EP 8 – Transcript

Matt Sonnen [00:00:23]Welcome back everyone to Episode 8 of The COO Roundtable. Today we’re trying something a bit different. For the first time in our podcast’s very long history of seven whopping episodes, we do not have an RIA COO joining us. We do, however, have a few recovering COOs so, I think we do have our bases covered. But my guests today are not actively sitting inside an RIA. David Canter and Scott Slater are both leaders at Fidelity Clearing and Custody Solutions. Both have unique views into the RIAs of all sizes across the industry and both can provide deep perspective into the role of the COO and how our industry is slowly waking up to the importance of this role within RIAs. And for that reason, I’m very excited to welcome David and Scott. Guys, thank you for being here today.

David Canter [00:01:13]Well thanks for having us, Matt. Really a pleasure to be here.

Scott Slater [00:01:17]Thank you very much. Look forward to the discussion.

Matt Sonnen [00:01:20]Cool. Well, I like to start each episode hearing people’s backstories. I do a lot of work on college campuses speaking with graduating seniors who are scared to death that they haven’t figured out their entire lives yet. And I always try to calm them down and say that most of the successful people that I know, while they’ve definitely worked hard to get where they are today, a lot of it has been dumb luck when they look back at their careers and see the various zigs and zags throughout their career. So, I always really enjoy this part of the podcast. So, I’m going to go to you first David. You currently are heading the RIA segment for Fidelity and prior to that, I know you were in practice management that’s where I met you when I was part of the Operations Steering Committee back in my Luminous Capital days. Can you just tell us a little bit of how you arrived at your current role?

David Canter [00:02:10]Sure, Matt. And that’s right, we did meet way back when you were at Luminous and the first time, we met was probably close to 10 years ago. So, I’ve told this story before but I’m sort of the accidental advisor custody head. I started my career as a lawyer and actually I started my career as a lawyer in Northern California helping to form RIAs. And since that time, I’ve held just about every role in the advisor/service provider space except as a true advisor. I’ve had experience in operations, both in the broker dealer side and the RIA side. But I like to think of myself as having the advisory background because as a lawyer, you’re a consultant and you consult with clients to achieve better outcomes. So, I’ve been doing that 25 years and in the past two and a half I’ve been heading up the RIA business at Fidelity and it’s just a joy, it’s a pleasure.

Matt Sonnen[00:03:10]Awesome. And Scott, your official title is Vice President – Practice Management and Consulting but through the podcasts that you do and the M&A reports that you’re so deeply involved with that Fidelity puts out. Within PFI, we refer to you as the M&A guy. So, how did you wake up to your current role today?

Scott Slater [00:03:33]Well, I guess the short answer to that is David Canter encouraged me to help him out in this area when we began what we call the M&A Leaders Forum with a lot of the industry leaders who are doing acquisitions in the space about, four years ago. And it’s kind of built from that. And I think really it has been such a strategic issue and I’ve drawn to those kind of issues. It’s such a strategic issue for our industry right now and in what’s shaping it both now and I think what’s going to happen in the years ahead. Earlier in my career, I really, I began in consumer products and marketing. So, I went to General Mills, I worked on brands like Cheerios, Betty Crocker, and Yoplait and things like that. And there you really learned to think about why does somebody need your product and how are you positioning it. And quite frankly that’s carried me through my entire career and really turned to understanding that behavior and that’s what I really tried to help firms understand. And I think M&A becomes just one more means to make that happen. For firms helping to understand why their clients need them and how does M&A ever help them make that happen. So, that’s kind of how I look at it.

Matt Sonnen [00:04:46]No, that’s perfect and we’re definitely going to touch on that. But first, you both may or may not know, our mission statement here at PFI advisors is to further evolve the RIA industry from a collection of practices to businesses and to be a continued voice in validating the industry as a legitimate landing spot for billion dollar teams and their clients. And I wrote that mission statement myself. We didn’t have a marketing firm write it for us. I am very passionate about the evolution of our industry. Historically, even the largest RIAs were really nothing more than a few advisers sharing a logo, but they were running very different businesses within their practice. And I believe that we’re just starting now to see RIAs slowly evolving into true enterprises. They’re bringing in professional management. Someone who’s not responsible for business development but whose primary role is to simply run the business from a people, process technology, perspective. By doing that, they’re allowing the advisors to get out of the minutia of running a business on a day to day perspective. And that’s really the guts of this entire podcast is shining a light on those individuals that are in the trenches every day leading this evolution within our industry. So, Scott I’ll go to you, can you speak to this evolution in the role the COO is playing in it?

Scott Slater [00:06:08]Sure. I’ve worked with firms over the last dozen years that I’ve been in the RIA custody space and really helping firms as a business consultant. Increasingly, firms start to determine when do I need this kind of professional help and how do we use it? What’s the role? Why is it important? And more and more I see firms looking for this kind of help. I remember a book that I read early on, that probably many of our listeners are familiar with by Michael Gerber called the E-Myth. And in that book they talk about how an entrepreneurial business starts to grow and then people start to want to find their strain from a capacity standpoint. So, then they start to hire certain functions, and this is one of those key functions. I think the key is that a COO needs to have both the authority and the clarity around what their role is to be able to drive that forward and what they’re taking off the plate of others to create a more stable business. But that’s what I think where the professionalization of the industry that you’re talking about is so key and I think they can bring so much leverage to the rest of the organization that allows them to stabilize and start growing again. So, the COO is really a critical function.

Matt Sonnen [00:07:25]E- Myth, I love that book. We’ve talked about Traction, sort of a similar themed book. We’ve had a few people bring up Traction on previous podcasts. We’ll definitely put a link to E-Myth in the notes for this for this interview. So, David give it give us your thoughts on this this evolution within the industry that we’re seeing.

David Canter [00:07:47]Yeah. And Matt first of all, let me just congratulate you again on your firm, the success you’ve had, and actually your mission, your objective as you laid it out to us. I think the work that your firm does is critically important and it’s just phenomenal to have you and your business in our ecosystem because as you know I get calls all the time from firms who are either looking for a COO or need the kind of help that your firm provides. And I think that as firms evolve in their business development arc for lack of a better phrase or as they go through the maturation process, they realize they need help, but they don’t exactly know what kind of help they need. And oftentimes they’ll say I need a Chief Operations Officer or a Chief Operating Officer but not really have a fully fleshed out functional responsibility or job description. So, I think that arriving at this inflection point is critical for firms and it goes to the theme that we like to say here at Fidelity, is you have to declare a major. Are you going to be a professionalized and growing business? Or, are you going to sort of just kind of chug along in the best case and in the worst-case limp along? So, I think it’s a critical introspection point and a critical maturation decision but one that should be taken quite thoughtfully and leveraging your firm to make that diagnostic and to help that decision making is one critical path and certainly we’re here to lean in as well.

Matt Sonnen [00:09:29]Yes, thank you for all of that.

Matt Sonnen [00:10:25]I made the joke in the beginning, I’m a recovering COO and so I gravitate towards that title. Some business owners it scares them.  They go, “ooph, that sounds really expensive. That’s an expensive hire.” So, I say well call them whatever you want, Director of Operations, whatever title you want to give this person but it’s just in my mind it’s so critical to have somebody there whose primary job is not business development and isn’t just thinking about clients; going to get clients, prospects, etc. but really the running of the business. So, I gravitate towards COO but call this person anything you want just make sure you have them within your organization. So, let me ask you guys this one. We hear that the role of the custodian within the ecosystem is becoming commoditization. Commissions and fees on products are going to zero is what everybody’s worried about and it’s getting harder and harder for custodians to distinguish themselves from one another. Earlier I mentioned Fidelity’s Operation Steering Committee. So, David, can you speak to how Fidelity works with our RIAs beyond simply providing custodial services? How do you help RIAs think through how they run their businesses?

David Canter [00:11:38]Sure and before I do that Matt, since Scott mentioned the E-Myth book and you talked about Traction I think for any RIA a firm that is thinking about just their business generally or the COO paradigm, I’ll recommend a podcast that I love. Right after your podcast, my favorite podcast is one called Startup. It’s a really fascinating podcast it’s available on iTunes it’s produced by Gimlet Media. But I think too often we think of the wealth management or the RIA business in a vacuum. But sort of fail to appreciate and recognize that they’re business challenges faced by all of businesses. And I think Startup has just some really good well tested lessons that we can all learn from. So, shifting gears, for our business and you’re right, this a ecosystem has become so complex and grown so much. We’re focused on four outward areas to support the advisory profession including our clients and prospects. So, let me tell you what they are. We want to help our firms grow and that’s not always an easy solution but we’re here to help through consulting, through insights, through programs. Including consulting on whether you need a COO because making that decision and freeing up time from some of the business principles so that they can go out and attract business and not have to worry about every single day to day operational task. That can be a key driver. So, growth is an imperative. Secondly, we want to help our firms create an exceptional and differentiated client experience and in particular help them with a digital experience because we think in the future having that digital experience combined with the human touch is the imperative. Third Matt, and this is where I’d be happy to go into greater depth, is we want to be what that wise counsel to our clients and prospects in understanding and navigating this increasingly complex and evolved RIA ecosystem. Maybe if you’ll allow me, I’ll come back to that. So, the ecosystem and being that council is really critical for us. And fourth, we’re here to advocate for the profession, for our advisors, for the RIA category as a whole in Washington, in the states with the legislators, and the regulators. So, those are our four outwardly facing missions and at the right time that and it could be now. A you’re our guide… you’re our Sherpa if you will. I can talk more about the ecosystem, but I’ll pause right now for a moment.

Matt Sonnen [00:14:33]Well we’ll come back. Let me jump to Scott and then we’ll come back to you to talk about the ecosystem. Obviously at PFI, we think about that ecosystem all the time. So, Scott, as a member of the Practice Management and Consulting Group what other initiatives does Fidelity have in this area?

Scott Slater [00:14:53]We’ve actually brought a lot to it because to David’s point, a lot of what firms are turning to us with are business challenges that are keeping them from growing or being more productive and they’re looking for a lot of that help. I would say some of the specifics in addition. Certainly, we do consulting. I have a lot of conversations helping firms think through more specifically right now their M&A strategy. But we have a program that we call the E-Learning Exchange which I think enables both principals of firms and frankly some of their advisors to do a combination of online learning and coaching to help them to do a better job of dealing with some of the challenges they have. They don’t have to do a raft of courses but they can choose selectively and really focus on the issues they need to develop how to grow more effectively, how to use technology more effectively, how to deal with client segmentation, and some of those kind of common problems that every firm, and frankly every business going through growth is going to go through those kind of issues. So, E-Learning Exchange is one. We also provide a platform that we call Consults Space where, to David’s point about the ecosystem, it really enables us to help guide firms that have a specific problem they want to solve. Maybe they have a marketing issue and they’re looking for certain types of help and we’ll provide a level of help on a lot of that. We can also steer them to some proven players out there to help them with the different challenges. And I think one of the most interesting things we do is something I think David was instrumental in developing over the years, we’ve got these Think Tank Days where we’ll take on a problem that we’re hearing from clients like for instance, we just recently did one on the whole challenge of finding talent and how do we get advisors and develop advisors and really retain them or what we’re seeing with alternative pricing models. We did a dedicated day for each of those topics just this spring that really helps advisors and clients really think through some of those challenges. And then we try to help bring that to others in the industry, other advisors in the industry to help them really navigate the challenges and help them to think going forward. So, it’s elements like that and as well as for many of our firms we’ll do some deeper consulting to really help them move forward. And I would say the bottom line is a lot of times within consulting it’s very easy to think about it as a technical problem. I think that’s the consulting industry and in general heads to go there. But there’s a people problem to it too.  A management challenge and a lot of times it’s coaching to help people really think through how do we take this technical solution and actually get it to work. How do we create that kind of change in our organization? So, a lot of that even our G2 institute a number of other things that we’ve done that really help to educate the next generation of leadership. We’re really focused on the issues that help bring to light the things that David’s talking about around growth and creating an exceptional client experience for their end clients.

David Canter [00:18:14]And if I could jump in. Sorry to interrupt. Just your question was what are we up to in practice management and the initiatives. I tell you; I ask every advisory firm every business what’s your unfair advantage. And Scott’s too modest to say it himself but Scott Slater is quite frankly one of our unfair advantages. His skill, his focus on M&A and other initiatives. So, I guess as folks walk away from listening to this podcast, the question I would pose is, does thinking about the COO paradigm in your firm and how that resource is used, how does that help foster your unfair advantage.

Matt Sonnen [00:18:57]Yeah and another thing Scott mentioned is so near and dear to the COO’s day to day challenges is adoption within your organization, right. You can have the technology in place but if no one’s using it or they’re using it improperly it’s not doing you a lot of good. So yeah, that whole technology versus people issue, a lot of people are struggling with that one. And you mentioned the Think Tank Day, I was lucky enough to be part of that talent one and that was a bunch of COOs were in the room that day. Those think tank days that you guys put together are fantastic.

Scott Slater [00:19:34]Yeah and I really do think too, what you’re talking about here with a lot of this and probably on most of your podcasts, the role of the COO, yeah sure they’re supposed to come up with technical solutions but ultimately in their most successful mode, they are a change agent. And how you effectively create a pace of change in an organization to make it a better performing organization. And that’s not easy to do. And I think that’s a big part of what we’re talking about.

Matt Sonnen [00:20:05]Absolutely. David, I’ll throw it back to you. Do you want to go through ecosystem?

David Canter [00:20:12]Sure I’d be pleased to. This is the way I like to frame it because I’ve been in this space for 25 years now and if we go back 25 years, if you wanted to start an advisory firm, you really only needed three parties to that equation. You needed an advisor, you probably needed a lawyer or a compliance consultant to help you file your ADV, and then you needed a place to safe keep the assets, to custody the assets. That hopefully had a platform that would enable you to do it seamlessly. That’s what how platforms like Schwab and Fidelity and TD and Pershing were built. And if you were really lucky, you had a client or two. But then flash forward over the years you suddenly had a host of technology solutions from portfolio accounting systems, to financial plant ending modules, to modeling and rebalancing, and then platforms to help advisors began to emerge like Envestnet, like Orion, like Black Diamond/Advent but it continues with other outsource providers whether it’s the TAMP space, whether it’s the consulting spaces. I mean clearly PFI is a big part of this. But capital providers have entered the space, strategic aggregator firms and it’s not just the Focus, the High Tower, and the United Capital anymore. We might talk about United Capital later but there actually by our count at least 25 national RIA firms, there’s probably 30 legitimate RIA firms that are focused on acquisition, maybe more. And my favorite stat that I like to say, and you’ve probably heard me say before Matt, in 2018 alone there were 4 private equity deals not in the wealth management space because there were far more than that but in the compliance consulting to the wealth management space. So, compliance consulting firms were invested in by private equity. So, that’s why we think it’s our job to help our clients understand this ecosystem and navigate it and the great thing about it is there’s so much choice now for advisory firms and so many ways to get help that you no longer really have to do it yourself. And quite frankly this is a role that the COO can play at the firm because you have to evaluate these resources and decide what you’re going to build, buy, or partner for your own firm. So, that’s what we’re talking about quite frankly and the COO I think plays such an integral role in evaluating and understanding the ecosystem.

Scott Slater [00:23:12]The flip side to that expansion of choice is that it means that it’s all that much more harder to make decisions. I often say it’s like going to Home Depot on Saturday morning with no plan and just getting overwhelmed with the choices there and then starting to buy tools that are on sale just because you think you might need them someday. You really need somebody help you navigate it and I think to David’s point a COO could be the one who is narrowing down the options based on strategic objectives and can help move things forward because I do think all that choice keeps people some pattern making decisions.

Matt Sonnen [00:23:50]That’s exactly where I was going. You used the Home Depot analogy, I always use a cereal aisle analogy, if you go into the cereal aisle and there’s 47 boxes of cereal, there’s psychological studies that say more often than not the person who walks away with no cereal at all because “I just can’t. This is too overwhelming.” Choice is good to a certain point. And it’s great that the industry is evolving, and we have so many service providers out there.  I’ve joked before that helping Luminous Capital get started 11,12 years ago in some ways was easier because there weren’t as many choices to choose from. It’s in some ways it’s even harder today just because there were so many people, so many vendors, technologies, etc. to navigate. That’s great. So, we talked about it earlier so let’s tackle M&A. It’s such a big part of our industry. Scott I’ve told you many times all of us at PFI are big fans of your podcast – Future Ready Through M&A. I listened to your latest interview with Adam Birenbaum from Buckingham. And that was a great episode you warned our RIAs about the addiction to inorganic growth and the high that RIA owners feel when they complete another transaction. They get all the industry headlines from it. And it definitely can be an addiction, but you had a great conversation about needing to understand why you’re looking to make an acquisition and really understanding what you’re hoping to get out of that merger with another firm. And we’ve made similar warnings to RIA buyers stating that before you enter the M&A arena you really need to build out your messaging as to why an adviser would want to join you and really be prepared to illustrate how your firm’s infrastructure is going to allow that adviser to grow more quickly as part of your larger organization than continuing to do it on their own. And we’ve made the case many times on this podcast that the best person, there’s no better person within the RIA, to make that presentation about the buyer’s infrastructure and capabilities than the COO. So, Scott, you’ve done more work around M&A than anybody at Fidelity, what is your take on the buyer’s need or what do buyers need to do in order to be successful and how does the COO play a part in that?

Scott Slater [00:26:17]Well it’s a great question. I think the primary thing I would say to your point is, frankly, it goes back to even my marketing days at General Mills. Why does somebody need your product? And so ultimately, it’s the same thing that RIAs are thinking about when they’re trying to bring on new clients. Why should they choose your firm to bring their wealth management business to? And in this case the RIA wants to be a buyer needs to think about why does an advisor need you? There are more options today, which is I think a great thing. There are more options today for sellers in a truly seller’s market than ever but that means you’ve got to figure out as a seller what do you really want. So, from a buyer’s standpoint they have to be the one to position themselves to say this is why my platform is better for you or we’re going to solve this issue around helping you grow. And here’s how we do it. And you’ve got to be specific. Everybody’s got a tech stack but why is the approach that you have. It’s more than just the technology, it’s the process and service platform. And I would say one that’s a big one, is what is the culture going to be like? Independence is a lot of what’s built this industry so rapidly and I think many times that people hesitate to do transactions, to sell because they don’t want to give up their independence. So, how are you going to sustain that, and I do find that a lot of the largest acquirers today are very attentive to how do we bring on people to keep them here and engage them. And so, I think that’s a big part of it. So, that means you’re really got to get sharp on why someone should come to your firm and be on your platform and how you can actually help them be in a better environment than they were before.

Matt Sonnen [00:27:58]Yeah and we’ve talked a lot about, we’ve coined it advisor pitch versus client pitch. And a lot of advisors, “Hey, I’ve been in this industry for 20 plus years I’m really good at it going out and getting clients, end clients to trust me and to understand how we can serve them.” And then they take that same presentation deck that they’ve been using for 20 years and they try to use that with advisors. And I say, “No, no it’s a totally different pitch.” You’re really selling the capabilities of the firm that the infrastructure, all the behind the scenes things that clients aren’t going to care about. You really need to get into the weeds and talk about all of that when you’re trying to attract advisors to the organization as opposed to end clients. It’s a very different presentation. So, again we talked to the buyers and say you really need to clean things up and spend a lot of time and energy making sure you have a robust infrastructure. What is your opinion on the seller? How much time, energy, money should they be spending before they put out the for-sale sign? How much time should they be spending on their infrastructure or should they just leave it because a buyer might be more attracted to “Ooo there is stuff we can fix here? So, what is your advice to the sellers and just in terms of the infrastructure.

Scott Slater [00:29:18]Well I’m going to give you a good, having been a longtime business consultant, I’m going to give you a good consultant answer. It depends. But here’s how I would be more specific to that. I think you look to your motivation of why you sell it. If you’re selling because you’re really at the point of succession and you’re planning to exit pretty quickly within a year and a half or two years or less and you’re way behind on keeping up to date on your technology stack and some of your processes and so on, I wouldn’t spend a lot of energy there. But if you’re trying to really position yourself to be attractive to some of the better acquirers because they’re very selective. You might want to give some work to do some fundamental cleanup of your business. Do a better job of integrating the technology that you have. Make sure that you are more digital to David’s earlier point. I would say it’s a big part of it. Make sure there’s some consistency in terms of what the client experience is. Because some of those things you can do fairly quickly I think to make that better but that I wouldn’t be spending huge amounts of capital when I think the opportunity now is to find a partner who can really help you do it. I think it does tie back to David’s comment about the ecosystem that really there are people out there and third parties out there who can help you make that change more effectively than you’re just trying to do it all yourself.

Matt Sonnen [00:30:56]I think that’s right. Okay David, I have a trick question for you. In your opinion should and should an RIA focus more on profit or growth?

David Canter [00:31:08]Thank you for the trick question let me. It’s interesting and I hearken back to my comment about Startup. My view is that these are consulting based businesses and that the ability to grow and make profits is in some ways constrained by the people because you have people who are serving clients and you have naturally ingrained capacity issues. So, I’m going to sort of say this question is what I’ll call a hip bone connected to the leg bone question because if you want to grow you need to have everybody in the right roles to help foster the team mission and a COO plays a very important part to that. But you need to be leveraging technology. You need to have the right skills for your advisors. And what’s really sort of not been well achieved in this business is getting more capacity for advisors through the use of technology. So, my general rule is these are pretty capital light people intensive businesses. So, there’s not a lot of capital investment that you put into the business unless you’re sacrificing growth because you’re going to apply capital toward M&A. So, it is a trick question, but I put in the caveat that again these are consulting driven businesses. I’ll put in one plug for a firm out there that is an emerging firm that I think is an interesting parable for the notion of do you sacrifice profits for growth. There’s a firm called Facet Wealth that has attracted quite a lot of venture capital money. They’ve built some interesting technology and they’re trying to have a scaled financial planning and financial investment management offering for investors really it at every level. But focusing on the mass affluent and they want to work with advisors. They offer a segmentation strategy for advisors who are looking to have a solution for smaller clients. And here’s a firm that is invested a lot of capital for growth at the clear expense of any short-term profit. I think they intend to operate at a sort of pro forma loss because they want to put a lot of technology and scale and processes and systems so that they can capture a lot of growth in the three to five year time period which will ultimately bear a lot of fruit for profit if their plan works out correctly.

Scott Slater [00:34:08]Yeah let me tackle that question too because I think it’s the question about what should you be focused on profit or growth. My simple answer is well, both. Early in my career I had a boss who often said you can’t grow your way out of unprofitability which I think is a really wise statement if you begin to think through what that implies. That a lot of times I think in any business people turn to trying to figure out how to get some growth from top line growth when they’re still not profitable. So, the first question I really would ask is well, if you’re not profitable yet why is that? Are you just not large enough to cover your fixed costs or if you’re a larger firm do you have too many people? I mean let’s remember that 70% of the cost structure in the typical RIA are people. So, how do you benchmark against firms of similar size in terms of your staffing levels your compensation and so on. So, why aren’t you profitable? Would be really the first question I would ask and then benchmark that. But I would say growth is also pretty critical to the long-term sustainability of the business. And that’s why I think it’s pretty important to figure that out. But I would say doing growth to try to get yourself to profitability often is not a winning strategy. You’ve got to figure out why you’re not profitable to begin with.

Matt Sonnen [00:35:35]I think that’s great you both did very well with an impossible to answer questions so thank you. Now here’s a topic we haven’t addressed on the podcast we’ve written about it on our blog but with the podcast we’re trying to shed light on COOs that are in thriving situations within their firms and we’re using this forum as an opportunity to gain insight from successful COOs and have them talk about the strategies that they’re taking to succeed both personally and professionally. But the sad truth is many times the COO role doesn’t work within the RIA community. The article that we’d written on our blog was called when professional management fails at RIAs and it gained a lot of attention. We interviewed several COOs for the article but then we were contacted by many more after the article was written and they were telling us about situations where the owner of the firm said all the right things during the interview process said, “Hey, I need to bring somebody in here. I need to get focused on clients and prospects. I need somebody in here to really run the business for me.” But once the COO joined the firm the owner has a much harder time than anticipated in relinquishing control and then once the employees realize that COO, the new COO, the quote new guy or girl in the office doesn’t really have a lot of authority. Things can unravel rather quickly. So, David you and I have talked about this phenomenon before and over the course of your career you’ve had a unique view into many RIAs, and I know you’ve seen this happen. What do you attribute this high failure rate for COOs in our industry to?

David Canter [00:37:17]Sure. I think I estimate the failure rate to be actually at 50% or higher. And I’m going to identify at least three issues. Number one is a failure to really do a fulsome sort of 360 degree review of the team at the advisory firms by the prospective COO because as you noted, Matt, it’s not just about the principal, the CEO, whomever that may be or the founders and principals but it’s the whole team. And so really getting the perspectives of the entire organization I think is key. So, that’s number one, look beyond just the existing leadership but the folks who make the firm run day to day. And it’s really incumbent upon the prospective COO to do that due diligence because remember it’s sort of doing the job before you’re in the job. Second, it’s getting clarity in written form with the founder, the founders, the principals on what the role will entail. Third, it’s actually spending the first 90 to 180 days, and this is my view by the way this may not be the views of everyone, of really getting a great understanding of how the firm works and where the COO can make an impact. And I think that that’s critical you have to play for the long game not the short game and in many small businesses really aren’t set up or designed for that. But I think it’s the first 90 to 100 days is do a lot of listening and do a lot of absorbing. And you have to pick your spots quite wisely. And I guess the last thing, I’d throw in some advice which I had one of our team members, our stakeholders here leave to go become a COO. As a matter of fact in my two and a half years leading this business, there have been no fewer than four folks on the team move left to become COOs of our firms which is really a great confirmation and endorsement of our talent that our advisory firms are interested in our people. And I said look, your first your first year isn’t about any big plays because they’ve talked to me about, they want to go in and make an impact and here are the big plays. And my advice is no, your first year is about making some small incremental plays so you can set yourself up for future success. So Matt, those are my four areas and they’re really about doing a lot of due diligence mutually. The COO and the firm about one another before you start. And it’s not just about having a good rapport and good set of understandings with the president or the leadership of the firm. You really have to do that up and down all levels to be successful.

Matt Sonnen [00:40:22]So Scott, I’ll go to you, what have you seen in this area?

Scott Slater [00:40:28]I think David outlined some very key elements of this too. And I’ve talked, even this week, with people who’ve struggled, either are struggling in their role as COO or have left an organization. Now that’s not to say that there haven’t been people I’ve talked to who’ve been very instrumental in turning firms around because I have. But ultimately, you’ve got to recognize that, to David’s point, this really is a political position in a lot of ways. And a lot of times in consulting we talk about there’s three types of consulting out there. There’s the pair of hands where if somebody is being told I just need some help to get something done to implement let’s say a technology tool but don’t tell me what I need, just put it in place. Or I need an expert. Tell me what technology I need but I don’t want to really consult with you to figure out what we need but I just need an expert to do it. But ultimately what consulting that really create change, that moves the firm forward has to be much more collaborative and I think that’s what David’s really talking about here. And if you think about that, there’s a well-known professor John Kotter who used to teach at Harvard.  He has an eight-step change management process. A lot of those elements, and that’s pretty well known, but a lot of those elements are really about trying to gain momentum by David’s point get some incremental wins, celebrate those wins get people behind it. In that listening that you’re doing in the first 90 to 100 days, you’re looking for what are the problems that, not just the leadership struggle with, but what are others in the organization frustrated with? Is it something around why they’re not growing or is it certain bottlenecks? And can you help solve those and add value and create some wins that get political support behind you throughout the organization. And then build on that and get the flywheel moving and build on that. Those are the people who are going to be more successful at this because they’re really recognizing that their role as a change agent isn’t to come in and be a bull in a china shop and really shake things up. Because most organizations that’s not what they’re looking for. In fact, for a lot of firms this is the first time they’ve really had serious management come into the organization and that’s a big change. So, you have got to be patient with the pace that you’re allowing this to go and to be more selective in the wins that you want to get and then that way you can really immerse yourself in the DNA of the organization itself and really help take its best qualities and create a more effective organization. That’s hard to do.

Matt Sonnen [00:43:09]I think that’s fantastic advice. We talk about it a lot. A lot of people just assume well, a Chief Operating Officer, I just need a programmer. I just need a technology person that’s going to sit in the back room and make our tech stack work and I always say I think 70 percent of this job, the COO job, is HR related and it’s how are you interacting with people. And I think that’s fantastic advice, in those first 90 days it’s so critical to get a few wins just to start building some confidence. Because as I said kind of in my intro to this question, as soon as you lose the confidence of the staff, they’re just going to continue to go right over you and they’re going to continue to talk to the founders, the owners, whatever and ignore a lot of what you’re trying to do as that change agents. So, I think that’s I think that’s fantastic.

Scott Slater [00:43:59]Well just one last thing I’d add to that too. Let’s just remember the COO, while it is operations and you do need to bring technical solutions to problems, ultimately it is, to your point, it’s a people problem. How can you engage people in helping you to solve some of those very problems so that they have more ownership of it? That’s how you’re going to…you don’t have to be the one to win it all. You can let other people have the ideas and they may already know what needs to be fixed but they don’t know how to do it or have the time to do it and you can be the one to help drive that initiative. That’s all I wanted to add to that.

Matt Sonnen [00:44:35]No, that is fantastic. You guys have been really great today, you’ve added so much value to the COO challenges that everybody’s facing, so thank you both, David and Scott, for being here.

David Canter [00:44:47]Well Matt, thank you. Congratulations on PFI and all your success and also congratulations on your podcast. It’s really of value and we all appreciate what you’re doing so. So, keep it up and we’re here to support you.

Matt Sonnen [00:45:02]Thank you. Thanks.

Scott Slater [00:45:05]Matt, I appreciate it very much. You guys are doing a great job with it. And I would also say just your thought leadership on many of your articles I think provide some good insight on how to be successful in this too. So, it’s been great to work with you on this. Thank you.

Matt Sonnen [00:45:18]Fantastic, thanks a lot. Thank you. And podcast listeners, thank you for joining us again. If you aren’t subscribed yet, you can follow The COO Roundtable, were on iTunes or on Google Play and obviously we post updates at pfiadvisors.com as well. We’ll talk to everybody soon.

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