Nov 01, 2018

The trillion dollar club: How to be a growth superstar

By Joe Duran

Photo credit: Getty Images

Amazon recently joined Apple in the trillion dollar club, becoming the second American company in history with a market cap surpassing $1 trillion. While Amazon and Apple climb to new highs, it's been fantastic for investors and for the wealth management firms that serve them. There's nothing like a rising market to increase assets, revenues and profits.

It's easy to grow your revenues when your asset base goes up without your doing anything. It's also easy to think it's better to do nothing to rock the boat than to make any major changes to evolve your business. After all, it may not seem necessary because things are going so well.

This is called a growth trap: Your current success might be the biggest threat to your success in the future. What great growth firms know is that there's no better time to change things than when all is going well.

That's certainly the mindset at any of the growth companies from which we have all benefited. They understand that change is the secret to growth, regardless of market conditions or your current success.

A perspective on growth

Twenty years ago, "The Innovator's Dilemma" by Clayton Christensen planted the seeds for this century's growth revolution. In it, Mr. Christensen explained that the ultimate cost of success is stagnation and described how hard it is for established firms to evolve, most especially the ones that had been particularly successful.

At about the same time, a new wave of companies were born or rebooted themselves with innovation and change built into their DNA to rearrange the entire corporate landscape. We see it in Netflix, Google and Facebook — companies that know they have to take risks and change how they work in order to grow, regardless of their current success.

In the past couple of decades, we've seen this mindset take hold at companies ranging from Bank of America to IBM. These businesses understand the need for constant evolution.

Growth and value are opposite ends of the risk-taking spectrum, and it's interesting to think about the range of possible combinations where most firms live. Think of it like a speedometer that goes from all defense (or preserving the status quo) on the extreme left, to all growth (or constant change) on the extreme right.

Risk Taking Matrix

Assessing your position on the spectrum

Few firms live at either extreme. We all reside somewhere in-between.

Spectrum position 1, the stagnant zone: These firms are often complacent and focus on preserving the status quo. They take few risks, change very little and spend very little on R&D in order to maximize and preserve their existing cash flow. They do not encourage change or challenge their team to evolve the way they work.

Spectrum position 2, the bureaucratic zone: These firms know they have to evolve, but they typically do so quite slowly and deliberately. They might require a lot of approvals, and typically prefer modest tweaks to major changes. They ensure their investments in change are recovered in profits and are uncomfortable trying new ideas that might fail.

Spectrum position 3, the opportunistic zone: This is the golden zone in which most of the fast-growing companies we all admire reside. They invest heavily in evolving their products and services, have a culture that encourages change and improvement, and spend heavily on research and development. They are comfortable trying new ideas, even those that may not end up succeeding.

Spectrum position 4, the frenetic zone: This is where many startups begin and end their lives. Typically they have too many ideas to actually commercialize. They create new ideas at a faster pace than they make money. While they embrace failure, they do not embrace profitability and therefore seldom succeed over the long term.

So where is your firm?

There's been little reason for the independent adviser to invest in and encourage change for the past decade. However, that has not been true of the industry as a whole, where large, successful firms like Fidelity, Schwab and Vanguard, and even brokerage firms like Merrill Lynch have created zero-cost alternatives in the past few months alone.

While these companies drive down costs for all investors, they also reinvent how they engage with consumers, and create and invest in systems and tools to connect with their clients in new and better ways.

Unfortunately, against this backdrop very few independent wealth advisers have the cultural inclination, or the budgets, to evolve their practice and change how they work. That might come at the cost of their future growth.

It's unlikely any of us will be the next Amazon or Apple, but in our own unique way we can emulate the thinking that made them the growth companies of our generation, and become the growth companies of our industry.

This article originally appeared on Investment News "Duran Duran" blog.

Joe Duran

Joe Duran

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