![Kitces & Carl Ep Scale Your Business Leverage Yourself Or Just Grow](https://www.kitces.com/wp-content/uploads/2023/11/Kitces-Carl-Ep-125-Scale-Your-Business-Leverage-Yourself-Or-Just-Grow-150x150.png)
For many financial advisory firms that start out as solo shops, a single advisor-owner is often responsible for managing all aspects of running their practice, from handling all aspects of client service to prospecting for new clients. But as a firm's client base grows, the owner might find that they need to bring on employees to help manage the expanding workload. However, while it might be easy for business owners in this position to recognize that their firms are growing in terms of client revenue or other metrics, it can be harder for them to determine whether they are truly 'scaling' their business, as scaling involves a greater investment in both time and money to manage the firm's growth and pay a rising number of employees.
In our 125th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss what it actually means to scale an advisory business, why doing so necessarily requires more staff support, and how scaling a firm is different than merely finding ways to best leverage a firm owner's time.
As a starting point, it's important to recognize the difference between "growth" and "scaling" for a financial advisory firm. Growth in a firm implies an increase in revenue and/or profits accompanied by a proportional rise in the number of employees and other costs. For example, a firm might quadruple its revenue while also quadrupling the number of advisors and support staff it hires (and still have a growth in profits!). By contrast, scaling indicates that the firm is increasing its revenue at a faster pace than it hires, often by generating efficiencies. For example, a scaling firm might quadruple its revenue while only tripling its headcount, potentially leading to even greater profitability.
Notably, though, the effectiveness of a firm's scaling efforts isn't just about whether it needs to hire staff, but rather about how many new hires are needed to serve a growing client base. Because, unlike software companies where each additional unit sold requires little additional labor, financial advisory firms inherently require advisors and staff to maintain a certain level of human-to-human interaction and to develop and implement financial plans for their clients.
Ultimately, the key point is that while many advisors have successfully scaled their businesses, doing so requires a firm owner to hire additional employees and does not merely involve finding ways to better leverage their own time. Which suggests that advisors looking to grow their revenue without working more hours themselves face a choice: remain as a solo practice or small team but try to move 'upmarket' to serve a similar number of clients who are willing and able to pay a higher fee, or scale by growing the firm's client base (and employee headcount) as efficiently as possible!