Want to Grow Your Agency, But Just Can’t Quite Make It Happen?

By | January 28, 2013

Almost every agency owner I’ve ever met, and I’ve met maybe thousands, has wanted to grow his or her agency. Many, maybe most, have been stuck. Whether they are stuck at $300,000 revenue, $500,000, $6 million or $20 million, they simply cannot surpass that plateau. Once stuck, regardless of the level, most don’t get unstuck. They stay at that level and eventually sell. Some agencies escape temporarily, but plateaus are really difficult to permanently escape.

Escaping a plateau first requires reasonable expectations. Never be fooled by agencies claiming they’re growing at 15 percent to 30 percent in a typical market. Those agencies are growing at an unsustainable pace and often collapse in a heap of hype.

This industry, as measured by written premium, grows at a median pace of 3.5 percent annually. The ability of an established firm in any industry to consistently grow faster than two times industry growth is exceedingly rare. And too often, that growth is fueled by unethical and/or exceedingly risky behavior. Such a goal should not be considered. Therefore, a reasonable maximum annual growth goal is 7 percent (adjusted for market conditions). The larger the agency, the harder this cap should remain.

Outside the Comfort Zone

When climbing a mountain, the environment changes and so must the environment of a business as it grows.

Seven percent does not sound like much, but few agencies have achieved 7 percent annual organic growth in each of the past 10 years. To grow this fast organically on a sustainable basis usually requires significant changes in agency management, and these changes are scary. If not scary, the changes at least challenge agency leaders to go far beyond their comfort zones.

The comfort zones to be exceeded may be financial, knowledge or ego. Sometimes lack of knowledge and being ego-challenged are one in the same, and sometimes they’re not. Sometimes people find it difficult to admit they do not have the knowledge and skills to go to the next level. They have not had to learn new skills in a long time, and they’ve been seen as the leader, the person everyone comes to for help. They face a difficult situation not only admitting that they need new skills, but also just in figuring out the first step to acquiring new skills.

To make adjustments to get to the next level – and sometimes even more challenging – the owner(s) will have to trust someone new. Whether that person is a new partner, office manager, producer or chief operating officer will vary from one agency to another. More people will have to be implicitly trusted, and that can be an extremely difficult adjustment – gut-wrenching really.

More trust will have to be placed in employees to develop new skills, as well. The inability to trust and even demand employees to develop new skills is a prison for many agency leaders. Over and over, I see producers and staff doing things the way they’ve always done them, ways that were outdated a decade ago. Management knows changes must be made, but they can’t bring themselves to trust and expect their people to make these changes.

Environmental Changes

Succinctly, this all means creating a new environment. Think about it. The agency is stuck on a plateau and wants to grow to the next level. When climbing a mountain, the environment changes and so must the environment of a business as it grows – if it is to grow. Distinct environmental changes are required.

An agency’s size today determines the extent of the change. But to escape the plateau, environmental changes are always required. Here are a few.

1. Move from a sales environment to a sales and operations environment. The smaller an agency is, the more important new sales, are and vice versa. Obviously new sales are always important. But as an agency grows, new sales become more difficult to make if operations are not running smoothly. Additionally, the larger an agency becomes, the more efficient it must be to offset the additional overhead that always comes with size.

Another reason an agency must become more efficient is that in this industry, the larger the agency the larger the average account size. When writing larger accounts, agencies often have to provide additional services and/or cut their commissions. So, if inefficient operations exist, the agency will not be able to afford to write these larger accounts.

2. Move from a servicing environment to a proactive sales and operations environment. Maybe the most evident feature of an agency that has plateaued is its emphasis on servicing. Great customer service is always important, and it is always expected. It is no longer a great feature, it’s an expectation. But good service is an awfully safe environment. When an agency does not know how to move to the next level, it is really easy to spend all the agency’s time just servicing accounts really, really well.

3. Move from a great operations environment to a sales and operations environment. Many agencies have great operations, especially evident in great upfront underwriting. The best upfront underwriting agencies can make so much money in contingencies that with just a little caution, they really never need to worry about their expenses. A few others simply have such great operational management that their agencies run so smoothly and profitably that they too don’t have to worry much about profits. In these situations though, it is incredibly easy to get hooked and forget about the need to grow. When profits are high, growth is rarely ever an immediate need. Growth can always be put off to another day, until that day when the competition causes the profits to evaporate. Sustainable business success is about growth, profit, sales and great customer service all combined.

4. Rope in the cowboy environment. This goes along with moving from sales to more of a sales and operational environment, but it is specific to producers. Many agencies start out with cowboys doing whatever it takes to write business. This works because when the agency is small – which again is relative – individuals count more. The individual is the system. With size, the individual becomes part of a system. With size, teamwork becomes far more important than the rugged individual cowboy.

These environmental changes are difficult. To be successful, it helps to first create a safe zone. For example, an agency heavy on service might create a safe zone to move to sales by focusing on how it can improve service by selling existing clients more coverage. An agency heavy on sales and low on operations might identify an area in which improved operations can pointedly help producers increase sales.

Even cowboys play by some rules, so maybe introducing one rule at a time is the key for these agencies. One step at a time, one safe zone at a time is crucial to climbing the mountain.

Last and definitely not least, sometimes climbing this mountain requires outside assistance or guidance, coaching or mentoring – call it what you will. Trusting an outsider can be the most difficult step of all. Remember, climbing a mountain happens one step at a time.

About Chris Burand

Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colo. Phone: 719-485-3868. E-mail: chris@burand-associates.com. More from Chris Burand

From This Issue

Insurance Journal West January 28, 2013
January 28, 2013
Insurance Journal West Magazine

Excess, Surplus & Specialty Markets Directory, Volume I

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