Management Myth Busters

Most entrepreneurs are convinced that in order to succeed, they must work extremely long hours. And that may be true, particularly during startup. But at established companies, executives working night and day may be unwise financially and socially, according to a survey released last month by Schwab Institutional, a division of Charles Schwab & Co.

The survey focused on independent investment advisory firms, but its conclusions apply to most service providers and many small businesses. It showed that on average, investment advisers who worked 60 hours a week generated less income per hour than their counterparts who worked the industry average of 45 to 50. Dave Welling, vice-president for strategic marketing at Schwab Institutional, spoke recently with Smart Answers columnist Karen E. Klein about the survey and some of the small business myths it exploded. Edited excerpts of their conversation follow.

What did the survey show about the hourly earnings of the independent, fee-based investment advisers that responded?

On an hourly basis, those who worked 33% more than the average work week earned $83 per hour, compared with $93 per hour earned by those working the industry standard. It makes sense if you think about the law of diminishing returns.

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For each hour you work after a certain threshold, you're becoming less productive. The survey showed that the best-managed small service firms succeed not only because they practice efficient time management and organizational techniques but also because they do not fall prey to common time management myths.

What are some of those myths?

Well, the first is that every business problem can be solved if the owners and employees simply work longer hours. But what the study showed is that increased hours don't necessarily result in increased productivity. This is a problem for small business owners who think they won't succeed if they're not in the office constantly, and for those who evaluate their employees based on hours worked, instead of performance results.

What's the solution to that mind-set?

We tell these advisers to cultivate a company culture that respects work-life balance. If they improve their staff communications, they will be able to detect when employees might be approaching a breaking point. They can also use performance metrics to identify opportunities for improved efficiency and look to technology, outsourcing, or organizational redesign to streamline certain employees' workloads.

During the course of the survey, we met with the 40 or 50 of our firms that are the best managed. It was remarkable how much time those business owners spend thinking about how they spend their time and where they need to be in three years or five years—not just 6 or 12 months.

There's a great myth among entrepreneurs that they can't afford the time to step back and plan their time. But the ones who do that actually create time. The time to work on the things that are really important, but not urgent, can be found at annual planning retreats and monthly principals' meetings, where everyone sits down and reviews the company's activities and focuses on three or four initiatives that everyone agrees on.

What's another myth the survey upended?

Another one is that every problem can be solved by simply adding more people to your company. Because we're dealing with service firms, they are people-intensive, and 70% of their expenses are people-related.

But what we found is that it is important to add staff when your company is growing, but you have to add the right people. A lot of our successful advisers hire support people and then automate some of their functions with technology, rather than bringing in a lot of high-end professionals.

It's important to know when to delegate, and to be able to recognize the right time to do that. A financial adviser who opens his own firm initially is a technical worker whose expertise is in managing people's money.

Then they become a business owner and they need to also manage a business.

The ones who are successful and grow either stay in the role of a technician and hire a CEO to run the company, or they develop a new passion for leading the business and they become the CEO and delegate the technical aspects to new hires. The ones who try to hang on to both of those roles get into trouble: They can't do it. Nobody can wear that many hats.

Don't most business owners think that they have to solve all the company's problems themselves?

Absolutely, and that's another one of the myths we spotted. Successful entrepreneurs have confidence in their team members to mature into the roles they've taken on. They groom them over several years so they can go from technical workers into handling client relationships into developing new business into being a future leader of the firm.

In financial services and other service firms, it's critical to set that path for your employees. If you don't, you'll lose good people who want to progress in their careers and will go elsewhere if they can't see that progressive path in front of them.

How about one more myth that the survey busted?

O.K., every problem can be solved by client growth. The fallacy there is that problem firms that grow larger only have larger problems.

If they're dealing with inefficiencies and frustrations when they are small, they'll only be dealing with bigger frustrations and inefficiencies as they get bigger, unless they fix those problems first. And it's much easier to fix the problems when they're small than it is when they get bigger.

What are the keys to solving those problems?

Think about what you could be doing that would be more productive for the firm, or healthier for your family, or working for your community and firm at the same time. A key step is documentation: What do you do that is successful? How do you do it? These are behind-the-scenes processes that are completely invisible to the clients, things like how clients are greeted, whether they are offered a drink and personally led to a conference room.

It's like when you stay at a Four Seasons. The reason it's such a pleasant experience is that there's a script for everything that should happen from the moment you step out of a taxi at their door. If small companies don't document their best practices, they can't pass on what's successful to the entire culture.

And, of course, planning is crucial. So many entrepreneurs have goals and ambitions, but not a plan. When they finally do start to plan, it's only at the top line level of revenues and assets.

What they need to think about is things like capacity. In a people-intensive business, if you want to double in size over the next three to four years, you have to plan for the people that will serve that revenue.

Otherwise your client services will degrade, and that's the whole core of the business. With a service firm, it's better to turn business away and slow down growth to maintain balance and customer service than it is to grow too fast and blow it.

Karen E. Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.