For True Success...
Do Not Hire a Great Salesperson as Your CEO
Let's define success: Success is a strong organic growth rate that exceeds industry inflation by at least two full points (Premiums grow by approximately 3.5% annually, so successful organic growth is at least 5.5% for agencies. For carriers, the 5.5% must be measured on a DWP basis to avoid the reinsurance effects/machinations that effect NWP.), and a profit margin based on operating ratios for carriers no higher than 92% and 20% for agents and brokers. For carriers, PHS must grow as fast as premiums. For agents and brokers, current ratios and trust ratios must always exceed 1.0.
These are extremely basic measures. Quality arguments exist that these minimums are too simplistic, and success should require higher and more parameters. I would agree with them because these measures are nowhere near stretch goals. Many entities achieve these measures year in and year out without stress -- and yet, a whole lot of carriers and agents do not ever come close to achieving these measures.
What success is not, is an inflated stock price or values based on the latest round of capital raised for an entity losing money faster than a drunk at a roulette wheel, but who, for some reason including a blessed supranatural sales skill, ____________. People blessed with such skills can temporarily distort reality.
Math usually wins. Math is objective as 2 + 2 always equals 4 (there is an exception for some delusional people who argue that reality is not reality even with math and then there is the branch of insanely complicated mathematical theory applicable to unique circumstances where a possible exception may exist where 2 + 2 does not equal 4, but those scenarios are not for the regular world). The fact that governments are pumping out money faster than their citizens can spend it and negative real interest rates challenge normal financial math, enables really good salespeople to distort reality considerably. Assuming though that the government maintenance of Zombie entities ends someday, financial math will again require that value and success be based on growth plus profit, adjusted for risk.
Today’s environment definitely favors the great salesperson who can convince investors that with enough growth, profit will follow and no risk really exists because the government will always bail everyone out. Attach "green" or "tech" or "Greentech is scalable at no extra cost and will revolutionize an antiquated industry like insurance" and one hits a homerun even before they have products to sell (this has literally happened in the insurance industry where investors bet on a new player that did not have anything whatsoever to sell).
At some point, excluding the strategy of building enough hope to convince someone to buy the entity before it must actually produce anything, profitability and growth are required for success.
The achievement of profitable growth requires solid operational management. Salespeople are all about sales. Sales come easily to them and therefore, their focus will always be on sales. In their minds, the ability to make sales without an operational system in place is possible. Salespeople almost always think all sales are profitable and any losses are temporary, to be absolved by more sales.
If salespeople are running a company, they always think their losses are temporary or they convince themselves the losses do not exist. One large carrier is no bigger than it was ten years ago and has lost billions, literally billions, of dollars in those ten years and yet they are still highlighted in publications for their success with leadership touting their success! What success? The success achieved in convincing a magazine to highlight their success? One can blame the editor for not doing a background check, but the reality is these executives actually believe they are successful -- no one is firing them, they keep getting raises and making millions annually, so are they not successful?
Salespeople not only believe in the fairy tale that all sales are profitable, but believe whatever they, themselves, say. I witnessed an executive who had lost money for five consecutive years tell an audience how successful he had been. He was not disingenuous. He believed it.
Salespeople like this do not value and most likely do not even like operations people. Good operational people, COOs, DOOs, and the like, are severely lacking in the insurance industry (except for the truly successful firms) and this may be because good operations executives push reality into the salespeople's visions. Their rose-colored glasses go clear and salespeople do not like the reality being forced upon them.
Salespeople chase shiny new objects. Put some silver lure suggesting more sales and they won't ask the price in dollars or decreased profit. I saw a broker invest in all kinds of sales products and training, and sales increased. However, profits declined when all the E&O claims were included, staff turnover increased, and productivity was less than desired.
I saw another carrier known for its exceptional operational efficiency offer other carriers a tour and an open book on how they became so good. I thought the offer was nuts, but they knew what they were doing. The salespeople running the other carriers concluded, "That won't work for us" before even taking them up on the offer! That carrier has now tripled in size and several of the carriers to whom the offer was proffered no longer exist. Insurance is a turtle business, not a business for hares.
I have seen numerous producers conclude they do not have time to use coverage checklists and neither do their clients. Yet, in the same agency, the best producers have the time and so do their clients. How does a producer with a $200,000 book have less time than a producer with a $750,000 or even a $1 million book? A checklist is a boring tool. It is not shiny. It is methodical.
Being methodical has been proven to be key in achieving true business success. Salespeople are often salespeople because they have some form of ADD. In my experience, methodical and boring does not work well for people with ADD. However, being methodical is essential for true business success. Putting a person who cannot handle boring and methodical in charge of what needs to be boring and methodical is a huge mistake.
Also, to almost touch the third rail in today's world, good salespeople are often not that bright. Some are and the really good ones are amazingly intelligent. The reason a person can be good at sales but not be that bright is that a lack of intelligence can make a person seem more trustworthy. Many people would rather buy from a not so bright person, especially when buying a complicated but boring product like insurance, because they have more confidence the salesperson will not take advantage of them. They might not get the right product, but at least they are not being manipulated. The fear of being taken advantage of when purchasing products like insurance is real. Smart people can take advantage of consumers more easily than not so smart people. (As an analogy, think of why politicians cling to the "Aw shucks" personas.)
That salespeople may simply not be smart enough to run a company, but charismatic enough to make sales is an issue.
In the insurance industry today, success hinges on efficient operations because only efficient operations will decrease expense ratios sufficiently. The players at the top of brokers, agencies, and carriers understand this fact. Carrier results are the most public and those results are amazing because they are slowly putting other carriers out of business. These carriers are not like fish biting at shiny lures. They are not telling employees and agents they are successful when they have lost $7 billion. They are not telling staff and producers to just go sell. They know having quality operations in place is the key to profits AND growth.
Salespeople running companies and agencies will most likely never get their cathartic awakening to the importance of operations. Instead, put the right people in charge and do business with agents and carriers led by people not drinking their own reality distorting Kool-Aid and chasing bright, shiny, silvery objects.
NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.
None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.