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A major part of our practice is assisting agents to grow; through better planning, through acquisition, through enhanced compensation of their producers or by adding new dimensions, usually new programs or markets. Thus, in writing this piece it seemed natural to simply reach for the usual 'good ideas.' Two thoughts dissuaded me. First, as strange as it may seem, most agents like to hear about what the other guy is doing, but then do little if anything to capitalize on the knowledge.
Why then should I try again to convince an unseen audience about 'the same old things' even though those things regularly work for others? On the other hand, we, and our clients, have learned some pretty interesting and, occasionally, hard lessons about agency expansion. It seemed that maybe once, somebody should write about the flip side of the coin. Accordingly, if you will accept the definition of heresy as a dissenting view; unorthodoxy, or doctrinal divergence, then herewith are one heretic's thoughts on agency growth.
General Heresies About Plans To Grow
1. Most agents want to expand for the wrong reasons. Improper motivation leads to improper strategies or tactics. If you are motivated to expand in order to improve your personal life style, then your agency's long-term financial health will most surely suffer. If you are motivated to be big for the sake of bigness, to simply have the biggest agency in town, or because bigness solves all your current problems, watch out! Bigness creates its own special problems. One's motivation has a way of affecting the quality of the strategy (for the sake of getting bigger, a poor acquisition was made) or determining tactics (to increase personal income, one agent simply made reductions in selling expense and began to compromise staffing decisions). If your motivation for expanding is other than to increase the value of your agency, we advise you to proceed with caution.
2. Strategies for expansion that are motivated by pressure from 'somebody else' generally result in poor outcomes for you. In today's environment, the best example of this is the desire to expand to satisfy company demands for volume. The hard reality is that you will probably NEVER have enough business to keep all your companies happy. Though the risk of loss of a key market may mean the risk of loss of the agency, one must similarly recognize that a poor acquisition, merger or hire can damage the value of the firm just as much. The response to external pressures must be ones that are reasonable to you and the agency. Rather than investing in expansion in the face of an unrealistic demand for volume, possibly you should invest to increase underwriting profitability, reemphasize sales to areas most desirable to that market or, facing reality, begin the transfer of the book to smaller, less demanding markets.
Doctrinal Divergence About Strategies For Internal Growth
3. Owners seldom know the best ways to expand. It continues to delight us to find owners who express surprise at the number of good ideas for growth that come from their staff when they are properly challenged. More significantly, it is our experience that when an employee suggests an idea that is endorsed by management, then he/she works harder to make it succeed than they do in support of something that comes from 'on high.' Really want to expand? Ask your staff to tell you how to improve retention rates, increase the size of your average account, or identify a new target market. If you really can listen, can be a constructive member of the team (i.e. not an owner), you too may be surprised.
4. Most 'Heavy Hitters' aren't. Too many salesmen can sell themselves better than they can sell insurance. The result? A lot of agency owners waste much time and money trying to attract the producer who has been marginal at best in some other agency. Worse, they persist in supporting the marginal producer who is a burden to the staff, a drain on the agency's financial position and a poor example to others you have or want.
5. The grass on your side of the fence is greener than you think. Lead from your strength. Doing what you do better usually leads to growth faster than trying to identify alternatives to what you are already doing. Furthermore, it is almost always less costly and less risky to expand from a known base than to start something new.
Some Unorthodox Thoughts About External Growth
6. Frogs are often princes in disguise. The best opportunities often appear to be the worst at first glance. Too often agents are looking for the perfect situation. In the desire not to make a mistake, they turn away from opportunities with warts. We see this in two areas in particular: acquisitions and producer recruiting. There are few perfect acquisitions. Learning to recognize situations which have patent defects (e.g. terrible financials or weak management) but latent potential will enhance your ability to successfully negotiate for such opportunities. Similarly, most agency owners have a mental picture of what a producer should look like. The result is that the funny little fellow who is a hard worker, good prospector and who requires little financial support doesn't get a chance.
7. Just as you want to acquire the perfect agency or hire the perfect producer, so too does your target want to find a perfect environment. Most agents fail the initial tests. If you really want to be successful at external expansion, acquisition or producer recruitment, be sure that you meet your own tests for perfection. Your financial house should withstand scrutiny, your management organization should be attractive, and you should be able to evidence a solid track record.
8. Selling UP can make sense. Many agents actually make more money and many others actually better satisfy their personal 'wish lists' by selling. It is possible to actually sell UP and into a positive personal environment rather simply selling out. A well structured transaction with a quality firm is often the solution to an agent's personal expansion objectives.
Absolute Heresy
9. Expansion is NOT for everyone. I'm not talking about steady, internal growth achieved by doing the same old things. Rather, I'm referring to investing heavily; dollars, time or staff resources; in trying something new. MOST agents are not prepared for expansion. They lack the resources, both financial and staffing, and too often the requisite management skills. While bigger often means bigger personal benefits, it always means bigger problems. Some agents just don't want or can't cope with the bigger problems that come with an increase in the size of their agency.
10. The best solutions for expansion are usually already at hand; most agents just don't want to endorse them. One of the most difficult tasks of a consultant is to get the client to try the proven medicine he is already convinced he doesn't like, to rethink the position he has taken because he simply knows its right. Most readers will say 'not me.' Wrong! I'll bet, you too. How much life insurance do you and your agency write? Anything less than 25% of your P&C commissions leaves room for revenue expansion and a proven way to improve your P&C retention experience. One client couldn't respond to the pleas of his best account executive who wanted to become a full-time producer. Ultimately, she left and now stands as the leading producer in a competing agency. Agents who respond emotionally rather than objectively to such suggestions immediately limit their chances for successful long-term expansion regardless of the strategy they choose. Such agents will generally look about for some special program or some grand scheme, believing that it alone will get the job done. But it's objective analysis, thoughtful planning, perspiration, and solid management that are the basis for all successful expansion plans
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