it’s a much better result, in my opinion. So here’s how I…this is how I decide whether I can help somebody enough to even talk to them about our one-on-one fee, or what I call a comprehensive fee. I start off saying, “Okay, let’s talk about where you are now.” And we can have a conversation about where we are now. Then I use, you know, the Strategic Coach question, if we were to get together five years from now, what would have to happen for you to be personally and professionally successful? Which is where they want to be in the future. And I say, “Okay, what’s the gap between those two? And if we could help you go from where you are now to where that gap is in the future, what would it be worth to you?”
Now sometimes somebody is going to say, well, most of the time they say, “I don’t know,” “Priceless,” “More than I could ever pay you.” You get all sorts of things. And I say, “Well, we can help you get there, and this is what we need to do to help you get there. Would you like some help doing this?” And then if they say yes then I say, this is a really hard closure, right. Ready for this? “Would you like me to help you?” And they answer yes or no.
Josh: There you are.
Michael: I just made it a vision. That sounds awesome because I made it up myself. Yes.
How Advisors Can Create A Guarantee – Without Running Afoul Of Regulators [1:00:45]
Josh: Right. And, you know, I’m not going to make that offer unless I can deliver three, four or five times what my fee is. In fact, we have a couple of less expensive programs we do, and I actually have a guarantee in that. If I can’t come up with a strategy to get you the financial independence, I give you your money back. If I can’t get you to come up with a strategy that gets you the cash flow freedom, I give you your money back. Now, I only…people have to apply for that program. And I vet them. And I have, you know, a process that I go through to say, “Can I get this person to a result?” And it’s a $6,000 fee, so it’s not a huge amount of money. And if I can’t do it, the only thing they’ve lost is their time, not their money.
And that’s the thing that I see. You know, we can’t guarantee investment returns, I get that, nor would we want to, but we can come up with guarantees about the type of service or what we’re going to do. And there are all sorts of ways for us to put guarantees into what we do. And the reason that I’m so strong on this, I have now hired five Facebook advisors to help me do Facebook ads, and all five have been terrible, even though they talked about a game. The last two I said, “What’s your guarantee?” And they said, “Well, we can’t have a guarantee because we don’t know what you’re going to do.” I said, “I’m not asking for a guarantee about creating customers, I’m talking about a guarantee that this ad is going to create a conversation. All I want is a guarantee.” And they won’t do it.
So if you really believe in what you’re doing… And by the way, my $5,000 a month thing, that’s month-to-month. You don’t like me, fire me. I’m gone. There’s no contract. You know, this stuff of contracts that you’ve got to pay me for a year whether I’m good or bad, I don’t want that. And the client certainly doesn’t want that. You know, let’s do a…think about risk reversal, which means that the vendor is taking the risk and not the customer. So that’s one of my soapbox issues. I jump up and down about that a lot.
Michael: I am fascinated, though, by just this framing of like, how can we set a guarantee in our business as an advisor, right? Because I certainly can’t guarantee you investment returns. A lot of regulators will have a lot to say about that. I can’t literally guarantee you, like, an outcome because that pretty much ties to returns in markets and things I can’t control.
Josh: But you can guarantee that you can come up with a strategy to get them to an outcome that they’ll be happy with. And that’s really…I mean, it really comes down to, are we pursuing the right strategies for our clients? You know, like, I don’t deal with employees, but if I dealt with high-level employees, I would become an expert at when it’s time for them to leave. And I would be coaching these people to say, “You know something, you’ve been in this job for three or four years, you’re not getting the type of raises you can, you need to go find a headhunter and make yourself available to see what’s out there.” I don’t know anybody in the wealth management business that understands how headhunters work.
Michael: Yeah, it’s one of the things that’s always frustrated me, of sort of these discussions of, you know, “What planning do you do for young people? Like, their accounts aren’t very big, so, you know, how complex can their needs be?” It’s like, try helping someone switch jobs and get a $10,000 raise and see how long and complex that is, and how valuable it is if you lift their income by $10 grand a year for the next 30 years. Like, that’s hundreds of thousands of dollars of wealth creation. But that’s not a simple problem.
Josh: I just did that with my daughter. You know, my daughter was in a job and I said, “Well, Alexia, you’re getting underpaid by $25,000. It’s time for you to go out and see what you’re really worth.” And it took me eight months to get her to finally do that. Guess what? She just has a new job, she started on Monday, that’s paying her $25,000 more. That’s a big number. She went from 60,000 to 85,000 bucks. That’s a huge increase.
Michael: Right. Especially when you multiply that over a career. Like, that’s not just a one-time thing for most people, that’s a new base for all your future raises and jobs.
Josh: And she takes half of that and puts into her 401(k). And when she gets to be 65 years old, she’s going to have plenty of dough.
Michael: So as you’re having these conversations with prospective clients around this pricing, like, what do you talk to them about that you’re going to do? Or I guess do on an ongoing basis. Like, is there a, “We’re going to monthly,” or, “We’re going to meet quarterly,” or a structure around how you service clients for this kind of ongoing business consulting service?
Josh: Well, if someone is paying me $5,000 a month, it’s all-you-can-eat, which means they can call me whenever. We’ll have a conversation when they want. At a bare minimum, we get together once a quarter for a whole day. Typically, it’s 6 times to 12 times a year for a whole day. And in there we do a thing we call the 90-day plan. We review our 90-day plan. We say, “Where are we stuck?” You know, it’s using Gino Wickman stuff, of basically, you know…
Michael: Building a lot of the EOS tools and templates?
Josh: Well, EOS tools. You know, I love the Level 10 Meeting. I think it’s a great meeting format. I want to have people have big rocks. I think big rocks are incredibly important. That comes out of Stephen Covey. If you’ve not read “The 7 Habits of Highly Effective People,” you need to read that. You need to pay attention to the big rock section, and you need to adopt that in your life.
Michael: Yep. So how many clients can you effectively support in this kind of model? Do you look at it that way, of, “I’ve got a certain capacity and then I’m going to cap out?”
Josh: Yeah. I only accept five clients in the comprehensive level. And I’m actually working on a one-to-many program right now, where I believe a lot of the stuff I do on a comprehensive basis can be done through an online learning program. Because essentially, when you start niching down to the small niches, all these people in this industry have the exact same problem, and taking them through work in a way that makes some sense really is something I’m finding…that’s where I’m actually putting a fair amount of effort right now. I’ve been doing some work with a guy named Stu McLaren. He’s up in Toronto. Has a program called Tribe. And in my opinion, Stu really, really has gotten this online learning stuff down very, very, very well. So I’m using his technology and his methodology to put together a program for Cracking the Cash Flow Code.
Michael: And so, tell us more about Cracking the Cash Flow Code.
Josh: Well, it essentially is, you know, how do you create enough cash in your business to fund the four areas of profit? Now, sometimes with people, I might, in fact, I’m going to do this, I’m going to recommend that people who are in that program engage with a Profit First consultant. Profit First is a methodology that Mike Michalowicz came up with. It’s a good book. And essentially, it’s the envelope system for a business, where you set up separate accounts for taxes, for profit. In the first account you fund as profit, the second account you fund as taxes, and then you use the rest to run your business. And people who actually do that will find that their profits in their business automatically jump. It’s sort of like the red car syndrome. I mean, have you ever noticed that when you buy a different color or a different model car there’s, like, thousands of them that appear automatically?
Michael: Yes. All of a sudden you have…once you buy it, you notice it everywhere.
Josh: Yeah, it’s everywhere. Well, the same thing is with profit. If I focus on profit first, I’m going to start finding profit appears, because I’m going to start doing subconsciously the things that I need to be able to do to create profit. You know, the reason I like the term “thinking partner” is that I rarely tell somebody something in the business they’ve not thought about. They need someone to help them to think through how it can become operational for them, and then somebody to hold them accountable for doing the things they say they’re going to do. I call it being pleasantly persistent.
Michael: I like that framing that they need someone to figure out how to make it operational and then hold them accountable.
Josh: Yes. And essentially, that’s what a coach does. Although I don’t like the term “coach” nor do I like the term “mentor,” I really like the term “thinking partner.”
Josh: So Susan, thank you.
Where His Clients Come From [1:09:48]
Michael: So these small business owners that you’re working with that are, you know, making half a million-plus dollars, so, you know, they can spend these $50,000-plus a year business consulting fees and it’s a good ROI for them, where do they come from? Like, where do you find people who can drop $50,000 in business advice fees and be able to do that?
Josh: Well, people know what I do, and they’ll often say, “You want to have a conversation with Patrick. He’s kind of interesting. You know, a little bit weird, a little bit acerbic, but he’s kind of interesting. You might find it useful.” And I have conversations with people and then, you know, I go through the alignment conversation, which is a standard thing. And if I think that my comprehensive consulting, comprehensive program would work for you, I say, “Let’s start off and do an objective review,” which is a two-day process I have that takes them through a bunch of stuff, “And we’ll see what the real opportunity is. And then you can make a decision about whether I’m the right guy to work with because you’ve had some experience working with me in a thinking partner relationship.”
Michael: And do you charge for that initial…?
Josh: Yes. It’s a 2-day program, and it’s $10,000.
Josh: It’s a good enough chunk of change that someone is going to think a little bit about doing it. And again, I say, “Look, if you don’t get a result, I’ll give you your money back. If we don’t come up with stuff that’s really valuable for you, I’ll give you your money back.” I’ve never given my money back. We use a tool called Core Value, which looks at nine internal drivers, nine external drivers in the business. It’s essentially a mock due diligence exam. And as a result, I’m going to help the owner uncover what they do. I’m going to talk with them. We also go through a very in-depth values process I got from a guy named Gunther Weil. Gunther Weil is my Forrest Gump of the values world, is unbelievably interesting.
And with that, we come up with the top 10 values somebody has. We move that down to five. We help them decide whether these are core values or aspirational values. And there was a core value we say, “Are we using this in your business?” And if they’re not, we figure out how to do that. That’s all part of this initial process. So we’re really setting the table for where they could be. And that two-day process will tell me and tell them whether we can stop here or they would like some help making this stuff real. So the key is, do you want help, and would you like me to help you?
Michael: I’m still wondering a little bit more, though, of just, where did these people come from? Like, you know, it’s a great place to be in your business of like, you know, “People with multimillion-dollar businesses just kind of find me and ask me to help them.” Like, how do they get to you?
Josh: Well, I’ve been blogging for 10 years. I do a weekly video. I do a weekly newsletter. I have a weekly podcast. I stalk people on LinkedIn. In other words, I try to start conversations with them. There are lots and lots of ways of finding people who are potentially good clients. And one of the reasons we’re doing the low-end programs and I want to have Cracking the Cash Flow Code become a self-learning, because the natural progression would be they go from that program into a mastermind, into one of the…you know, the $5,000 or $6,000 programs, and then 1% of them are going to raise their hand and say, “I want to have the big thing.” So it’s really…you know, it’s feeding people through a progression where some people will pop out.
What Most Advisors Are Missing [1:13:48]
Michael: So what are most advisors missing in their process? Because you seem very comfortable with finding some very sizable clients coming in in a world where, I’m sure as you know, like, most advisors, like, one of your clients would be a whale for most advisors, right? I mean, a lot of advisors, a half a million dollar asset client is a good client. You’re talking to people with half a million of income.
Josh: Right. And you’d be surprised how many of those folks with half a million dollars in income are saving almost nothing.
Michael: Okay. So part of this is just, you know, they can easily pay tens of thousands of dollars for advice as long as you don’t charge them an AUM fee because they don’t have any assets, they just have a lot of income…
Josh: They have a lot of income. Right. The reason I came up with this program was, I found that a ton of business owners make a ton of money and they have nothing to invest, because they stick it all back in their business. You know, if I’m making half a million dollars a year, it doesn’t mean I’m sticking a half a million bucks in my pocket. I’m going to probably be taking $200,000 or $300,000 and throwing it back in my business. So it’s not all going into my pocket.
Michael: Or not necessarily all getting spent or wasted. You know, like, it’s not that they’re all profligate spenders, it’s just, when you’re watching a business go up in value by millions of dollars, the whole like, “I can put you in the S&P 500 that might do 8 to 10” is not so exciting when I’m watching my business grow, like, $1 million a year…
Josh: Right. And they’ll tell me that, “So why should I give you money to invest when I can buy real estate that’s a 20% return on investment or even get better than that in my own business? So I’m going to throw it back in my own business.” Now, some guys do take some money away, but this is where it comes…you know, we’re having a proof tool saying, “You need to save money, and this is why.” And we need to start looking at your business in a different manner. Now, I think one of the reasons that I have some luck with business owners is my conversation with them is so different than the average advisor that they will say, “You know, this guy is different. He speaks my language.” My specialty is blue-collar businesses.
Michael: Because that was the world you came from.
Josh: Right. And I’ve had some wealth management clients we’ve been very, very successful with, but the truth is most wealth management people are really kind of happy running a business that’s not a real business, it’s a lifestyle business or a hobby business, depending on, you know, how pejorative you want to be about talking about it. By the way, I don’t think a lifestyle business is necessarily a bad thing.
Michael: Yeah, I don’t know either. I mean, you can make some ludicrously profitable high cash flow practices for yourself just building around it and, as you said, you know, doing 1 or even 2 rounds of 80/20 in the business to simplify it after some period of time. But, you know, it’s great income as long as you’re doing it, and it goes away when you go away.
Josh: Yeah. That’s the same sort of thing…
Michael: In which case, you may as well keep doing it.
Josh: The way wealth management businesses are sold are completely dysfunctional, in my opinion. You know, I sell my business, I’m going to get 35% down, I’m going to hold paper for 65%, and I’m not going to get a personal guarantee because a buyer doesn’t want to give it to me. I’ve heard that, by the way, from four different wealth management firms selling their business where I’ve gotten in the conversation. They say, “You’re not getting personal…”
Michael: They couldn’t even get a personal guarantee for the note portion?
Josh: Nope. Let’s put it this way. They never said to the buyer, “If you don’t give me a personal guarantee, I’m not selling you my business.”
Michael: And I suppose to some extent that’s because, you know, we look at it and say, “Well, my business is great. It’s very successful. It’s high income. It’s high profitable. It’s got good momentum. Like, it’s not that risky anyways if I don’t get a personal guarantee back.”
Josh: Oh God, I can’t think of a business that’s more risky than a business that’s built on the personality of the owner. And almost every wealth management business is built on the personality of the owners. That personality goes away, the person buying, how do you know they’re going to treat your clients the way you do? And the truth is, when you hold paper, you are taking a huge risk. There is no bigger risk you can take than that.
Michael: Which is why, at least, you should be getting personal guarantees on any transaction.
Josh: Lots of other things to put in there on top of that. If you’re going to play bank, act like a bank. You need to get monthly reporting. You need to have certified statements. You have to have the ability to take the board over fast if covenants fall out. You’re being a bank for the buyer, so for God’s sake, act like a bank. Do the same thing a bank would do. Have loan covenants, have personal guarantees. Make sure that it’s cross-collateralized by the spouse. Because if you put the assets in the spouse’s name and I personally guarantee, that doesn’t do anything for you, unless the spouse is also on the note as a person of record. So do all the things that the bank does. Go to your banker, say, “When you write a loan, what do you guys look for security?” And just copy it.
Michael: Right. I do like that framing. If you’re going to play bank, act like a bank.
Josh: Right. I mean, that’s…you know, to me, it’s a pretty simple thing.
Michael: I mean, it does strike me, frankly, that a lot of what you’re talking about, including straight down to your five core areas, you know, setting clear values and culture, becoming operationally irrelevant in your business, building your dashboard, setting up your systems, managing your profits effectively, like, it is equally relevant for us as advisory firm business owners as it is for any of the other business owners you’re consulting with.
Josh: Well, so let me ask you a question. Are you a business owner?
Michael: No. I think most advisors would by default say yes. I’ll admit, I use those labels of practice versus business very deliberately. And I think most advisors have practices that are built around them and not businesses that are ongoing concerns. And not that that’s necessarily a knock. Like, as we said, you can have an amazingly high-income, profitable practice that can put food on your table and put your kids through college and get you to retirement just fine, like, the money adds up because we’re at a high-income industry, but the mentality of those who actually want to build businesses look very different. Not the least down to your point of, real business owners try as quickly as they can to become operationally irrelevant in their businesses. So, you know, what would it look like…? If you really want to be an advisory firm business owner, that means you should try to be out of clients as quickly as possible.
Josh: Right. And clients need to become clients of the firm, not clients of an advisor. And that’s a challenge. I mean, I consider that probably the biggest challenge that a wealth management firm has that wants to become a real business is how do you make your clients clients of the firm? And I’m not sure I’ve completely figured it out, although I do have some ideas about it. You know, I think having multiple people in the firm service a client is one thing. If an advisor leaves, you have to immediately circle in with a new person to work with them. And there has to be a whole systematic basis for how to handle turnover and how to make people feel that they’re attached to your firm, not to the person who services them in the firm. So you need multiple touchpoints from multiple people within the firm.
I almost think that the way accounting firms work is a good model for wealth management firms that want to build significant businesses. Because if you go to an accounting firm, you generally work…well, you will always work with a tax person and an audit person. And you generally will work with other specialists if you engage that firm to do other things. So having a wealth management firm that has a suite of services.
You know, one of the things I tell people, “How do you differentiate yourself?” Well, if you have one thing that makes you different, you sound like everybody else. Two things that are different, you sort of sound like everybody else. When you have three things that are different, you actually have a differentiation strategy you can use. So the question I would ask to a wealth management firm is, “What are the three unique things your firm provides for your clients and is there a way to have three different people deliver it?”
Michael: I like that. What are three unique things your firm does and is there a way to have three different people deliver that?
Josh: Yes. Now you’re making people clients at your firm and not dependent on the individual. So if an individual leaves, they’re attached to the firm for what the firm can provide, not what that individual can provide. And that’s not 100% true, but it’s pretty darn close to it.
The Biggest Challenge A Wealth Management Firm Has In Trying To Become A Real Business [1:22:52]
Michael: I like that framing. I like that framing a lot. I’ve got to ask now, just as someone that’s so deep in the world of both advising business owners and looking at our advisor community, like, what else do you find that most advisors don’t understand about actually building an advisory business? If you had an advisor as a client, if you’re consulting with them, like, what are the talking points that come up?
Josh: The biggest problem I see with advisors, they are terrible delegators. And the reason they’re terrible delegators is they don’t tolerate other people making mistakes. And they don’t really trust their people. Charles Green wrote a great book called “The Trusted Advisor,” and in there, there’s a thing called the Trust Formula. And I always highly recommend people…you can just google “trust formula” and you’ll get it. And that’s the whole book, in my opinion, which is intimacy plus competence plus consistency divided by self-interest is how much someone is going to trust you. And where I see trust fall down in the wealth management world is that the senior advisors don’t believe that junior people are competent. As a result, they don’t let them learn to become competent because to learn to become competent, they have to allow the person to make mistakes. And if you make a mistake, the client is obviously going to leave your firm.
By the way, it’s not true. It’s how you handle the mistakes that is whether the client leaves the firm or not. Most of the time clients don’t care if you make a mistake, as long as you fess up to it and you tell them how you’re going to fix it. And you have to go to the person that made the mistake and you have to make sure they had a learning experience.
You know, one of my favorite philosophers is Buckminster Fuller, and Fuller used to say…there’s two things Fuller said I really like. One is you don’t learn less, and mistakes are learning opportunities. We don’t learn a darn thing by doing it right. We only learn when we do it wrong. And that’s how you learn. That’s how your people are going to learn. And if you don’t allow your people to make mistakes, you can never grow your staff.
Michael: I had heard this story. I don’t actually know if it’s really true or some, like, urban legend thing or, you know, proverb that just got propagated. So the version I had heard, at least, was that, you know, Warren Buffet had someone that was managing one of his companies, because he’s well known for letting his managers have a lot of independence, and the guy made a spectacular mistake and poor decision and lost the company $20 million or something to that effect. And so, you know, Warren called him into the office to meet with them to talk about it. And so he, you know, essentially went in and said, you know, like, “I’m so sorry. Am I fired for this $20 million mistake?” And Buffet replied, “Are you kidding? I just spent $20 million training you not to make that mistake. You have to stay now.”
Josh: Yeah, that actually…that story actually came out of IBM.
Michael: Is that out of IBM? All right.
Josh: Yeah, it’s actually, Watson Junior did that.
Michael: Watson Junior. All right.
Josh: Yeah. You know, it has been told now…you know, it’s become an urban legend, that story. And now, you know, Watson has been gone for so long that nobody even knows who he is, and now it’s a Warren Buffet story. But it actually is true, you know. And the other thing is you have to realize that there are two types of mistakes. There’s a mistake that puts you out of business and there’s the rest of the mistakes. And the chance of one of your employees making a mistake that’s bad enough to put you out of business is pretty darn slim.
Michael: Yeah. Even if they blow up a client, like, it is one client at the end of the day. If they’re eventually going to manage 100 clients in your firm, they’ve got to screw up one at some point.
Josh: Well, they’re going to screw up three, four or five. I mean, you don’t want to encourage that, but when it happens, you want to put your arm around them, because they already feel bad enough, and you want to say, “What did you learn and what can we do differently next time to make it?”
You know, in the early ’80s I had a total quality management system and put in my vending company, we installed, based on W. Edwards Deming’s 14 Points. You should google 14 Points because it’s a really good thing. And one of the things that Deming said was, “Don’t blame the person, blame the system. Don’t blame the person, blame the manager.” And both are true. People do not want to make mistakes. They want to do a good job. And we often don’t have the systems in place to support them in doing a good job,
Michael: But then we blame them and then we don’t want to give them any authority, when the reality is just probably because we didn’t set up the system effectively in the first place.
Josh: Yeah. The vast majority of the time when something goes wrong is management’s fault. When I say vast majority I mean like 95% of the time, it’s management’s fault, it’s not the employee’s fault. The employee just didn’t know what to do. You know, I learned in my vending company that the more detail and the better support and the better our systems were, the happier our employees were. And that’s another thing is that…you know, I get into this conversation a lot with people about, what’s more important, your employees or your clients?
Michael: Yes, I love this one.
Josh: And I would submit it’s your employees, because your employees are only going to treat your customers as well as you treat them.
Michael: Well, and particularly in advisory businesses where the only way the business grows beyond us is to have team members that can handle, frankly, lots of clients. Like, you know, if you’re willing to give up one employee that could have managed 100 clients to save 1 client, you’re not making a good business decision trade-off.
Josh: No question.
Michael: The employee has the multiplier effect, as I like to frame it.
Josh: They do. That’s called leverage.
Michael: Yeah. So other lessons or reflections of, you know, what you see in business consulting world that maps into financial advisor realm or maybe doesn’t get applied well in financial advisor realm?
Josh: Well, one of the things I would be encouraging people to do is to focus on how many questions they’re asking versus how many times they’re telling. We think that our clients are coming to us for our expertise. And in a sense, they are coming to us for our expertise, but they’re really coming to us to help them solve problems, whatever that is, or take advantage of opportunities. And I think that we don’t focus on the opportunity nearly as much as we do the problems.
You know, one of the things I talk about is what I call the Socratic method of management. You know, Socrates was famous for only teaching through asking questions. There’s a sales method called the Sandler sales method. They teach their people only to ask questions. You know, through questions you get the answers that help you solve the problems. Because the truth is most of our clients know what they want to do, they just haven’t been able to articulate it. And if we ask the right question, we’re going to help them discover that. And if they discover it, they own it, and they’re going to be happier. So learning the art of asking a good question is a really important skill.
Michael: So where do you learn to do this? I mean, I guess where in the aggregate do advisors learn to do this? But, like, where do you learn to do this? To have this kind of business consulting expertise role, this sort of niche into working with business owners?
Josh: It requires to have intense curiosity. If you have intense curiosity about anything, you’re going to start learning stuff that the rest of the world doesn’t even think about learning, because you’re just going to be curious about what makes it work or not work.
You know, we were having a problem that a total quality system solved. Because I was curious about ways of solving that problem, I came across TQM. You know, I had a client, they kept talking about, “We’re going to put lean in our company. We’re going to put lean in our company.” And I really didn’t know what lean was, but I’m curious, so I went out and read five books about lean, which happens to be the Toyota Production System. How Toyota runs their manufacturing plants. And I started looking under the hood of what TPS actually is, or lean, and it’s really Deming’s 14 Points. Because Deming went to Toyota in the ’40s and helped create the quality juggernaut that they are today. And then Toyota took the Deming’s 14 Points and expanded upon that. Now, with most small businesses, lean is overkill. There’s another theory called the theory of constraints.
Now, the way I found all this stuff was just curiosity of, “What else is there? What else is there?” And I kept hearing about agile, so I went and became a scrum master because I was curious about it, not because I needed to do it. I recently just been certified for Extreme Leadership, which is Steve Farber’s thing. And his is The Radical Leap, which stands for love, energy, audacity, and proof. How do you integrate that stuff into a business? We don’t use the word “love” nearly enough in the business context. And we need to. Because love creates energy, energy creates audacity, audacity is safety, which goes back to love, and then you need to have proof that the stuff you’re doing works. So, you know, if you want to become a business expert, you just really need to be curious. I guess that’s my thing. And then find things that you’re interested in and go learn about it, and then teach it to somebody you don’t know.
Michael: Yes. Nothing like trying to teach something to really learn it.
Josh: Well, that’s how I started down this road when I was…you know, again, being a BA in history, my third year in the vending company, I ended up working with the National Vending Association. I volunteered to teach a course I knew nothing about.
Michael: Well, that’ll force you to learn something about it.
Josh: Yeah. So I had to go learn it. And I’ve been doing that for years now.
What He Wishes He Had Done Differently [1:33:30]
Michael: So, as you reflect back, like, anything you wish you’d done differently as you built the firm in the direction that you have? At least in the advisory firm stage. I know you have plenty of regrets from the early vending days.
Josh: I really wish something happened to me that I wish it didn’t happen. I was becoming really, really successful building a pretty good-sized business. And then when I was 55, I had life-threatening cancer, which sort of took me out of the game for 5 years, and I’m just starting to get back to my old form, even though I’m now 66. And I don’t have the energy at 66 I had at 55. So I sort of missed that 5-year period, which is, you know, the most productive part of anybody’s career is typically 50 to 60, and that got interrupted. So I’m a little…you know, it is what it is, and I wish it didn’t happen, I wish I was a lot nicer when I was younger in my business. I was the worst boss ever to work for. I would scream at people every day. Nothing was my fault. I would blame people all the time. That stayed with me. Even though I stopped screaming 4 years into that career, for the 20 years I owned that business, people thought I screamed at them all the time, just because my reputation didn’t go away. So I wish I didn’t do that. Actions have consequences.
Michael: Interesting. But, I mean, from the flip side, as we were saying earlier, like, is there any way around that aside from learning the hard way, having the consequences and going, “Oh crap, I think I need to not do that again?”
Josh: Well, you know, I guess it depends what your makeup was. You know, my role model was my father, and my father was a screamer. I never took a management course. I never took, you know, any human relations courses really, so I thought that’s what you did. Now, I learned that’s not what you do because when you scream at somebody, they’re going to sabotage you. And I really learned that when we opened our second branch up because I couldn’t be in two places at once. So if I didn’t change my behavior, I would have lost my business. It was that simple. Because I had gone from 2 employees to 25 almost overnight.
Michael: There’s something that I’ve come to appreciate more just over the years myself in being a business owner and working with business owners, which is just that level of self-awareness and self-reflection. You know, we often have some bad habits or areas we’re not good at, you know, that we bring with us for whatever reason. But it’s always struck me, one of the differences of just the people who seem to grow to become successful business owners versus the rest is they at least have some self-awareness at some point, like, to literally have the realization that you said. Like, “I’m doing this thing and it is not working well for me. And if I don’t change my behavior, I’m going to lose my business.” And just being able to be self-aware enough to realize that the problem is you, right, from, like, half humbleness, half self-awareness becomes really crucial, or you just never get over the thing that’s blocking you.
Josh: Yeah. I mean, the thing that really was the thing for me that actually switched me was I did a couple of New Age seminars when I was 31 years old. And they helped me see the world in a different way. And that was the beginning of me with my metamorphosis from being the worst employer of all time to being somebody who’s actually pretty good. People stay with me for a long, long time.
Michael: Was there a particular breakthrough or insight? Like, what flipped the switch?
Josh: Well, it’s kind of a long, long story, but it’s, you know, essentially is that you can have experiences by putting yourself under extreme stress that help you see the world in a completely different way. It’s sort of like hallucinating without taking a hallucinogenic, which is an interesting thing in itself.
What Comes Next [1:37:46]
Michael: Yes, I would imagine so. So what comes next for you?
Josh: Well, I’m working on this one-to-many project, which I think can change our industry. I think artificial intelligence is going to be a really interesting thing in our business. I think it’s probably 15 or 20 years off before it becomes ubiquitous. And I was actually talking about theories about this. I’m trying to write an article that would make some sense. But, you know, we keep saying millennials are digital natives. Millennials really are not digital natives. The internet didn’t become real until they were in middle school.
Michael: Yeah, my kids are digital natives. You know, my kids are seven, five, and three. My three-year-old, for more than a year now, can get the tablet, turn it on, navigate the lock code, open up Netflix, choose a show, hit the Chromecast button, pick the family room TV and not the bedroom TV and start broadcasting the show. He could do that at two. He couldn’t read any of it, but he can navigate that.
Josh: Right. So there’s a digital native.
Josh: So the next thing coming along is big data and artificial intelligence. And right now big data and artificial intelligence are really, really, really expensive. And they’re not really usable yet. But the time is coming. And I think it’s coming relatively quickly, probably within 10 or 15 years, where we’re going to see micro niches develop in the AI world. So I’m going to be able to put together a program that if you work for Intel, you can do my program working for Intel and it’s going to take you through a process that basically everybody Intel will likely come across at some point in their life. Or I can do electrical contractors. All right. You know, it’s going to become that micro nichey. And I talk about niche management all the time. I think niches are incredibly important because it’s how you get to be known and be famous. And one of the things I think about the wealth management business is we’re afraid to say no. And by not saying no, we’re blocking out the people we should be saying yes to.
You know, like, Shonda Rhimes wrote this great book called the “Year of Yes.” And one of the things in there she said became yes to, she said, “I now can say yes to no.”
Michael: I can now say yes to no.
Josh: Right. A lot of people can’t say the word “no.” So she learned to say yes to the word “no.” And we need to do that in our businesses, I think. You know, we need to know, who do we fit best with, psychographically, demographically? Who are our best…? You take that 20%, your best 20% and you’re going to find there’s a bunch of similarities between them. And you want to build a business based on that because…for two reasons. One, you have better rapport with those folks, two, you understand their issues, and three, when they come in the door, you’re going to know what to do with them within five minutes.
You know, I do these 20-minute free calls with people, and I guarantee that they’re going to get at least one good idea over that 20 minutes. Typically, I’ve given them two good ideas or three good ideas within the first five minutes. Why? Because business problems are about the same across the board, especially on a strategic basis.
Michael: Yep. Once you know the space, it tends to replicate pretty consistently.
Josh: I don’t even know the industry. I mean, I can learn the industry, but 80% of all businesses are exactly the same. It’s the 20% that is the industry expertise. And if you spend five or six hours with somebody in that industry, you’re going to learn enough jargon where people are going to think you’ve been around it forever.
What Niche Management Is Really About / The Best Way To Get Business [1:41:37]
Michael: So what else goes in the world of niche managements to kind of set this forth as a concept?
Josh: Well, really, niche management is about who do you say yes to and who you say no to and the activities that you do to become well-known in your niche. Do you go to the places that the people in your niche are hanging out? Are you getting on stages to speak to people and the stage is where you know that your best clients are hanging out? Because speaking on stages is about the best way to get business I have ever found. By the way, that’s one of the ways I get those big clients is I get stages. And I speak at trade associations and I talk…you know, as you can imagine, I sort of talk about things from a viewpoint they may not have considered before. And people come up and have a conversation, and we continue from there.
Michael: Well, and I’m just imagining, as you’d mentioned earlier, you know, two financial advisors stroll into an industry trade association to prospect with the small business owners. The first one is a traditional advisor and is probably talking about buy-sell opportunities because I can do the life insurance. And how much are you saving in your investment account? Are you diversifying out of your business? And then you walk in as the other one talking clear values and culture for your business, becoming artificially irrelevant, building predictive dashboards and all these other pieces. Like, you’re talking a completely different language even than any other financial advisor that shows up at that conference.
Josh: Well, I’m obviously a weird duck in the financial advisory business. There aren’t many people that, you know, have done what I do.
Michael: But to me, that’s sort of the point of where our industry goes is, you know, what does it look like when there are 300,000 advisors, each of whom has their own specialization and niche and capabilities just like yours in whatever their area of domain and expertise is. And suddenly none of us are in competition with each other. We’re like a giant cross-referral network of all of us. Because at the end of the day, there’s hundreds of millions of people and only a couple hundred thousand of us, like, there literally aren’t enough clients for all of us if we spread out that broadly.
Josh: Oh, I mean, if somebody walks in my office and they’re an employee of a large company or just an employee, you know, I’m not going to work with them unless you’re the owner of the business. I will send them someplace else, likely in my firm, to work with somebody else here who is going to be much better serving them. Because A, I really don’t have a lot of interest in that group, and B, it’s not my area of expertise, so I shouldn’t be doing it. I stay in a very narrow lane where I have deep, deep knowledge,
Michael: But, you know, when you end out with 5 clients on an ongoing basis paying $50,000 or $60,000 a year, like, the math adds up quite well for staying really focused into a niche.
Josh: It’s a nice little retirement business, isn’t it?
How He Defines Success [1:44:37]
Michael: Yeah. So as we wrap up, this is a show about success, and one of the things we always observe is that, I mean, just the word “success” means different things to different people, sometimes different things to us as we go through the stages in our own lives. So, you know, as someone who’s built this successful business and advises successful business owners, how do you define success for yourself?
Josh: Oh, that’s a great question. My personal mission is to do interesting things with interesting people. And if I’m doing that, I’m successful.
Michael: I love that. My personal mission is to do interesting things with interesting people.
Michael: I feel like that was…. this is not the first time someone’s asked you this question. I mean, you’ve had to consider this before. Like, that was very targeted.
Josh: It’s asked very rarely, but I’m a believer in values and mission. And I think people need a personal mission as well as a company mission. You know, our company mission is to help make our clients’ lives better. It’s not an especially complicated thing, but it’s easy to know. It’s a yes or a no answer. We are or we’re not. And if we are, continue doing it, if we’re not, we better change. And my personal thing is, I’m kind of a quirky guy. I like quirky people. So for me, interesting people generally are a little bit quirky. I mean, after you see 100 Grateful Dead concerts, you become quirky.
Michael: I would imagine so.
Josh: Yeah. So I get into really interesting conversations about really cool things with people on a regular basis. And for me, that’s what I live for.
Michael: Well, very cool. Well, thank you for joining us and sharing that on the “Financial Advisor Success” podcast.