By Jonathan Kirschner and Megan Marshall
Over the past decade, the coaching industry has experienced a tectonic shift. In that time, executive coaching has been remade from a development experience reserved for an organization’s senior leaders to a “democratized” experience available to everyone. The companies driving this shift have managed to attract unprecedented investment capital with unicorn valuations.
These startup organizations have surely proven that great influencer marketing and a Silicon Valley vibe can make for a big splash. But, can they produce the outcomes organizations need?
For more than 40 years, organizations have leveraged executive coaching to optimize leadership performance. Traditionally, these services were conducted in-person (as recently as 2008, nearly 75% of coaching engagements were conducted in-person), and because developing senior leaders requires significant expertise, executive coaching was expensive. But, it also produced a massive ROI. A 2009 study by the International Coaching Federation showed that nearly 30% of coachees reported ROI greater than 10x their investment. At AIIR Consulting, our data points to an ROI of approximately 16x the initial investment. This means for every $1,000 spent, there is a return of $16,000.
Put another way, if a senior leader completes a successful coaching engagement, that would likely result in thousands of people being more engaged and effective and a positive impact on the bottom line. So while a $15,000-$25,000 investment may seem expensive on the surface, the risk/reward calculation for generating an average of $240,000-$400,000 on a 15-25k investment is a total no-brainer.
As the coaching industry grew and communications technology became more advanced, a disruptive opportunity for efficiency emerged. By leveraging technology to eliminate some of the expenses associated with traditional in-person coaching, executive coaches could deliver a premium executive coaching experience with greater efficiency and reduced costs.
When AIIR Consulting was founded, we were one of the first proponents of this model, which we called tech-enabled coaching. As a clinical psychologist and expert in the science of behavior change, my (Jonathan’s) goal was to leverage technology to empower companies to scale executive coaching without compromising the effectiveness of the coaching experience.
Over the past six years, a set of coaching organizations have emerged with a new model: the Democratization of Coaching (DoC). The companies selling this model have an enticing pitch: By mimicking the business models of disruptive tech companies like Uber, these new coaching companies can supposedly lower costs to such a significant degree that their clients can extend the benefit of coaching beyond the executive level, and even beyond the leadership level, to every single employee in the organization. The results they promise are increased effectiveness, increased employee engagement and satisfaction, and incredible ROI.
Fueled by venture capital dollars, these organizations scaled massive sales teams, bought famous influencers, built robust software applications, and undercut industry pricing. COVID-19 further accelerated the DoC movement’s success. In the unimaginably competitive talent marketplace that followed the pandemic, companies struggling to attract and retain employees were happy to add a new employee benefit: everyone gets a coach.
As the DoC market grew and investors poured into the space, early entrants like BetterUp suddenly had competition in the form of CoachHub, Ezra, Sounding Board, Braverly, AceUp, Torch, and others.
But, with the pandemic over, the economy normalizing, and the labor market cooling, the market is beginning to understand that the premise on which these providers are built — that everyone can, and should, have a coach — is starting to show cracks.
DoC providers attracted coaches with the promise of easy entry into the coaching profession and increased access to clients in exchange for a reduced hourly rate. An experienced coach could command $250-600+/hour in the market. Or, they could make $150/hour working for a DoC coaching company platform, but have more work without having to hunt for clients.
The first lesson in business is the law of supply and demand. As the number of DoC companies competing with each other increased, prices had to decrease, as did coach compensation (coaches in our network shared with us that compensation on one platform dropped as low as $60/hour). This drop in compensation led expert coaches to flee, leaving these companies staffed by less experienced and less effective coaches. Rather than democratizing coaching, DoC companies are commoditizing coaching.
The question HR and talent professionals have to ask is: what do you need coaching to do? Do you need to use coaching as a perk, or to achieve outperformance as an organization?
If you need to offer coaching as a perk, it doesn’t really matter who you work with. In our age of unprecedented change and loneliness, any opportunity to speak with someone willing to listen to our challenges will feel great! In fact, 99% of individuals who work with a coach are either “satisfied” or “very satisfied.”
But, let us be clear: investing in coaching as a perk is fundamentally different from investing in coaching to drive organizational outperformance.
An organization’s leaders affect virtually every outcome, from employee engagement to customer satisfaction, sales, and shareholder value. The quality of an organization’s leaders can be the difference between success and failure, growth or stagnation, short-term wins or long-term outperformance.
Executive coaching can be an incredible tool for increasing leadership effectiveness. And the benefits of executive coaching are well documented (it is worth pointing out here that the ICF’s study of coaching outcomes we referenced at the beginning of this article was conducted before DoC organizations entered the marketplace). AIIR Consulting’s vast database of coaching engagement data provides clear evidence of positive outcomes, including:
And, we know that these benefits cascade throughout the organization. A more effective executive will have a more effective team. The individuals on their team will themselves have more effective teams. And so on.
But, achieving and sustaining these outcomes, especially at the upper levels in an organization, is complex. It requires experience and expertise. And, coaches who are willing to work for lower rates in many cases don’t have the experience and expertise necessary to create and sustain meaningful outcomes at the leader level.
If the goal of coaching is to achieve organizational outperformance, then the goals of a coaching engagement have to align with the needs of the organization. This is why we believe in the criticality of stakeholder involvement. AIIR considers stakeholders to be a leader’s manager(s) and a representative from HR.
But, stakeholder involvement is complicated and time-consuming, and thus counter to scaling. That’s why DoC providers tend to ignore this critical step. And yet, any seasoned coach knows that when you involve a stakeholder or the organizational sponsor, the coaching outcomes are far more impactful and sustainable because the coaching was aligned to the organization’s strategy and thus exponentially more likely to lead to business outcomes.
Beyond being unlikely to deliver organizational outperformance, providing everyone with a coach can actually prevent early career professionals from becoming high-performing leaders.
Consider how people actually become leaders. In most modern organizations, entry-level employees spend the early years of their careers as individual contributors — they learn the business, and learn to collaborate, problem-solve, and build the networks of relationships they need. Those who emerge as potential leaders build foundational skills like followership, influence, executive presence, and social acumen. They move into management positions, where they learn to empower others to do the same.
As they become skilled people managers, they take on increasing responsibility, leading higher-stakes teams and making decisions. Soon, they are developing strategies, setting vision, and driving change initiatives.
As leaders, these individuals are now exposed to exponentially more complex challenges and stressors. At that level, with so much of the organization’s success or failure riding on their back, the difference between good and great is incredibly consequential. It is here where an experienced executive coach can deliver massive benefits to the organization.
Leaders are supposed to spend their early careers learning by doing — building skills and relationships, accumulating experiences, and making mistakes. But, when individual contributors and new managers are given a coach early in their careers, it robs them of this opportunity. They can use their coach as a crutch or, worse, learn the wrong skills from a coach who lacks the experience and expertise to help. For managers, getting everyone a coach can become an insidious way to evade their own managerial responsibilities to coach their direct reports and provide ongoing feedback, thus preventing them from an invaluable developmental experience.
We know the incredible results expert executive coaching can create for leaders and their organizations. Unfortunately, in recent years, we have seen too many organizations burn their development budgets on the democratization of coaching initiatives that fail to produce the organizational outperformance they need. And, we have seen them struggle as a result.
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