Failure has always intrigued me, largely because many people aren’t typically willing to open up about it, which makes it a mysterious topic. The goal of our question and answer series is to put failure front and center to help aspiring entrepreneurs get a bit of a back-stage pass to some of the most well-respected entrepreneurs in America.
I most recently had the pleasure of speaking with Dave Edwards, president of Heron Wealth in New York City. Heron Wealth provides financial planning, investment advice and estate planning. Dave founded Heron in 1996 and today it manages $355 million of its clients’ assets.
Fly-by of Dave Edwards
“I had built an independent boutique investment firm that managed roughly $100 million in assets. I loved my clients, was living the dream with my family in New York and spending summers in Nantucket racing sailboats.
“The financial crisis of 2008-9 shook me to my core and made me question my choice of career. Over six months I lost nearly 50% of my assets under management, still had all my overhead, and my business began thoroughly bleeding to death. At one point I questioned whether or not I was ever qualified to run the business I had started, but knew I couldn’t sustain my life working on sailboats.
“I made some critical choices to survive even as I endured the most personal stress I ever could have imagined. Looking back is humbling as I wouldn’t be where I am today without facing failure first hand.”
What is your elevator speech on your professional career: who are you, what have you done and how does that translate into value for your customers?
“I started Heron Wealth in 1996. For the first 10 years I thought my sole job was to deliver ‘excess returns’ to my clients. However, after a few years I realized I was spending much more time answering questions such as ‘Is my all stock portfolio right for my retirement?’ ‘How should I save for my children’s education?’ ‘What should I do in my divorce?’”
“In 2006, we surveyed our clients to find out why they valued our firm. We thought that investment advice would be the most important factor, but on the top 10 list of why clients worked with us, investment skill ranked 6th. The #1 reason why clients worked with us is because of trust. One client wrote, ‘Good new or bad, you will always hear it first from Dave!’
“With this survey, we realized that we were in the ’Good Advice’ business, not the ‘Investment Management’ business. We rebuilt our team structure and technology to satisfy these needs, and now offer wealth management, which is comprised of financial planning, investment advices and estate planning – anything our clients touch that involves money. We create meaningful personal relationships with our families. We commonly work with the matriarch and patriarch of a family, their adult children who may be in their 40’s or 50’s and their grandchildren as soon as they graduate from college. This cross generational approach enables us to deliver the ‘best possible’ solutions to the needs of our client families.”
Let's show everyone you're a normal human being. What's your personality, hobbies, favorite places to visit, pet peeves? Tell us about YOU.
“I love the ocean, and I love racing sailboats. I’m 56 years old, have sailed since I was 8 and raced since I was 30. Sailing is the only sport I know where competitors can get better into their 80’s. Intelligence and experience can contribute as much to success as strength and endurance. I may compete as crew, tactician or skipper. As crew, I am on the bow of the boat in a physically grueling battle hoisting sails and gybing spinnakers. As tactician, I have my hands off the gear and eyes out of the boat looking for opportunities and anticipating what can go wrong. As skipper, I am a human auto-pilot, using all my senses to optimize sail and boat trim, and communicating minute changes to the rest of the crew. All three roles are integral parts of winning.”
“Sailing is a lot like running an advisory firm, it takes years of experience to learn how to weather a big storm. When we’re out sailing, we always wear life jackets and are even tethered to the boat in cold or off-shore conditions. Each crew has a radio hooked to their jacket to communicate easily in the unlikely event of falling into the water. We use every forecasting tool available for us. We plan for problems, and that approach allows us to perform calmly when the disaster strikes.”
Think back in your career to a tough time or moment. How did you handle the emotional part of failure? What was the pep talk you gave yourself?
“As an investment advisor, it was certainly the crash of 2008. Every major institution was crumbling and nearly $2 trillion dollars in capital vanished, which made not only myself, but every investment advisor question whether they were ever qualified for the job.
“Prior to the crash of 2008, I enjoyed a prosperous life which enabled me to raise two children in New York City, send them to private schools, take amazing vacations a couple of times a year, and spend summers on the water in Nantucket. What’s not to love about that?”
“One year later I stared bankruptcy in the face. Our firm’s assets plummeted with the 55% decline in stocks, and a half dozen clients fired us on the expectation that stocks would go to zero. My investment firm lost nearly 50% of our assets under management in six months.”
“I went from a life many people dream of having to having literally zero savings. I didn’t sleep for more than two hours at a time for months, waking every couple of hours to check the overseas markets. My endocrine system (the chemicals in the blood stream that control concentration, memory, strength and alertness) went haywire. It was the most intense emotional hazing experience I could have ever imagined.”
“For a few weeks in March 2009, I considered closing my firm and finding other work. However, with Wall Street in disarray, the employment market was flooded with hungry talent. The only reasonable alternative to working as a wealth advisor was working as a steward on a yacht, and those jobs only pay minimum wage!”
“I told myself that the only way forward was to rebuild my firm from scratch, adapting to the realities of the post-crisis markets. It took time and until about 2010, I still felt like I was bleeding to death every day. By January 2012 we had returned to profitability. After taking the time to envision a whole new approach to serving clients, we began a period of rapid growth and expansion, gaining 30%/year in assets under management and revenues for the last 5 years.”
“We are thriving and building lasting relationships with our amazing clients… something I would have never predicted I would be saying after the experience I had been through.”
What are the three lessons you learned from "My Most Memorable Failure"?
1. There is nothing else except "do" or "not do".
2. Once you have gone through a terrible hazing experience, nothing will rattle you for the rest of your life.
3. Understand why your best clients like you and work to “clone” your best relationships.
What is the best lesson you learned from your worst boss?
“I started in the investment business in 1983 and absolutely loved the insane work environment. I thrived in a competitive environment, but always found myself stuck when it came time for my annual reviews. My productivity numbers were high, but my attitude was terrible, which translated into less than satisfactory bonuses.
“My immediate boss at Morgan Stanley told me, ‘you can’t tell a managing director that he’s stupid, even if that’s what you believe, and even if it’s true.”
“I learned from that day on I wasn’t meant to be an employee, which motivated my move to starting my own firm.”
What are two daily habits you never break, no matter where you are?
“First, I wake up by 6:00 a.m. on weekends, not just week days. I can’t sustain my routine by letting myself sleep in on the weekends. My Monday productivity skyrocketed when I wasn’t trying to recover from a broken routine over the weekend.
“Second, I get a minimum of 30 minutes of exercise daily. If I can’t get to the gym, then I can at least run the stairs in my building. Regardless of where I am, I can always find some way of getting a work out. One time on vacation in a remote hotel in Mexico, I used cinder blocks as free weights and did pull-ups on a tree.”
Many people say success correlates with the people you meet in your life. Describe two people that most impacted your success?
“My Latin teacher in 1975 took me under his wing. I was always distracted and never paying attention in class. He called me into his office and said, ‘Young man, you are too smart to be so stupid!’ From that point forward, I was required to show up at his office daily for a check of my homework. Mr. Smith brought me from failing grades to finishing the class with an A-.
“In college I had a history professor who was known for relentless editing. I was a strong writer and still couldn’t believe the amount of red ink I had on every single paper I ever wrote in his class. Later, Dr. Tobin was the advisor for my senior thesis – draft after draft after draft in an era before word processors! I attribute my ability to communicate well to the time spent under his watch.”
What types of books do you read and why?
“I read about behavioral science, the psychology of making good (and bad) decisions, and sales tactics. Both are critical to the success of our business. I need to constantly stay focused on our customer experience, coaching them to do the things they need to do.”
What one piece of advice do you have for aspiring entrepreneurs or business owners looking to catch their big opportunity?
“Every couple of years you need to cross the ‘U-shaped valley of death.’ Most business have a rising top line of revenues and another rising line of costs. The difference between is the profit margin. Most years the profit margin will be positive, let’s say 5-40%. However, without reinvestment in the business, the revenue line may level off or even fall, but the cost line rarely stops rising. If you don’t anticipate and address those trends, the business may become unprofitable and eventually fail.’
“Every couple of years, we take all profits of a year to reinvest in the business. The profit margin may shrink to zero and even go negative. The “U-shaped valley of death” is what the profit margin looks like during that period. If you make it to other side, 9 or 12 months later your business will be substantially larger. This is how we grew 30%/year in an industry where 5-10% growth is typical.”
“Startups like Amazon back in the 1990’s could rely on deep pocketed venture capital firms to supply the funds necessary to cross the valley of death, even if it took over a decade. Owners of small business don’t have that luxury and need to budget for occasional periods of reduced (or no) income.”
Looking back, what was the most non-conventional way you landed a memorable deal that made your success turn in the right direction? (Have fun with this one)
“I follow the ‘three-foot rule.’ This means whenever you’re within three feet of someone at a networking event, conference or friend’s party, you must introduce yourself. I was in a bar in England having a drink after a client meeting. Another American sat down next to me. Following ‘the three-foot rule,’ I introduced myself. We had a great conversation over drinks and dinner and exchanged business cards.
“Three years later I received a phone call from this gentleman letting me know he was the trustee of a $20 million estate and would like me to manage it.”
“Had I been sitting at the bar ignoring him and looking at my phone, I wouldn’t have ever had this opportunity come across my radar screen.”
“Moral of that story is: put your phone away and start meeting people!”