The Competitive Advantage: Partnerships

By | July 19, 2010

Do you have a partner you wish you didn’t? Or are you a sole owner and wish you had a partner?

I deal with many agency owners facing these two situations. Sometimes the problem begins with wanting a partner and then wishing you hadn’t been so lucky to get your wish. Sometimes the burden of being your own boss, making all the decisions, and having everyone come to you for guidance and leadership seems overwhelming. Sometimes the best solution for meeting carrier volume requirements seems to be a merger or making a producer with a large book an immediate partner. Sometimes this driving need is so powerful that it overwhelms logic and risk. This market and economy is not making many agency owners feel better either.

These emotions often drive shotgun weddings and while some believe that time will heal all, I’m not so sure. So what are the alternatives when you feel the need for a partner?

Join a Group

One of the best alternatives is joining a small (not a large) networking group of peers. The group can be part of the same industry or everyone can be from different industries. If the group is from the same industry, the members cannot be competitors because that destroys any opportunity for open communication among the group. By joining such a group, the agency owner has a network of peers for support.

The best networks provide a family from which strength can be drawn. I have developed and managed agency networks for 15 years and one of the most rewarding experiences I have is facilitating these organizations so that agency owners have a group of peers with whom they can talk openly and honestly.

Executive coaches are another option. These coaches generally advertise their services as helping to improve performance, but I’m not sure that is truly the most important service they offer. Instead, having someone to run ideas by, someone that will not report the conversation to anyone else, someone that does not want your job, and someone that is in your corner is far more valuable. An advisory board can serve the same purpose, but my experience has been that such a board requires some formality and that formality can get in the way.

Another option, similar to the coach, is relying on a consultant, accountant, or attorney that you trust implicitly. I can categorically write that my clients with whom I have this relationship sleep easier and perform better. Having someone to talk to about issues that are not enjoyable is especially valuable. I know most agency owners would rather just write business and work with clients rather than dealing with employees, IT, contracts, and so forth.

Time to Separate

What if you already have a partner and you need a divorce? Just like in any marriage, this is a traumatic event. Sometimes the situation is just not working out due to different philosophies, cultures, or other incompatibilities. No one really is at fault and this is where a no-fault business divorce makes sense. However, most often one partner or the other is not pulling their weight. Usually, this person either does not know they are not pulling their weight or does not want to consciously acknowledge they are not pulling their weight, not even to themselves. After all, how many lazy bums have you met that acknowledge they are lazy bums? No one wants to think poorly of themselves. So how does someone bring a partner to reality?

First, accept that bringing a partner out of denial and into reality just may not be possible. This is why all good buy/sell agreements should have a clause allowing one partner to leave the firm so everyone can go their own way. If your buy/sell agreement doesn’t have such a clause, the difficulty of the situation increases exponentially because sometimes, the parties just are not going to agree. Think about it from the other side. If I’m not pulling my weight and I’m living above my standard, why would I want to breakup the partnership? I’ve got a good thing going and more importantly, I am probably terrified about whether I can be successful again. That is a scary situation and like any animal when scared, they will fight tooth and nail to maintain status quo. If the buy/sell agreement does not allow a breakup without voluntary negotiation, the breakup usually quickly becomes deadlocked.

Second, a safe zone needs to be created if at all possible. For example, how can the separation be created in such a way to make the partner feel as though everything will work out? Providing markets, a new partner, a job at a different agency are all possibilities.

There is always the option of sucking it up and continuing to subsidize the poor performing partner. Many partners do this and it takes a little more of their energy and soul every day. They may believe the price paid is significantly less than the price paid for forcing the partner out. This is a perfectly good strategy except it has a major flaw. It creates expectations for infinite subsidization. At some point, the subsidies always end and partners in these situations always seem to go ballistic no matter how reasonable the actions are. They have grown expectant, as if they are owed something for nothing.

At this point, a major legal battle may be the only recourse. Hopefully, the partners are protected by excellent, good won’t do, shareholder and buy/sell agreements that were put into place at some point in the past, preferably at the partnership’s inception. Unfortunately, a large percentage of agencies do not have excellent agreements because most attorneys cannot write adequate agreements for insurance agencies without outside consultation with a party that knows the specifics of insurance agencies and insurance agency valuations. The result is, as just one example, the definition of value to be used is wrong and it is funny how in these situations, the value usually favors the party not carrying their weight. I think this is by accident, but it must be one of Murphy’s Laws because I’ve seen it so often.

Address Problems Now

If however, all partners are still on good terms, get your shareholders’ agreement and buy/sell agreement reviewed by someone knowledgeable about independent insurance agencies immediately! Take care of the problem now. The problems can be severe when addressed in a stressful situation, but manageable when everyone is thinking with their heads rather than their hearts. For example, if the buy/sell agreement has two definitions of value (this is not unusual as I have seen such agreements written by high-priced law firms include as many as four conflicting definitions in the same contract), reasonable people will understand the problem and likely agree on one value or the other. When people are mad at each other, each will pick the definition most favorable for them and insist that definition be used.

I could write a small book on the other problems I’ve seen and dealt with in poorly written buy/sell agreements. If other options cannot satiate the need for a partner, then as with any marriage, pick the right partner. Matching hearts is important, but matching effort and using your logical head before marrying makes for an infinitely more peaceful life. If you find yourself in an untenable situation, proceed with great caution and recognize that efforts to assuage the other may effectively just be digging your grave deeper. Last but not least, get your partnership agreements reviewed today!

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

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

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