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Owners often have to shift their strategy away from preserving what has been successful in the past so they can buid for the future.














Agency Financial Management

Growing pains: The risks and rewards of change

What agency owners can learn from the dismissal of Peyton Manning

By Rick Dennen

Our company is located in Indianapolis, the heart of Colts Country, so you can probably imagine the range of emotions we felt when the team released Peyton Manning in exchange for the opportunity to draft Andrew Luck. Not only would we say goodbye to our beloved star quarterback, but we also would see the entire face of the organization change—new general manager, new coaching staff, and new players.

The Colts had maintained a successful franchise for several years, but in 2012 owner Jim Irsay decided it was time to invest in the future of his team. Although it was disappointing to see Manning leave, Irsay faced a choice that at some point confronts every business owner. To avoid falling behind the competition, owners often have to shift their strategy away from preserving what has been successful in the past so they can build for the future.

The word "change" has a clear and simple meaning, but it is incredibly complex in application. Change is an essential part of growth, but it is often difficult to implement. Making changes in people, products, philosophies, processes, and other areas involves taking risks, including the risk of failure, and there's usually no way to return to the way things were.

Like other business owners, successful agents and brokers are driven by the desire to grow and are willing to take the risks associated with change. Although they are in the business of insurance, they view themselves first and foremost as entrepreneurs.

The insurance market is constantly in flux because of changes in the economy, the legal and regulatory environments, consumer preferences, carrier appetites, and other factors. To stay relevant and remain profitable, agents and brokers must be able to adapt to change and also become engines of change.

Today the producers of health insurance are face to face with this reality. The Affordable Care and Patient Protection Act and commission cuts are forcing them to shift from a model based on selling policies to one that focuses on creating new revenue sources like fee-based consulting services.

Agency and brokerage owners across all product lines face another major change as producers in the Baby Boom generation begin to retire in large numbers. To prepare for the mass exodus, agency owners are changing how they recruit, hire, train, and motivate producers. From innovative mentor programs to employee stock ownership plans, owners are implementing new strategies to attract top talent from the younger generation.

Planning for change

One of the best ways to prepare for change is to develop a yearly business plan with your management team. Although this is a fundamental business concept, many agents and brokers fail to take this critical step. By carefully assessing the market factors mentioned above, owners can evaluate the likely impact of future conditions on their business and determine how they can best prepare for those conditions.

A good plan starts with understanding your core competencies and how they match up with your markets and customers. The plan should also include short- and long-term goals with action plans to achieve them. Tying the management team's compensation to the achievement of strategic objectives is a best practice that will dramatically increase the chances of reaching the objectives.

In addition to embracing change, successful agents and brokers keep their sights on growth goals even when they may not have the budget to pursue them or know how they will be achieved. Albert Einstein defined insanity as taking the same actions and expecting different results. Waiting until an abundance of capital is available, only to experience no growth year after year, surely fits the definition of insanity. In recent years the challenging economy and the prolonged soft market created great uncertainty for agents and brokers. In the midst of that perfect storm, most agencies chose to play it safe and maintain the status quo. Contrary to popular belief, however, numerous studies have shown that businesses can reap great rewards and gain a competitive advantage by investing in growth when the economy is struggling and demand is soft.

Most companies invest in growth when revenues are up and there's a positive future outlook. Many lack the capital to invest when revenues are flat or declining, and they lack the fortitude to implement change in difficult times. Recently on LinkedIn, a question was posed to owners of agencies and brokerages, asking what their biggest fear is when trying to grow their businesses. The most common answer was fear of running out of cash, especially in times of economic uncertainty.

Financing change involves substantial risk. Agents who want to thrive, however, cannot suspend growth plans indefinitely. Risk is non-negotiable for business owners. Those who overcome the fear of risk will be rewarded later when current and prospective customers are in a better position to buy goods and services.

Whether agency owners want to hire new producers, refinance debt to improve cash flow, or acquire a book of business, reaching the next level of growth hinges on the ability to obtain capital. Although some uncertainty from 2012 may linger into 2013, current and projected conditions should make borrowing capital a viable option for agency owners. Rates should remain low and opportunities should abound as more retiring agents list agencies for sale, mergers and acquisitions continue, technological innovations persist, and other industry changes occur.

No one can predict the future of the insurance industry, and it could be several years before confidence in the economy returns to pre-recession levels. For now, agents and brokers should move past the fear of risk and start moving their businesses into the future.

In Irsay's case, drafting a promising but unproven quarterback to replace a legend whose career likely had peaked was an enormous risk. The decision didn't just change the team's offensive game; it altered the Colts brand, which was virtually synonymous with Peyton Manning. We won't know for some time whether the gains will outweigh the risks; but if Luck's rookie statistics are any indication of future performance, the Colts should be positioned to enjoy several years of success.

The author

Rick Dennen is president and chief executive officer of Oak Street Funding, which provides commission-based lending for agents who need capital to buy, build or sell their agencies. Dennen sells life and accident health products in Indiana and is a Certified Public Accountant. In addition, he is an instructor of venture capital and entrepreneurial finance at the Indiana University Kelly School of Business. He can be reached at




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