Questions to Ask Before Starting an Independent Agency

In the most recent Closing Quote in Insurance Journal, I wrote about why I believe this is the best time in history for entrepreneurial agents to create a new independent insurance agency. My reasons include lower costs, the increased need for insurance companies to appoint new agencies, newly adopted technologies like Zoom that are expanding agency’s geographical boundaries and the current economic situation, which is putting unprecedented amounts of business on the streets.

The last decade has seen more new independent insurance agencies created than any other time in history, and those start-ups will continue to grow. Some estimate that newly created agencies represent as much as 20% to 25% of all independent insurance agencies now in business.

In this article, I’d like to explore some of the questions that agents ought to ask themselves when considering whether they should be an agency founder. To begin with, I believe the most useful question is why you would want to take the risk and commit to the hard work of starting an agency from scratch when you’re already making a good living, perhaps have equity in your book of business and might potentially have the opportunity to buy the agency you already work for?

Accepting the Risks

It is important to recognize that starting a business entails risk. You might fail. And even if you do not, it’s possible that the investment required will be greater than you imagine or that the returns of ownership are less. When I started in the agency business, seven years before my partners, I took any profit out of the business. During those years, I paid taxes on the profits that we did make out of commissions.

Your experience will likely be better than mine, but recognizing and accepting the risks based on a gimlet-eyed analysis is more useful than wishful thinking.

The risks include whether you will be able to attract the insurance companies you need, whether your marketing and sales plans will work well enough to generate the income you need, and whether your savings will last long enough to carry you to success. In addition to those risks, you need to ask yourself other questions, such as whether you will be able to become a skilled manager of people in order to grow the business and whether you can manage books of business effectively.

Founders need to recognize that while they may have many strengths to contribute to their new enterprise, they will have much to learn. If you’ve never run a business before, you’ll not only have to learn in real-time, but you’ll likely have to pay for that education with some costly mistakes. This isn’t unsurmountable by any means, but it is a risk that should be acknowledged, and your business plan should be built to mitigate.

Many of the risks faced by successful entrepreneurs are above and beyond the normal risks of just being in business. You will not have all of the capabilities you need to be successful at the start. You will lack many things. The challenge is daunting, and it requires courage to overcome.

Courage and Commitment

Many people have the dream of owning their own business but have not been able to garner the courage to start. The starting point of courage is commitment. Many people make light of commitment or don’t really understand what it means. Commitment means to “decide” upon a course of action, and the word “decide” comes from the same Latin root as homicide, fratricide and so forth. Deciding is literally to kill the options. It means to “burn the boats.”

In 1519, Fernando Cortez, determined to conquer the Aztecs, literally burned the 11 ships he and his men had arrived in so they had no option but to succeed in their quest. This rather dramatic example is the kind of commitment that leads to success as a business founder. So the next question to ask yourself is: Do you have that kind of commitment?

Commitment is scary and takes courage, but it is strengthened by having a clear sense of why you want to (or must) start your own agency. What are you trying to accomplish? Is it personal or business freedom? Or is creating a new and better way to build an agency driving your desire? Perhaps you want to improve the quality of people you work with every day or maybe you just want to create unlimited financial opportunity for yourself and your family.

Whatever your reasons for starting your own agency, they must be explored, acknowledged and factored into your decision making or you will be taking the biggest business risk of all — not having Cortez-like commitment.

Support and Strengths

Another question founders should ask themselves is whether they have an adequate support system to make the effort. As a founder, you will work longer hours to become successful than you ever have before. Perhaps you will miss family events. Maybe vacations will become a distant memory for a few years. It’s possible that the stresses of developing a new business will impact personal relationships. So ask: Are the people in your life, including friends, family and work colleagues, committed to helping you not only start but persevere?

Do you have enough capital to see you and the business through to the point of adequate cash flow that supports the business and you? Having worked with hundreds of agency founders, my experience is that most don’t think this question through as carefully and clearly as they should. Not doing so isn’t necessarily fatal, but it can result in broken plans, slower growth, limited opportunity and certainly unnecessary stress. Independent agencies are low capital businesses in general terms, but they do take money to start.

Finally, ask: What are your unique strengths that your business should be founded on? Having a very clear idea about this will be of enormous value if you stay focused here. For example, I’ve seen wildly successful agencies started by gifted salespeople who never hired another producer but backfilled their agency with a strong support team. I’ve also seen gifted salespeople fail because they allowed themselves to be hopelessly distracted with service and administrative tasks while wasting time and resources hiring “producers” who couldn’t produce.

Whatever your strengths are, making them the core of your business with plans to supplement in other areas will help guarantee your success.

In my book, UnCaptive Agent, I describe all of these questions as a “gut check for founders.” My experience is that entrepreneurs are driven and will start their own agency. They cannot be stopped. They will find a way over, around or through every obstacle in their paths. But well-considered answers to these questions will help you deal with the obstacles cheaper, faster, better and more successfully.