Why Profitable Advice Practices Are Going From 'Good To Great' (And How Yours Can Too)

In 2001 author Jim Collins published a book aimed at addressing a single question: "Can a good company become a great company, and if so, how?" The book, aptly titled Good to Great, would go on to become a New York Times bestseller, with members of The Wall Street Journal's CEO Council labelling it "the best management book they've read."

Concepts covered in Collins' book were developed off the back of a five-year research project which compared "companies that made the leap to those that did not"; concepts Collins is open in admitting "fly in the face of our modern business culture and will, quite frankly, upset some people.”

Of all the criticisms, authors Douglas Holt and Douglas Cameron, best known for penning “Cultural Strategy: Using Innovative Ideologies to Build Breakthrough Brands,” state the book provides a "generic business recipe" that ignores "particular strategic opportunities and challenges.

True it is that many great business books still lack practical application. To address this, we're going to focus on one aspect of one concept we see as most relevant to this content series on practice growth. That concept is 'the Flywheel effect'.

As Collins describes, the transition of a good business to a great business is by no means attributable to a single action, innovation, or breakthrough moment. Instead, Collins suggests it more closely resembles relentlessly pushing a heavy flywheel, with the wheel slowly building momentum until a point where:

"you’re pushing no harder than during the first rotation, but the flywheel goes faster and faster. Each turn of the flywheel builds upon work done earlier, compounding your investment of effort."

An example of the flywheel concept. Source: Leadership Now

In the book, Collins examines the flywheels of the likes of Amazon, Vanguard, Intel, Giro Sport Design, and numerous others. Despite the spread of industries and product offerings of the 'great' companies examined, the common thread across all is the momentum attributable to their ability to continue to attract customers, which in turn drives revenue growth, which fuels profitability, which allows reinvestment in the company.

A noteworthy example in the world of advice is that of 2016 start-up Coastal Advice Group, formerly Daniel Brown Financial Planning. A group that has experienced 10X growth across a five-year period.

When quizzed on the topic CEO Daniel Brown puts much of the group's growth down to “strategic acquisitions and consistently investing 5-10% of annual revenue in marketing.” An investment Brown credits with shifting their approach to new business from "chasing new clients" to "attracting new clients."

Another great example of a company that wouldn’t be out of place in the ‘good to great category’ is REA Group, an online real estate advertising company and darling of the Schroders investment stable by way of our interests in News Corp.

Our own Ray David, a fan of both Collins' flywheel concept and REA Group, has spent considerable time analysing the drivers behind the performance of the company.

From his analysis, Ray highlights one particular aspect of REA Group's flywheel as being integral to their sustained success: their ongoing investment in marketing. With the company re-investing a reported 5-7% of annual revenue in marketing to attract new users and customers.

Collins’ 'good to great' examples, and those of REA Group and Coastal Advice Group, show that for any business to grow and thrive over the long term, re-investment is essential. And as we transition into this 'new era for advice' where it seems the only constant is change, Collins' flywheel concept remains a sound enduring reference for any advice practice considering their options for growth.

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