Two agencies. Two sales outcomes.
Recently, two of my clients sold their agencies, and they contacted me post-sale to share their thoughts. The conversations were coincidental. However, the outcomes they shared were very different.
Both made good money on their sales, so that wasn’t a differentiating factor. Both had an opportunity to keep working. But one was far more enthusiastic about the outcome than the other, and he got a much better deal. That conversation began with something like, “You made my retirement go from good to great!”
In that agency, the owners did not necessarily get along, which turned out to be a benefit. Because they didn’t get along, they were not insular. They did not feed each other’s feel-good news and outcomes. They did not believe that, as a group, they had all the answers. Each had all the answers, but no one trusted the others’ answers. They did not believe, as a group, again, that some consultants had all the cheery solutions because no one trusted anyone else’s choices.
The second agency was incredibly insular. With insular management teams, they very often choose advisors who tell them what they want to hear. That way, there's much less work. There is less emotional work, and usually less work getting the agency in shape to sell.
I’ve also noticed that management teams who prefer to avoid conflict usually choose advisors with material conflicts of interest. A number of prominent business brokers (and I don’t do business brokering, so I don’t have anything to gain by calling out these conflicts) have serious conflicts of interest. Some own their own agencies. Some get paid by the buyer. How can they be unbiased when they own agencies and represent the buyer? I’m sure they always disclose these conflicts, too, right?
And they almost never get the full deal they deserve. But they don’t ask enough of the right advisors to even know what they are missing. Ignorance is bliss.
Insular sellers get along with everyone and avoid conflict at all costs. The agency with the insular management team did not address critical, multiple management shortcomings because doing so would have involved conflict. They avoided dealing with producers who cost them more than they generated because that would have involved conflict. They avoided negotiating with carriers because it would have required stepping outside their comfort zones.
And what did it cost them? Retroactive history is subjective. However, they clearly missed out on making hundreds of thousands more per year. They sold for probably around $3 to $7 million less as a result.
The saying that you can lead a horse to water, but you cannot make them drink, might be a metaphor for leading agency owners to a much better outcome, but they won’t get that outcome if they don’t follow through.
Thinking back over these situations, this second agency had historically worked with consultants who always told them they were right, great, strong. They had a serious accounting problem, and they asked why none of their previous consultants or CPAs had addressed it. How does one answer that? The others were incompetent, lazy, or unwilling to rock the boat. And a lot of agency owners prefer that kind of advice rather than advice that makes them better.
Can you imagine playing sports, being marginal, and your coach telling you there is no need for improvement? Great coaching, right? And then consider the thousands of dollars you’re paying for it!
The insurance distribution industry is changing fast with all the consolidation. In theory, the result should be much more professional management that pays for truly quality advice and insights, people who can handle the work physically and emotionally. Many of these firms, though, have management with the same old mindset, but they are in charge of a lot more people and value.
However, those who have climbed the emotional ladder and manage their organizations constructively and proactively are just starting to realize the results of this huge competitive advantage. I don’t think the story about all these agency sales, consolidations, and aggregations ends with the sales, consolidations, and aggregations. The differences between management teams are too great. Some have the psychological strength and leadership to make difficult decisions and listen to criticism constructively.
The client who called and told me how much better I’d made his and his wife’s retirement made my week. My other client honestly depressed me because I couldn’t figure out how I could have made them listen. And their retirement was far less than it could have been, especially given how many people got a piece of the pie.
The takeaway? If you prefer to seek advice from people who simply confirm that you are already great, be aware that your emotional comfort comes at a dollar price. If you truly want to seek greater success and are willing to be proactive, call me, and we’ll work together towards that greater success.
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.