Table of Contents 

The older producer can get in the door (for which he recieves a finder's fee) and once inside, the younger producer takes over.

Winning Strategies

The responsibility of ownershiP

Team up to perpetuate

By Roger Sitkins

Recently the Sitkins Advisors had an in-depth discussion about the responsibilities of independent agency owners. Through the years we've seen that too many owners feel no compulsion to provide results at the level they should. I believe that if you're one of the owners of an agency, you have certain responsibilities.

I'm not necessarily talking about the small, single-owner agency, although some of the items in this column will relate to them as well. Mainly I'm referring to the mid-sized to large agency with multiple owners. That's where you're most likely to find the dreaded "Deadbeat Shareholders." These are the producers who have been around forever and built up a fairly nice book of business ($400,000 to $600,000 in commission income) in which they gained equity that they traded for stock in the agency, or they were allowed to purchase agency stock.

All too often we see someone in an agency ascend from a producer to an owner, followed by a shift in mentality: "Oh boy! Now that I'm an owner, I can slow down." This is one of the worst things an owner can do because it starts killing the agency's culture. At a time when they should be showing leadership and producing revenue, Deadbeat Shareholders can have a negative effect on an agency's next generation.

Today's younger producers (future owners) see life differently than their predecessors did. They simply won't put up with deadbeats who could cripple their future. And when I look at these deadbeat shareholders, I think of what a terribly wasted agency asset they are. It's a shame, because with just a little direction and encouragement, they could be such a valuable resource for the agency.

Owner responsibilities

Just what exactly are the responsibilities associated with ownership? And how do you maximize the contributions of your older owners? I realize that "older" is relative, because I've seen a lot of youngsters get old in a hurry once they become owners! Still, it always gets me when a 40- to 50-year-old exclaims, "Now that I'm an owner, I don't have to work so hard anymore!" Oh yes they do! And here are just some of the things responsible owners should be doing.

Sharing great pipelines. Owners typically have the best natural pipelines just because they've been around for such a long time. They've been involved with their business community, church, neighborhood association, local clubs and organizations. One reason older producers don't want to pursue these pipelines is that they're afraid a prospect will agree to let them work on their account! We often use the analogy of the dog chasing a car—what would he do with it if he caught it? The truth is, most older producers really don't want to do the work. They'll bark at a few prospects, but they sure don't want to catch them!

On the other hand, their natural pipelines are a gold mine (literally). So why don't we get them to start taking advantage of their natural pipelines by getting them to partner with a younger producer? This would enable them to do some team selling. The older producer can get in the door (for which he receives a finder's fee) and once inside, the younger producer takes over. This not only maximizes the pipeline, it also allows the older producer to make some money while helping the younger producer have some success.

Perpetuating their book of business. Producers may not recognize when they start to slow down, but their clients sure do. How many times have you worked on an account and heard, "We've been with Joe for over 15 years now and we just couldn't move the account on him. But I know he's thinking about retiring next year, so why don't you come and see us then? That's when we'll move it; we really don't know anyone else at the agency." Or, "Joe sold his interest in the agency and retired, so now's the best time for us to consider moving our account."

When an account becomes active, it's often due to a pending or actual retirement. In either case, the transition permits the client to work with a new producer—and sometimes even a new agency—because their loyalty typically is to the producer and not the agency.

Most agency owners have a book of business that they've been getting paid on for years. The problem is that as they slow down, they tend to become silos. They don't want anyone else to know their accounts because they feel more secure that way.

Do you know when your producers are going to retire? Have you set a specific date? You should, because it's not fair to the rest of the agency if you don't. The time to start perpetuating the book of business is two to three years before "Joe" retires. Once that date is set, "Joe" should start teaming up on his accounts.

Focusing on the positives. I firmly believe that senior producers can be a tremendous resource for the agency. Most know the "insurance game" very well, and their years of experience have taught them a ton. They can probably teach what they know to your other producers and account managers. The key is to identify their areas of knowledge and get them to teach others.

Developing centers of influence. As with their natural pipelines, older producers have business connections that need to be nurtured and shared. One of the best ways to accomplish this is to have the senior producers list the names of their best COINs (Center of Influence Network), both within the local business community and the insurance industry itself. Next, create a purposeful process of setting up events to introduce the new generation of producers/future agency owners. Whether it's a luncheon or a sporting event, the goal is to get everyone together so that the senior producers can hand off their business relationships to others.

It would be a shame to waste COINs that took many years to build. Unfortunately, unless a "COIN Perpetuation Plan" is developed beforehand, these key relationships usually die when an owner retires or is bought out.

Maximizing agency value. For most owners, the stock they have in their agency is likely the most valuable holding in their portfolio! As their biggest and best investment, it needs to be managed to ensure top returns.

The main driver of agency value is pretty straightforward: Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). You improve EBITDA by increasing your revenue and managing your operating profits. All owners should be concerned about selling new business, retaining existing business, managing expenses and creating operating profits while simultaneously maximizing contingency income. So if you're concerned about creating the greatest value for your stock, you'd be well advised to focus on those issues.

Supporting changes. Deadbeat Shareholders tend to resist change because "that's not the way we did it 30 years ago." Well, 30 years ago you were writing on a yellow legal pad (or a bar napkin) and calling in to the office from a pay phone! Once your agency's "voting members" have agreed to implement new strategies and tactics, it's crucial to support them, whether you like them or not!

One of the best CEOs I've ever worked with used to say to his team members, "When we're behind closed doors in my office, you can disagree with me. However, once I make a decision—based on input from all of you—you have to support it as though it were your idea." In other words, when it comes to change, it's critical not to be critical! Otherwise, all you're doing is diminishing the value of an asset that you own.

Are your senior owners on board with your agency's new culture? To find out, ask them how they respond to the question, "So what do you do?" If their answer is not your agreed-upon "30-Second Commercial" and they reply, "I'm a producer at ABC Insurance Agency," then they aren't supporting your new culture. They're taking the traditional approach, and traditional approaches get traditional results!

Ways to help

So how do you help senior owners? First and foremost, as mentioned above, show them how they can still provide value to the agency.

Encourage life plan development. Do your agency's senior owners have a "Life After Insurance" plan? We've seen way too many owners who don't. Very few give it much thought until they're about to retire, and then they don't know what to do! A lot of them will say they plan to spend more time with their family, but guess what? They already have a routine, and it's hard to change. (That reminds me of the line, "Married for better or for worse, but not for lunch!")

It's best to have a post-insurance strategy well in advance of retirement. Are the senior owners involved with specific charities or organizations? Are they passionate about a hobby or sport? Do they possess a latent talent they've longed to develop? Encourage them to find something they want to do and plan accordingly. Chances are, they'll be busier in retirement than they were on the job.

Buy their stock. We're assuming that you have some sort of stock redemption agreement in place, correct? There are a number of consulting firms that can assist your agency with this aspect of the  business.

The bottom line

Ownership involves responsibilities that preclude being a Deadbeat Shareholder. Many agencies have reached a plateau and even been forced to sell long before their time simply because certain owners were RIP—Retired in Place!

As an owner, you must maximize your contributions to the agency to maximize the eventual distributions you'll get from it. This means you'll either have to Get Up and help the agency grow or Get Out now and let someone buy your shares.

For the agency itself, the cost of the buyout may seem high now, but it's only going to get higher. Since you're going to have to write a check at some point anyway, today is probably the best day to do so if you must.

As always, it's your choice.

The author

Roger Sitkins is the founder and chairman of Sitkins International, a private client group and membership program for some of the top independent agencies and brokerages in the United States, Canada, and Latin America. Members participate in training, advising and networking opportunities focused on innovation, sales, growth, profitability and value. Sitkins International is inventing the future of the independent agency system by providing intellectual property that empowers agents and brokers to become innovators.

CONTACT US | HOME