How to Succeed When Projects Fail

In the advisory industry, innovation produces above-average growth as firms employ technology more efficiently, use staff more effectively and provide better services for clients. Innovation and growth come at a cost, however. How do you know if an innovative idea will work in the first place?

If you’ve put something into effect and it’s not working the way you expected, what do you do about it?

About two years ago, my firm, Savant Capital Management, set out on an ambitious project — to develop a profitable, Web-based wealth management service to complement our in-house services. It didn’t work as planned, but we were able to turn lemons into lemonade by repurposing much of the work.

Looking at the lessons learned from innovations that don’t pay off can make your future efforts more successful, helping to drive growth and profitability.

TAKING A RISK

Why risk innovation in the first place? The desire for long-term success starts with a fundamental premise: Incremental progress has limits. Squeezing costs and ratcheting up service notch by notch produce only modest improvements. Superior growth is not about catching up or staying even; it’s about getting ahead. For a company aiming for above-average growth, focusing on incremental change while rivals reinvent the industry is like fiddling while Rome burns.

In his 2013 research paper titled Brave New World of Wealth Management, Mark Hurley, founder of Dallas-based Fiduciary Network, identified 1,000 to 1,200 “tweener” RIA firms: They had substantially greater scale and profitability than individual practitioners, he said, but unlike enterprise-size businesses, they have been “unable or unwilling to evolve beyond a founder-centric model.” He postulated that many of these firms would not achieve superior growth and size, and would slip back into being small less-profitable practices. Why is that?

Every firm bent on competing will try to imagine how it can grow by using better technology, different delivery systems, revised organizational design and management, better work styles, and inventive response to regulation and globalization. These firms will invest in their businesses, do advanced training and make concentrated efforts to grow organically — through new service offerings and delivery channels — and, beyond organically, by acquisitions and mergers.

Paying that kind of price may be painful and daunting. Misunderstandings and mismanagement of innovative failure can be expensive and may impair a firm’s ability to operate profitably. Worse yet, the struggle to innovate can cause angst, so the fear of failure overcomes an owner’s desire for growth.

Many of the firms that Hurley mentions may try to grow, have a bad experience and simply decide that additional effort is not worth it.

E-COMMERCE OR E-MYTH?

When we sought to innovate, we noted that the Internet had proved to be a successful platform for retail financial business. A number of financial firms had developed Web-based platforms to sell mutual funds and provide advice online. Meanwhile, some well-known providers had developed programs but subsequently quit the market.

Our firm looked at the various service offerings and felt we could offer the consumer something different: not product sales or automated advice, but advisory services working with a live planner via the Internet.

Before embarking on the project, our internal questions were straightforward:

  • What technical skills will it take to build a world-class electronic portal?
  • What additional full-time staffing will be required?
  • What scale issues may be presented?
  • What kind of marketing and advertising will we need, at what cost?
  • How much are we willing to put into the deal, and how long are we willing to operate it at a loss?
  • What’s the expected break-even point, and what can we reasonably expect to make as a return on investment?

Significant business innovation is a race to the bottom line: How much time, money and effort will be expended on a new initiative before it is profitable? How much money must be poured into a project before success or failure is known?
What we found is that those who seek online services look to advertising. There is no word-of-mouth, no Good Housekeeping Seal, no Angie’s List of great financial planners — nor, really, any other way to find good online advice.

The stark reality is that unless you can commit to significant advertising (many thousands of dollars annually, possibly forever) in a major market, it is next to impossible to build an online presence. The level of front-end advertising needed, it turns out, is beyond the reach of nearly every privately held financial firm in the country.

MAKING LEMONADE

We built out the e-Savant website to be intuitive and user friendly. We rolled it out in the San Francisco Bay Area using Web advertising. We quickly learned that advertising in other media would drive additional prospects to our site, so we started advertising locally.

This drove plenty of lookers to the site and generated dozens of inquiries, but there were very few buyers. We committed to additional advertising in other locations with essentially the same results: lots of shoppers, few buyers.

After a number of months, we learned that e-commerce attracts individuals who want very little interaction with humans. Our idea of involving live planners just did not resonate with Web shoppers. We also learned they liked our website much better than our service offerings.

After two years of planning, development and implementation, we changed gears to make lemonade out of the lemons. We scrapped our firm’s original website and replaced it with a slightly modified version of our e-commerce site.

We lost the money we’d spent advertising, but not the design and development costs — because we had intended to upgrade our old corporate site anyway. And ultimately, our site still shows we offer “e-planning,” should customers be interested.

There were a number of lessons that we learned from all this effort:

  • Growth isn’t easy. If it were, every startup firm would be a billion-dollar business.
  • Throwing gobs of money at a project or new idea may not work, no matter how big or successful your company’s core business is.
  • You must know why you are developing a new project, and how it fits with your future business strategy. You must be able to justify and validate the project in terms of profits, clients, money invested and eventual ROI.
  • Innovative projects are not about your core business — they’re about the next big thing. What is the best use of resources for the long haul?
  • Time won’t solve all problems. You must have an exit plan: You have to know when to hold ’em, and when to fold ’em.
  • In a committed and collaborative organization, innovation that doesn’t work is not a personal failure. It is a learning experience used for future improvement. You must applaud innovative thinking and the inevitable mistakes, false starts and failures that come from it.
  • With every innovative project, have a plan to move forward if it fails or falters, and use the experience to make your next effort better.

THE FAILURE OPTION

John C. Maxwell, author of numerous books on leadership, says, “The difference between average and achieving people is their perception of and response to failure.”

Firms that want superior performance realize that occasional failures by innovative teams are inevitable. Their leaders understand that the more advanced the innovation and mistakes, the more advanced the lessons learned, and the further they’ll get the next time.

Misfortune in innovation is an inevitable wake-up call for many. What you do with that misfortune, however, will make all the difference in your future. 

Glenn G. Kautt, CFP, EA, AIFA, is a Financial Planning columnist and vice chairman of Savant Capital Management, based in Rockford, Ill.

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