The recent news that Apple CEO Steve Jobs was stepping down from his current position roiled Wall Street, the media and the business community with speculation on whether the tech giant can sustain its competitive and innovative supremacy after the transition.
You may not be Steve Jobs or your agency an Apple, but the topic raises some interesting points about what independent insurance agency principals should know to ensure a graceful exit and the subsequent survival of their businesses; whether it’s because of planned retirement, an unexpected personal or medical situation like Jobs faces, or death.
None of us know when our turn will come, but we know it will. If it does during our working life, are we prepared to make sure that the business we’ve built, and the financial security it provides for our family members and employees survives us?
Recently, a principal in an agency, with whom my company partners, passed away unexpectedly. This isn’t the first time something like this has happened. In some cases, the principal was well prepared, the agency itself survived, and the heirs could determine how to proceed, secure in the knowledge that the value the principal had built was safe. However, the lack of planning leads to confusion, disruption, and potential loss of value and income.
Remember that what happens to your business
when you’re gone is entirely up to you.
Expert Advice on a Successful Agency Transition
I spoke with several agency management experts about the parallels between Jobs’ departure and how independent insurance agency principals can soften the blow for their own imminent transitions. Here are some important, thought-provoking takeaways:
1. Develop an Agency Identity Separate from Your Personality
Steve Jobs is a technological innovator who heads up a global corporation; you run an independent insurance agency that sells risk management products and services. But just as the idiosyncratic Jobs was synonymous with Apple, many agency principals, especially the small to mid-sized family-run shops, have similarly branded the agency with their personalities.
“Typical agency owners are entrepreneurial, creative, innovative and kind of contrarian characters in their own right who create brand recognition in their communities,” said John Wepler, president of MarshBerry. “Individuals like that are a tough act to follow. Even though your business is the byproduct of all your efforts, it won’t be sustainable unless you build in a process-driven way to let go over time.”
A typical mid-sized agency’s persona usually reflects one or two key principles (usually ego-driven, Type-A personalities) who became the business’s public face,” said Tim Cunningham, president of OPTIS Partners LLC.
“Smart agency owners position the agency as an entity in order to get equal billing as the strong principal. The best-case scenario is when the agency’s own identity is stronger than the individual’s.”
2. Start Planning Early
Apple took years to build the bench strength that will assume control after Jobs is gone; insurance agencies should do the same.
“Seventy-five percent of agencies sell rather than perpetuate because there is no short-term urgency to plan ahead,” Wepler said. “Steve Jobs didn’t kick the can down the road and neither should you.”
Using the PACT Plan
Successful agency perpetuation takes a minimum of five to 10 years, and requires the use of the PACT plan: People, Agency, Capital base and Time, Cunningham said.
He suggests preparing for your exit by working backward from when you think that you’ll be ready to retire or otherwise exit. “If you want to be out in 15 years, start planning now. It’s a much stronger plan if you execute it over 15 years than over five. Succession planning is a process, not an event.”
Make a Succession Plan Part of Overall Strategy
“The worst-case scenario is the agency without a perpetuation plan and the owner who plans to ‘run it ‘til I die,’ and then plans on handing off the business to a child or a best friend,” said Demmie Hicks, president of DBH Consulting. “This may satisfy the agency’s financial value, but it doesn’t address the future of the organization or the people in it; just that it will eventually be sold.”
The best-case scenario is the agency that makes succession planning part of its overall strategic plan. “Some organizations think about and plan to do it, meaning they have leadership development as part of their strategic plan and know who the future leaders are,” she said. “But the ideal situation is where the current leaders have identified the potential leadership team. Too many organizations don’t do that, which results in an agency that has no choice but to sell or have a different exit strategy.”
“Aside from a tragedy like death or illness, most plans fail because
the people are not in place.”
3. Put the Right People in Place
Just as incoming Apple CEO Tim Cook spent years as COO running the company’s day-to-day operations, successful agency ownership transitions involve identifying and grooming the business’ future leaders.
Succession planning starts with scrutinizing the voids in the agency’s management and recruiting individuals based on the tasks that are needed, transitioning from an individual focus to a team approach.
“Steve Jobs can perpetuate because of the process he went through to determine what unique skill sets he had to transition, then evaluated whether Apple’s existing staff had those functions. If they didn’t, he hired,” Wepler said.
Expand the Leadership Circle
Cunningham added that, “Apple had everything in place so that the day Jobs stepped back, the succession plan was already laid out and everyone understood it. This doesn’t happen accidentally.”
“You’ll need other key people to pick up the slack with the public-facing stuff the principal used to do,” Cunningham said. “Warren Buffet says his board knows his successor is one of three people who are already in place. Just as a public company needs a management succession plan, so do private companies.”
“The agency principal needs to expand the leadership circle; instead of one to three trusted advisors, they should have a dozen, even if it’s a small firm,” said Hicks. She points to a client firm that started perpetuation planning and employee development 10 years ago.
The firm has successfully moved through its second internal perpetuation involving both financial perpetuation and a succession of leaders. “The CEO was really groomed along with those around him for the past six years,” she said.
4. Institutionalize the Brand
A successful (insurance) business’s future must continue after the departure of even the most visionary of leaders, said Terry Connelly, dean of the Ageno School of Business at Golden Gate University in San Francisco. "A company is dependent on its ability to institutionalize that genius in the corporate DNA.”
Once an agency has the right people in place, the principal can begin to transfer account relationships as the first step to institutionalizing the brand by transitioning to a team approach.
The Activity Inventory
Wepler recommends using an “activity inventory” to pinpoint the principal’s tasks.
At age 45 or 50, the principal commits to making a list of everything he or she does in the organization over a period of 30 days, no matter how minute. Then the principal ranks these activities from the simplest to most difficult to delegate, determining whether there’s someone currently in the organization who can assume each task.
For example, a retiring CEO who for 25 years had personally handled the agency’s largest account ($1 million in annual revenue) knew he wanted to retire in six years. “He began transitioning the process by hiring a young producer and loss control expert to move the interpersonal relationship to a team approach,” said Wepler.
Within two years, the CEO had taken a back seat to the younger team members, transitioning to a relationship manager position, and “It took service to a higher level than ever,”
5. Communicate the Plan to Staff
If an agency principal is 63 years old, employees will wonder what will happen when the owner retires. “They’ll take great comfort in knowing things will go on, so keep them in the loop,” Cunningham said. “Start out with very general information, then roll out more specifics as plans firm up.”
“Steve Jobs had come in and out of Apple so many times that the company must have known there would be a day when he would step out completely,” Hicks said. “Transparency about his plans was important for stability and job retention. It’s not common for agents to be transparent about their plans in times of transition, but it’s important to share what’s happening; it strengthens the organization.”
Customers also need to know there will be continuity after a principal departs. “Most large commercial accounts developed by a strong agency principal are going through the same succession issues as the agency,” said Cunningham. “By bringing in younger leadership, the agency is ensuring that the younger people at the customer’s business will have someone of their generation to work with as well.”
Some Other Important Transition Tasks
Of course, it’s not pleasant to think of our own demise. But, as a business owner we have no responsible alternative. At a minimum, here are some things each of us should do. Add to this list as appropriate for your situation.
- Prepare or update your estate planning documents.
- Prepare a list of important items that anyone running your business after your death will need. Those include: a list of passwords, a list of bank accounts, a list of carrier agreements and contact information, as well as anything else someone would need to know to run the business.
- Advise partners, employees, carriers, and family of what you would like to occur, after your untimely death, to assist either a remaining partner or spouse.
- Purchase life insurance to give the business extra cash to operate during a transition.
There are other things that need to be done to be well prepared, so this list is just a start. A discussion with your attorney, CPA, and family, among other things, is also a good idea.