Having a sales culture in your agency is not synonymous with having business culture.
As so many examples of vaporware and internet companies and virtual providers and game changing insurance companies that never make money prove, a business can have value, huge equity values even, but never really be an operationally successful business. In all of the companies that never make a profit and likely never will make a profit even though they have values far exceeding much more successful businesses, the definition of “success” gets confused. These kinds of businesses’ cultures are always based on the salesperson’s ability to sell to customers and investors (including employees) that success is just around the corner. They are always selling, and damned be the person who points out that when a business never makes a profit, that business is not successful.
The sales culture’s premise is that more sales will solve the profit problem. Just a little more scale is always the solution. Little substantive attention is given to operational profit. I should note here that many long-established insurance companies and agencies have the same issue where sales, even unprofitable sales, take precedence.
I know lots of people will disagree, and exceptions do exist, but a sales culture focuses on sales, the top line and not the bottom line. A business culture treats both equally.
I have worked with and analyzed far too many companies to fall for the wishful thinking that sales cultures are business cultures.
Salespeople can’t take their focus off the next sale long enough to consider the bottom line. If the salesperson is the leader, they need to focus on operations too but cannot find the will to do it.
In today’s world of free money, success does not mean ever making a profit. It is really no different than liberal economists believing that money is so free that people need not work but should just be given more money. Nothing is free and if it is free, you are the product. Yet thousands of companies have been founded, including insurance companies, on the hope that someone will buy them before they actually have to prove their business is a run like a business. Many millionaires have become millionaires by making that sale close. Maybe being a true business with functioning operations is passe’?
In the insurance industry, most distributors are always focused on the next sale.
Eighty percent of effort is on the next sale or retaining a client that is threatening to leave. Twenty percent of effort is focused on operations. Assuming real profit is required, an effort of 20% on operations is insufficient for the following reasons.
First, high quality operations mean more profit. That profit can be used to employ more salespeople. It can be used for better sales training or higher dividends. Higher profits mean higher value, all else being equal. Just focusing on the next sale does not achieve any of these goals.
Second, low cost/high quality operations enhance sales. If one can sell the same product/service at a lower price, the low price wins. This industry has focused hard on convincing people low price insurance equals high quality. Billions are spent annually on advertising in an effort to achieve just this purpose and regardless that it is 100% duplicitous — it works. Imagine if it was real!
Third, the great economist Carl Shapiro initially analyzed and has been proven correct over the last 40 years that low cost ultimately wins in every industry other than extreme niches. To be low cost, operations must be 50/50 with sales. The sales focus fails when costs are too high. The sales focus gains steam when costs are low. Costs need to be strategically low, not just cheap and carriers are going to begin forcing the issue.
The carriers that have written the most net new business over the last five years have the best expense ratios, which is a proxy measure for operational focus. This fact, of course, excludes gains that are made simply by foregoing reinsurance as many carriers did in 2018 and have not yet purchased insurance back to the same level. Just think for a moment: If operations creates 10% more efficiency and the savings is converted to lower prices, is it easier or harder to sell these lower prices? This is not rocket science.
Perplexingly, most sales focused people and cultures can make the connection but cannot manage to accomplish the execution. They just cannot mentally make the jump to act. They are too sales minded. Sales is their strength, so they stick to sales. They eventually lose.
I have failed to convince many carriers and agents to give more emphasis to operations. The logic of doing so was and has been obvious, yet outside of serious E&O issues which force the leaders’ hands, nothing changes. I get it. Continuing to focus within the leader’s comfort zone is much easier. Changing focus is emotionally draining. No matter how right I am, the emotional price is too high.
The best solution I know is based on leadership rather than logic. Leadership means leading the entire enterprise, not just sales.
As Dirty Harry said, “A man must know his limitations.” The best leaders know their limitations. The best leaders focus on the whole health of what they are leading, rather than individual parts. This means having the confidence to hire a strong operational leader and empowering them to take the steps required to build a cost-effective company. It means having a spine when salespeople complain about operational rules.
A failure of aggregators and networks is lack of organic growth. It is almost sad that sales-focused brokers and networks have the worst overall organic growth rates. All these agencies join networks so they can have more products/carriers to sell and yet the organic growth rate is effectively 0%. One reason is lack of operational leadership. It is only about sales.
A great example involves an agency where the owner led producers and staff to achieve significant operational success. They led with operations; increased sales followed, which resulted in highly profitable growth.
The agency eventually was sold to one of the big buyers who relented on day one to the producers’ whining about having to follow procedures. The new leaders understood that operations was the driver of the agency’s success, and to their credit, they admitted they did not possess the leadership required to adopt the better procedures or require the producers to adhere to the rules. The profit margin decreased by almost half overnight — 100% due to lack of operational leadership.
The buyer justified their lack of spine by suggesting the producers would quit if the rules were enforced. This is shallow reasoning. The producers had not quit while working for a smaller agency with fewer resources, so why would they quit now? Even if they did, the good producers would not be the ones who quit.
Leadership is hiring a strong operational leader and walking away from overseeing operations. These are the steps required if you want your agency to grow into a true business. One hundred percent delegation is required. It is a complimentary skill set. Paired, the leaders become unbeatable.
The carriers (I used carriers because their results are public but the same applies to agencies/brokers) that have built operational leadership are the same ones adding $10 billion — $10,000,000,000 — in new sales every single year.
If you are emotionally solid and focused on your agency rather than your feelings, you will recognize your leadership skills are limited in one way or the other. The greatest next step of the best leaders is to hire someone with complimentary skills. Don’t be afraid of the operational leader taking over. That can be managed if it becomes a real issue.
Your days will become less stressful because someone else is doing the work you don’t like to do. Sales will increase because you are less distracted by operations.
A business culture has the best of both worlds. If you have a sales culture, can you lead your firm into a business culture?
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