Success and Succession. Tim Kochis

profile: “When I was in my late 20s, I was at a large bank. It was exciting because we were part of a largely self-directed team, left to ourselves to figure it out as we went along. Here we were trying to provide financial advisory services to guys my dad's age. But it was exciting, in the early to mid-1970s, to be creating the advisory content and to learn to sell yourself. It was also fun. It was like a fraternity party, but we wore suits and ties.”

      Many founders fit a certain profile with the following traits: self-motivated, unafraid to ruffle feathers, open to risk, believing there's always a better way of doing things, and having an inner belief that investing in their own success will maximize their return. Look at that list again. Do these look like traits rewarded by most large companies?

      As time goes on within many large corporations, entrepreneurial spirit gives way to centralizing control and managing overhead, especially within the reality of the economic cycle. When times get tough, corporations always protect their core businesses. If you aren't in the core channels, you aren't going to be able to command resources – or attention, as Tim lived through. This culture of central priorities and systematic decision making usually serves large corporations well, but tends to thwart new, small, or peripheral ventures. It drives many entrepreneurs to found their own shops.

      Tim was frustrated by the obstacles his business was facing in a large accounting firm. Several significant clients asked why his small team wasn't just doing it on their own and even offered to invest behind them. So, in 1991, Linda Fitz joined Tim in deciding it was time to invest in themselves and go independent as the original Kochis Fitz. The way in which advisory firms were founded is important to understand – and to celebrate – because those roots yield many of the strengths and the challenges the firms encounter in later transitions.

      Also in 1991, David Cassady and Bob Schiller founded Cassady Schiller & Associates in Cincinnati, Ohio. In 23 years, the firm has grown from the two founding partners to 60 employees and now includes a wealth management practice. Both founders had spent 11 years at a Big Eight (now Big Four) accounting firm focused on small- and medium-size business and individual clients. They felt as though the model of the bigger firm was getting in the way of serving their clients. The triggering entrepreneurial moment for them was when a new regional partner came to the office and discussed the type of client the firm was going to focus on in the future. Bob explains how they felt that day: “This partner comes to Cincinnati and explains the firm is no longer after the clients paying us $20,000 a year because it wasn't big enough. We were stunned. How could this person not realize this profile represented 70 percent of the office's revenue and basically 100 percent of our practice? David and I realized we were no longer a fit.”

      The lack of the right home for their clients made it easy to decide to leave. As David puts it: “We knew we could do it better. We wanted to create a family culture in a business, which could stand the test of time, but worked really hard for the betterment of our clients' lives. We didn't start the firm because we wanted to run a business. We wanted the opposite…we wanted to spend more time with our clients.” In the beginning, they couldn't afford office space, so they ran the firm out of their cars. At that time, cell phones were extremely expensive. They each had a $900 car phone bill the first month in business. David laughed when we sat down to interview him. Six weeks into the business, he wrecked his car: “We went from two office locations to one.” Getting clients had to trump everything else because there were no clients. Each partner did eight sales meetings a day. After a month, they started winning a large amount of business. Things got easier from there.

      David describes founding an advisory business as a little like the “wild, wild West.” He continues, “When you start a firm, you are just trying to put the fires out. You aren't sitting at your desk thinking about best practices in operations.” One example David describes was their pursuit of office space after a few months in business. They still didn't have any money, so they met with an owner of commercial and residential real estate to look at a few spaces. The guy realized they didn't have any money and suggested they barter for services, as he needed 14 federal Housing and Urban Development (HUD) audits completed. He asked David if the firm could complete the audits, and David said they could do them as a trade for leased office space. As they walked out of the meeting, Bob looked at David and said, “I didn't know you knew anything about HUD audits.” “I don't,” replied David. “But,” he said, “we'll figure it out.” They ended up having to hire a specialist, and it cost them more than just renting the office space would have. Bob describes it as a “valuable learning experience.”

      Throughout this book we highlight firms of all sizes, since most of the transition issues are similar regardless of firm size. The stories about David and Bob are great examples of a partner-founded firm that has grown from two partners to 60 employees. Jeff Thomasson is an example of a founder who has built a mega firm. Oxford Financial, founded in 1981, has grown to be one of the largest independent financial advisory firms in the country. When Jeff started the firm, he had just become one of the youngest graduates of the Indiana University MBA program, at the age of 22. His thesis for graduation was written on the topic of what a great financial firm should look like in the future. He walked off campus already feeling like a seasoned entrepreneur. Part of how he paid his way through college was buying Farrah Fawcett posters in bulk for $2 and selling them to his dorm mates for $5. After graduation, he grabbed a phonebook and started calling banks and business owners.

      Jeff believed that if he cold-called as hard as he could for three years, he would never have to do it again. As he reflects on this goal, he feels lucky: “I only had to do it for two years!” Jeff realized he was great at getting an appointment, and he won some early business owners. Banks took notice of his different approach to financial planning, and they didn't see him as a threat. “I was a little guy. I wasn't going to take their trust business, so they sent me referrals.” Like David and Bob, Jeff's office was his car. His monthly cell phone bill was $1,000. His stories of the founding also show how different things are today from 1981. “In 1981, cell phones were so rare in Midwest America you looked pretentious if you had one. You also had a large antenna on your car, so you couldn't hide the fact that you had one. I didn't want the banks to get the wrong idea. I would park down the street and walk to my appointments.”

      When most independent advisory firms were founded, advice was delivered not through technology, but through the human interaction of the founders and clients. The founder had his or her name on the door. In many instances, very early on, there wasn't the financial ability to hire much help The advice was delivered directly by the founder to the client. There was no need for process and no need for consistency in delivering the service or advice. The founder had to do everything.

      Bill Crager, president of Envestnet, tells a funny story about how it feels to go from a big company to running and building your own start-up. He and others decided to leave the comfort of Nuveen to create a new business model in financial services. They finally got office space, and Bill took the lead in ordering the furniture for the office. “I was really happy to have it coming to the office so I could put my computer on something. Having furniture was a major step for our start-up.” Bill's excitement turned to laughter when the furniture arrived unassembled. “I remember looking at two interns we had hired and saying, ‘Well, I guess we need to find a hammer.’ Have you ever tried to find a hammer to buy in downtown New York City?” Bill traipsed around New York and finally found a hammer. He got back to the office and then realized, “Why didn't I buy three? We shared the tool and eventually got it all put together. It's a memory I look back on fondly but not something I want to do again! This ‘nobody else is going to do it so I have to’ attitude becomes a habit…and, with success, often becomes a source of pride. Many successors simply wouldn't understand.”

      We examine many different sizes and types of firms and a wide variety of people throughout this book. Although these firms have made different choices as they evolved and are now in many different situations, the founders share consistent experiences and tell similar stories about their early years. These are amazing stories of entrepreneurship, risk, and success. This shared experience even creates a comradery around founding a firm. We call it the “fraternity of founders.” Successors can learn from and celebrate this fraternity, but they will never be members. Successors don't have these types of stories. This lack of a common history and set of experiences can cause significant operational