The power of a multigenerational strategy

The following is based on one of The Covenant Group’s clients. All of the names and telling details have been changed.

Frank Sluitter could make a lot of money as an advisor, but only for stretches at a time. Periods of prosperity in his business sandwiched droughts, sometimes lasting weeks or months. Frank, 42 years old, became an advisor over ten years earlier, after spending seven years as a financial analyst. He had made the career change because he saw financial analysts as an untapped market for the advisor industry. Too many advisors ignored analysts and others in the financial services sector assuming they took care of their planning needs themselves or already had a strong relationship with an advisor. 

Frank quickly proved his hypothesis by making a six-figure income in his first year. He continued to develop his niche in this market, and ten years later, still attributed over ¾ of his income to young, reasonably affluent 30-something analysts. Frank enjoyed working in this market but was troubled by the wild fluctuations in his revenue. During fall and early winter, analysts tended to work 12 to 16 hour days for weeks and months on end and were nearly impossible to reach. Summer wasn’t much better as many disappeared to their cottages. Consequently, Frank tended to make his money during a few crucial weeks. On top of this annual seasonality, Frank had to contend with market cycles. The current down market and the consolidation trend were shrinking his pool of prospects.

To smooth out his revenue line, Frank planned to expand into new markets and was considering targeting computer programmers, another market characterized by young, reasonably well-off individuals. Frank had connections to this market and felt comfortable about making a foray there.

“Frank,” I said, “I agree with your strategy to move into new markets, but I’m not thrilled with your choice of market, not because computer programmers isn’t a good market to be in per se, but because I don’t think it will solve your problem.”

Frank asked why.

“A successful advisory business depends on the management of five levers: product mix, case size, # of cases, seasonality and cyclicality. Your focus on one market doesn’t allow you to effectively manage these five levers. Because you’re working with people who have the same or similar needs, your range of products and average case size are limited. Your number of cases is on the low end because of slow periods. And we’ve already talked about seasonality and cyclicality. To test the viability of your new market strategy, you need to judge it against these five levers. And while computer programmers will give you some breadth, you’ll find that, because analysts and programmers have comparable incomes and age ranges, you’ll be addressing similar needs, meaning your average case size and product mix won’t budge much. Seasonality may level out somewhat, but the broad cycles that affect analysts will also affect your programmers. So, in the end, because your new market won’t have much affect on your ability to manage the five levers, you won’t be solving your problem.”

Frank asked what markets he should look at.

I told Frank that his issue brought to mind another client of mine, Michael Weinberg of Strategies for Wealth Creation and Protection out of New York. “Michael,” I said, “has developed an effective solution for your problem. Similar to yourself Michael made a successful living focusing on institutional traders and analysts. But to grow his business and protect it from the specific risk of a single-market focus, Michael has adopted a multi-generational marketing strategy. He took his existing clientele of well-to-do 30-somethings and used them as a springboard to access both an older and younger generation.”

Frank didn’t like the idea of approaching his clients and asking for referrals to their parents. He was afraid his clients would see this move as purely opportunistic.

“Frank,” I said, “you’ll find that the opposite is true. In Michael’s experience, his clients support the idea of him working with their parents. They care about their parents and are comforted to know Michael is looking after their financial needs. They also appreciate that Michael helps make their parents financially independent — reducing the chance that they’ll look to their kids for support during retirement. Many clients also support Michael’s efforts to create and preserve the estates of their parents — estates they are the beneficiaries of.

“Michael also gains the younger generation, generally through his clients’ parents, because as grandparents they want to set up insurance and investment plans for their grandchildren. Inevitably Michael ends up working with the entire family tree, including his clients’ siblings.

“Michael has found that by working with the whole family he is able to make a much more profound difference in his clients’ lives — and this strengthens, rather than weakens, client relationships.” Frank was still shaking his head. “I have a lot of expertise working with people in their 30s and early 40s. I know what they value and need, and I have the expertise to help them. Working with older people, retirees, or younger kids, putting their education savings plans together… well, that’s not me. I know what I do well.”

“Frank, I don’t want you to fall into the trap of what I call ‘playing the finite game’, where you think of your business only in terms of what you can and want to do. You’ve done a great job going narrow and deep. You’ve created a competitive advantage for yourself and developed prestige in your market. But to protect the future of your business, you need to grow, and growing will mean adopting an ‘Infinite Game’ mindset, where you look outside yourself for answers.

“Michael is a great example of someone who plays the Infinite Game. Though he knew he could access other generations through his primary clientele, he also knew his limitations when it came to servicing the panoply of needs in these other markets. Which is why he utilizes a team of experts, such as specialists in long-term care, critical illness and retirement income planning. Michael concentrates on building the relationships, and uses a team approach to provide technical expertise. And while he shares revenue with these experts, he has increased the overall pie.”

Frank was beginning to nod with approval.

“Addressing the needs of the different generations has allowed him to manage the five levers of his business. He has gained access to older people with significant estates and thereby increased his average case size. He’s writing considerably more cases, not only because he’s increased his market, but also because he has others helping on casework. He’s tripled and quadrupled his product mix. And because the generations are so variously affected by different seasonalities and cyclicalities, those effects are minimized.”

Frank agreed that he should follow Michael Weinberg’s model and begin diversifying his business multigenerationally. He spent the next few weeks developing a plan to target his clients’ parents and their children, educating himself on the needs of these markets and acquiring a base of technical and product knowledge, and forging relationships with specialists he could bring in to do casework. As I had expected, Frank met with little resistance in his effort to move up and down generations. Within six months, the benefits were obvious. Frank had acquired a number of affluent elderly clients, increasing his case size and breadth of product. Furthermore, he no longer suffered through dry spells when his analyst prospects were unreachable — instead, he focused on these new opportunities in his business. In this way, Frank was able to take command of the five levers that drove his business and steer himself toward growth.

Lessons Learned
Frank learned that his single-market focus left his business susceptible to wild fluctuations. His revenue line tended to mirror the seasonality and cyclicality of his market. Furthermore, his narrow focus meant that his product mix, number of cases and average case size were limited, leaving him with a fragile base upon which to build a business. To even out his revenue line and create a business with greater growth potential, Frank needed to gain better control of the five levers in his business. He needed to decrease his exposure to seasonality and cyclicality, and increase his number of cases, product mix and average case size. Frank could better manage these levers by expanding into different markets, but he needed to be sure that he was targeting the right markets for his business. He would not be getting anywhere if he focused on new markets that were too similar to his existing market. He needed a market that would offset seasonal and cyclical effects and offer opportunities to increase number of cases, case size, and product mix. For Frank, the answer lay in moving, not horizontally to markets with similar incomes and age ranges, but moving vertically up and down generations. Doing this gave Frank the diversity he needed and opened up his business to significant growth potential.

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The Covenant Group is referred to by many as the place entrepreneurs go to become Business Builders. They are considered to be thought leaders and have authored the best-selling books, The 8 Best Practices of High-Performing Salespeople, The Entrepreneurial Journey, and The Business Builder.