The Founders Trap – the great peril of entrepreneurship

For more than 40 years the strata management market has grown by disaggregation. As one firm grows to a point that bureaucracy and mediocrity dominate service delivery, another smaller one is born, a product of what I term an ‘entrepreneurial seizure’. 

‘I can do this better’. ‘This mob’s holding me back’. ‘I can be my own boss’. ‘I will strike out on my own’. And with little barriers to entry for new strata management businesses, a surge of adrenalin that comes after an entrepreneurial seizure is all it takes. Behold, a new bright shinny practice emerges with a clever name, fresh colours, imaginative branding, and new energy. 

The thrill of the chase is real and not long after beginning the first client is snagged, and then another, and then another. It is at this point that the first entrepreneurial hurdle appears. My friend and business coach inspiration, Jim Stackpool (2021) describes this as, ‘The Founders Trap’. In his excellent book about financial advisory firms, ‘What Price Value – How to Price Valuable Financial Advice’, Jim describes it this way – 

The snare of success takes its grip after an advisory firm delivers good work and creates satisfied clients who provide referrals. This in turn generates more demand for work, which creates more satisfied clients, and the cycle continues.

Unchecked, this adviser cycle can resemble a hamster stuck on a tiny running wheel – that is, there is lots of activity delivering advice, but without the commensurate returns for the firm’s founders.

He goes on to describe something I’ve seen, and experienced myself many times in the business of strata and law -

This hamster wheel will drain much of the motivation and enjoyment from founding advisers’ working lives. Their initial fears of survival are turned into a new fear – spending the rest of their working lives on a treadmill of their own making, continually planning for ‘when I get the time’.

The time-honoured response to this situation is the classic founders trap, hire more people, but there’s a problem with this: founders are generally poor trainers. 

Founders are ‘finders’ not ‘minders’, and the third essential group of any high performing successful team, the ‘grinders’ need minders not finders. 

Poor training for new bodies, invariably without robust operating systems, causes to more problems than solutions, and the trap has snared its victim. 

This leads Stackpool to prophesise his thirteenth business principle: ‘Raise your price before increasing your head count’. 

Raising prices, (even at the risk of losing inferior clients) will give you the money you need to progress to the next stage of growing a sustainable business. Losing problematic clients is a bonus and before long you will have more money and time to invest in your operating platform. 

When your platforms right the time to hire has come, and you will have avoided the founders trap.

(Excerpts from - What Price Value How to Price Valuable Financial Advice

Jim Stackpool https://itunes.apple.com/WebObjects/MZStore.woa/wa/viewBook?id=0

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