Theory and Practice    
As Einstein once observed, “In theory, theory and practice are the same. In practice, they are not.” We see that every day in our work with RIAs. The theory of managing a business is often quite different from the reality of working with the people and resources available. The group quickly learned that information is never sufficient. Analysis is not always conclusive and clear. People are never as predictable as we would like. And changing behavior—including your own—is very difficult.

Making real-world decisions also means affecting the lives of real people, which puts a heavy psychological burden on the shoulders of business owners. It is easy to make compensation changes in a spreadsheet, but it is very difficult to sit across from someone and explain that her income will change, and why you believe the change is necessary and positive.

Feedback
Our simulation had a judge’s panel comprising experienced entrepreneurs who had started several of the most successful RIAs in the country and others (they included John Waldron, Adam Birenbaum, Laura Kogen, Bob Glovsky, Tom Goyne, John Morris, Rick Buoncore, Russ Hill, Tim Kochis and Brandon Odell). The authors also participated.

Every fictional RIA created a business plan and presented that plan to the panel. Each judge contributed a score for the plan and influenced the next step in the simulation.

The judges often disagreed about the best course of action. Making business decisions is never clear cut, and there are always differences of approach, style and opinion. In any business situation, there are different directions possible. An entrepreneur must choose one and take responsibility for that choice.

Teamwork
The teams consisted of six to eight members. While everyone was assigned a fictional title, the hierarchy of the participants did not match the hierarchy of the simulation. In other words, the teams had to define their own leadership style and organizational culture. The resulting team structures tell us something about the RIA industry.

One is that there is no single optimal organizational structure for making decisions. Some teams chose to be very hierarchical while others stayed flat. Some chose permanent leaders and others rotated the position of power. Some completed assignments in close collaboration; others preferred to “divide and conquer.” The success of the team did not depend so much on the chosen structure, but rather on the team’s ability to clearly define that structure and find consensus about it. Teams that spent time early on discussing how they would communicate and make decisions did better than teams that waited for a structure to emerge.

Financials Matter
The income statement (P&L) of a firm is a vital management tool for a business owner, and one that those who have spent their careers in established organizations often forget about. The next generation of leaders are capable managers, but they tend to overlook this important tool, basing their management on concepts rather than the P&L. While this may be something of an overstatement, we do find that managing the P&L to balance opportunities and ideas with the financial resources of the firm is a crucial skill that future leaders must learn.