Is Your Business Model the Right One For You?

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Jan 2, 2014

In my one-to-one coaching sessions with firm owners, I periodically deal with someone who has clearly chosen the wrong business model for themselves and are now suffering either mentally or financially as a result. In terms of designing your business model and org chart, the old adage, “measure twice, cut once” would save loads of heartache for those willing to think strategically about what kind of business to build. Most new owners erroneously believe that “bigger is better,” and make poor decisions regarding hiring, adding office space, increasing expenses, etc.

As a starting point for understanding which business model is best for you, it’s important to understand the various roles an owner must perform. Michael Gerber (author, business skills trainer) tells us that there are three roles that every business owner must be able to fulfill either himself or with the help of employees. The three roles are:

1. The Entrepreneur

The entrepreneur asks, “Are we doing the right things?” He’s responsible for the vision of the company, the broad marketing and branding strategy, pricing, niche selection, staying ahead of trends, large client acquisition and big picture decisions.

2. The Manager

The manager asks, “Are we doing things the right way?” He’s responsible for day-to-day management and employee issues. He enforces rules, gives feedback, tracks strategic indicators, leads meetings, etc.

3. The Technician

The technician asks, “What’s the closest thing to revenue right now?” This is the role of the recruiter with the phone attached to his ear. He’s making the calls, securing search assignments, recruiting, sourcing, etc.

To determine which type of firm is right for you, you must first soberly ask yourself which of the three above roles you’re both talented at and would enjoy performing for the next decade or more.

puzzleThink deeply about those three roles. Do you enjoy managing people? Do you only want to work a desk? If you’re someone who loves recruiting, but hates managing you have to be very careful about the type of firm you build, and either hire someone else to manage for you or keep your firm very small.

Once you have some idea of which of the three roles you may want to perform, it’s time to look at various models you might choose from. There are three models that I’ve seen work very well in our business. Each has pluses and minuses, and the “best fit” has more to do with the goals and personality of the owner than anything else. Here are the three models:

The Lone Ranger Model

This is the solo operator who works from his home or an executive suite, and does everything from emptying the trash can to reference checks. Most people who attempt this model do not succeed. The main killer that I have seen over and over again is their inability to get leverage on their own behavior, and do what they know they need to do day in and day out. In our coaching sessions we end up talking a lot about how to get them to make the calls and do the work that leads to placements.

The upside for the lone ranger is pretty obvious: low overhead, high profit margin, low risk, total independence, ability to make changes instantly, etc.

The downsides are also obvious: isolation, harder to stay motivated, difficult to unplug or take a vacation, single point of failure (you get sick, the business grinds to a halt), no ability to sell the business.

The Firm Owner Model

This is a model where the owner has made a commitment to hire full cycle recruiters, and to build a company using employees. The main challenges for the firm owner are employee issues and financial exposure. Owners quickly realize that it’s easy to hire recruiters, but very difficult to keep them for five years or more. The attrition rate in our industry is an embarrassment (around 80% don’t make it past the first year), and so the real question is not “Who should I hire?” but rather, “What systems do I need to have in place to keep good recruiters happy for a decade?”

The upside for the firm owner is that he can (theoretically) take a vacation without the business stopping, he has a higher income potential, there’s a (remote) possibility of being able to sell the firm in the future, he enjoys the synergy of a team environment, and he can build a culture and a brand beyond just himself.

The downside for the firm owner is that he takes bigger risks, has a smaller profit margin, may have his recruiters become his competitors, has to deal with lots of employee problems, and deals with more headaches and complexity in general.

The Rainmaker Model

The rainmaker model is a hybrid of the first two. It’s a lone ranger who hires some researchers to make him a better performer. So instead of the employees working the full cycle of recruiting, they just support the business brought in by the rainmaker. Usually that includes name generation, recruiting and support tasks.

One benefit for the rainmaker is that he still has fairly low overhead as support staff is paid much less than full cycle recruiters. He can more easily take a vacation as he has someone else who can maintain active searches. There’s no risk of him training his competitors as his employees don’t perform any business development. He gets the synergy of a team. He can hire his support staff as either contractors or employees and they can work on a part-time basis. He’s able to bill more with the added research support.

The downsides are similar to that of the lone ranger and the firm owner in that he can’t sell the business, has employee management issues to deal with, and all of the marketing still must go through him.

The Model Best for You

When I started my own firm back in 1998, I tried both the “Lone Ranger” and the “Firm Owner” models before realizing that the “Rainmaker Model” was the perfect fit for me. Making mistakes in terms of your org chart and having to shrink your firm and office space is more stress and grief than most people realize. It’s so much better to think through what lifestyle and goals you’re committed to and then decide which model is the best vehicle for getting you there.

As I said at the beginning of this article, there is no right model that applies to everyone, but there is when it comes to each specific owner. I can’t count the number of times I’ve dealt with owners who feel that they made the wrong choice and are now trapped by what they’ve built. If you fall into that category, at least deal with it head on – right now – and decide that you’re going to move in a new direction. Think long term. Don’t be afraid to make big changes once you know what direction would be best for you.

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