Agency Perpetuation: It’s Your Legacy

The number of great insurance agencies is ever-growing and, with few exceptions, these agencies are being headed by great individuals. It is all part of a natural process where the weaker players perish and the strongest survive. Greatness within these ever-greater organizations is evidenced by great leaders who have developed great cultures, great relationships and great people.

Why then are there not an ever-growing number of agencies perpetuating ownership?According to a 2011 agency survey, only 39 percent of independent agencies either possess a finalized written perpetuation plan or are currently working on one. Thus, 61 percent of independent agents fail to maintain any concrete and measurable plan relative to the viability of their agency.

Annually, about 700 agencies sell to a third party. The results yield today’s obvious environment. The number of agencies continues to diminish. Yet the average agencies that do sell are the better performers and the amount paid for them is likewise greater.

The cause for this odd phenomenon is not so simple to diagnose. The higher prices paid for agencies today are reflective of both increasing buyer demand as well as better performance from within. The most active buyers are increasingly selective in their acquisitions and are paying for top performance. Thus, the most targeted agency sellers are profitable, they have strong balance sheets and they have good employees including producers who can effect above average growth — the holy triumvirate of momentary success and value.

This very commendable success is invariably the result of great prowess and skill in certain events: hiring good people, the production of new business, the curtailing of needless expenditures and the retention of profits. Sometimes, though not often, these events are supported by a business plan that strategically targets such events. And, from time to time, these include the sale of stock to certain individuals. Such events are good as long as individuals are good, but they do little to bring about the eventual transfer of majority control (i.e., perpetuation) if they are not within a plan that embraces the concept of “process versus event.”

Perpetuation Process

All agency owners think about perpetuation. Eventually. A minority even document a plan. Yet far fewer actually execute that plan simply because they view it as an event that competes with the endless array of events occurring daily. They fail to embrace the concept of “perpetuation process.”

Viewed instead as an event there is no need to measure and hardly any need to plan. You do it or you don’t. How can these agency professionals ever manage such a complicated process as perpetuation — which by its very definition necessitates never ending attention — if they do not continuously plan and measure? They cannot for they fail to act constantly and consistently relative to the future of the agency.

Why is that? Is it simply a lower priority than the event of the moment? Or is it a failure to define what the agency owner wants in his or her own legacy? The infinite concept of “legacy” seems almost out of place among such finite events such as payroll, production and personnel. Failure to discern the difference leads the masses to choose a legacy such as a good achiever of events, a good steward of temporary agency ownership or a good guy. All of this criminally neglects the very things, the much bigger things, which led to the greatness this article addresses.

Perpetuation necessitates the successful transition of legal ownership and the power to act on behalf of the enterprise. To be successful, the ongoing attributes of leadership, culture and knowledge will not be far behind. Less acknowledged, too often overlooked and equally critical for many owners is the unspoken yet overarching reason behind agency perpetuation — the desire to leave a professional legacy. Why not?

Perpetuation is the scale on which an insurance agency owner’s lifetime of work and achievement is continuously measured. Those who measure such an event in dollars alone seldom perpetuate. Those who see it as much more burn with the desire (but often lack the discipline) to perpetuate the ownership for what it is worth and their far more important legacy — a legacy defined by what the agency will continue to stand for, knowing how successors will act and perform in future situations long after the owner exits.

Transferring stock from one generation to the next remains difficult if not elusive for the masses. It takes planning and execution. But shifting stock, leadership, culture and knowledge to maintain both the agency and the owner’s legacy is also predicated upon the successful and incremental transfer to the right people, not just any people.

An owner’s legacy mirrors his or her personal brand — the perception or emotion maintained by others that describes the total experience of having a relationship with them. These are not merely abstract, but very real and concrete. Perceptions and emotions invoke feelings like integrity, honor, excellence, respect and collaboration. They lead people to make hundreds of personal and professional decisions every day. And perceptions and emotions can be quantified through the continued independence of an agency, new business sales, client retention, employee satisfaction, staff reinvestment, length of relationships and the profits generated from all of the above. When an owner is successful in finding, developing and retaining people who embrace those endeavors as positive and mutually beneficial, they are most apt to carry forward those same attributes and the agency is much more likely to perpetuate.

If one can accept the fact that people perpetuate agencies including the legacies of their former owners, then it must be acknowledged that the way in which owners consistently act and interact with that next generation underlies successful perpetuation.

Consider the all too typical owner who for decades espouses the commitment to independence, but fails to execute a perpetuation plan. These owners fail to recruit, reinvest and retain. More simply, they fail to take action. Everyone around them hears their voice, but their actions (or lack thereof) regarding relationships and perpetuation speak even louder.

These owners are ultimately left with few exit options. They decide to sell the agency to an external buyer. Early in the sales process, this same owner may preach the desire to find a buyer who will maintain the organizational culture, ensure continued staff employment and retain the family name on the door (all those things the owner failed to perpetuate). However, as negotiations develop, the owner decides to forego the aforementioned in exchange for the highest price. Within two years of an external deal, half the staff is gone, those who remain are miserable, clients slowly depart and the agency becomes a wasting asset. The owners’ decision is neither right nor wrong for they are reaping the financial rewards of their past risk. Ultimately, though, their legacy will be defined by how people saw them act, not by what others heard them say.

Alternatively, other agency owners speak and act in a manner that supports continued independence. They declare and prove that perpetuation is not an event, it is an endless process. As such they formulate and document a plan and therein establish a process that will be continual for future generations. They continuously administer this plan. They sell stock to those who are both qualified and capable. They painstakingly identify and groom the next generation of leaders. They proactively share expertise. They methodically transfer client, vendor and company relationships.

Fundamentally, they focus on people instead of things. They may or may not reap less purchase price by perpetuating internally versus externally. But they have left the agency in the right hands, not just any hands, to carry forward their vision, culture, sense of purpose, and through their constant and consistent actions, their legacy.