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  • Writer's pictureRyan B.

The Cycle of Capability

"It's people who make the difference..."

I love holiday traditions. I'm a creature of habit, so a good holiday, family tradition checks all the boxes for me. One of my favorites is cutting down our Christmas tree each year. Just after Thanksgiving, packing up the family, going to our local tree farm, saw in hand to find the perfect tree. The rest of the day is full of tradition - decorating the tree and house with the kids and ending the night watching my favorite Christmas movie - Christmas Vacation.

*Our last family Christmas tree outing

With our recent move and temporary living arrangements, some traditions changed this year. Unfortunately we weren't able to cut our own tree and had little to decorate. My wife and I saved our gift wrapping until Christmas Eve, and it proved an opportune time for our annual viewing of Christmas Vacation. Little did I know I would find inspiration for this blog towards the end, when Clark's boss is trying to make amends for stiffing his employees of their annual holiday bonus. As cousin Eddie is holding him hostage and he changes his mind on the bonus, he states : "It's the People who make the difference..." I had been sitting on this blog for a few weeks as my focus has been elsewhere (starting a new business) but this quote gave me the final push to put it together.

When thinking of your own company or team, have you ever stopped to ask yourself: Who comes first - the employee or the customer?

You may not have the answer defined within your practice, or you may prioritize one over the other depending on the situation. But I’m sure when it comes to your business, you have an opinion on who should come first. For me, my answer has evolved over time. I came from the school of thought (which many advisors surely do) along the lines of "the customer is always right." This would be the equivalent of customer first.

However, the more I learn and see it in practice, the more I believe that the most successful businesses, especially as they grow and scale, put their employees first. Let me explain:

While reading the book The Service Profit Chain I was introduced to the concept of “the cycle of capability.” It boils down to the fact that a satisfied employee is a loyal and productive employee. If you believe that the customer is the most important piece of your business and should be prioritized, they will become a priority once you have a satisfied and fully engaged employee. Through extensive research, much of this satisfaction actually comes from their desire to provide the best service and results for their customer/client. You can see the cycle forming.

The cycle starts to take shape when profit and growth is linked to customer loyalty which can be tied back to employee satisfaction. Research showed that customer loyalty was more important to driving profitability than market share, especially in service industries.

Take Southwest Airlines as an example, which is referenced throughout. Think of the customer experience when flying Southwest Airlines. Their frontline employees are given the freedom to go above and beyond. They are also put in a position to be empowered to learn and understand the customers needs through their own experiences. They are given the trust and autonomy to make these decisions to get a feel for their customers.

One of the best parts of running and owning an RIA business is that the business model itself is based upon long-standing relationships between the firm and their clients. Through studying the employee first approach, turnover of employees was greatly reduced and customer satisfaction was increased. The link between employee satisfaction and customer loyalty was prevalent throughout.

Oftentimes in our RIA world, we find ourselves in an echo-chamber of similar ideas and measuring ourselves to what other like-minded firms are doing. Getting outside of our industry and learning from outsiders can reap massive rewards. In addition to "The Service Profit Chain," I suggest checking out Ed Mitzen's book More Than a Number. Ed is founder of Fingerpaint, a health and wellness marketing agency, and I promise you the idea of people over profits rings clear after reading his insight and experience growing Fingerpaint into an industry leader.

The book is filled with valuable lessons & stories showing you how putting your people first can drive massive business success. Putting people before clients doesn't come at the expense of your business or the clients you work with. This isn't a zero sum game. It's more of a rising tide lifts all boats type of mindset. Creating a culture through empathy and a people first mindset can pay massive rewards to your clients and overall firm. Obviously there are many differences between a marketing agency and an RIA firm, however the approach to business and clients have a ton of similarities and overlaps. Many ideas from this book have carried over to both my business life and personal life. Having this type of outside perspective is invaluable to creating a longstanding positive culture as Ed points out can take years to build and only moments to disintegrate.

When an RIA business is in its infancy stages, founders have a much higher level of control and oversight amongst client relationships, and frankly the best approach at that time was putting your customer first. Being hyper-focused on those client outcomes is what got you here.

But as the business evolves and you lose some of that personal touch amongst every client relationship or engagement, getting into the employee first mindset will no doubt improve client satisfaction and lead to higher retention and higher referral growth. To get there, you must fully trust your employees, allow a sense of autonomy and most importantly - help them find meaning in their work. These factors are key drivers leading to more positive client outcomes and long-term future success.

Written by: Ryan Bouchey

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