I recently wrote about some of the business lessons my father taught me.  One of the other simple, yet profound, was about the power of compound interest.  You’ve probably considered what happens to a dollar invested, at even a low rate of interest, over a long time.  It eventually skyrockets in value, right?

I’ve been thinking about this phenomenon differently the last few years since meeting serial entrepreneur and author Peter Diamandis who wrote “Abundance: The Future is Better than you Think.”  Peter talks about the growth of technology and business by saying that, “growth is deceptive until it’s disruptive.”  That’s another way of looking at small beginnings that eventually, through compounding, become exponential.

This happens in organizations of all sizes, the results are just more dramatic with an entity like Amazon than they are in a relatively smaller, local, business like many of us operate.  However, even though the numbers may be smaller than the relatively few giants, the results for owners, team members and customers can be no less profound.

For example, my company, OAA, has been growing between 10 and 20 percent, annually, for the last five years.  At first, this growth was encouraging to us, but the numbers were small.  We are now at a point in the growth curve where we have “hockey-sticked.“ Compounding of results has meant that the number of agencies we serve, our premium volume and other measures of size have begun to increase in absolute numbers more rapidly year by year.

This happens to many small businesses at some point in their development.  The question is how to sustain it?

Most business people kill their growth just about the time it takes off.  How else can you explain rapidly growing companies that suddenly plateau?

I think the reason that this occurs is excess profit taking.  By this I mean that, all of sudden, there is more money than costs for the first time, or that excess cash flow suddenly increases.  Owners and investors are sorely tempted to use it to make up for the personal sacrifices they’ve made during the development period.  The result is the end of rapid growth and the “hockey stick” looks more like a flag.  The apex is reached and now the game is holding on instead of growing.

The exciting thing about the “hockey stick” phase is that formerly unbelievable opportunity comes within reach.  But the entrepreneur must be willing to continue to take risk and reinvest cash flow.  It will not happen otherwise.  Dad taught me that, “if you can avoid increasing your lifestyle as you create more income, the power of compound interest will take you to amazing places.”

We’re committed to growth, and the never-ending reinvestment that requires.  What about you?

Today would have been my father’s 95th birthday.  He was a successful entrepreneur and the son and grandson of entrepreneurs.  As I reflected on his life today, I thought about some of the things he taught me.

Dad had a worn, dog eared ledger book in his desk drawer, which I still have.  All his investments and his business positions were carefully there.  He always knew where he was.  I often talk to fledgling business owners who have no idea of their financial position, don’t understand the difference between profits and cash, and are just one step away from making serious business mistakes.  It’s vitally important to know where you are.

As a boy I often spent time at my father’s office, late at night, while he worked.  That wasn’t much fun, I’ll admit!  But, the lesson of hard work, long hours, and determination is a valuable one.  Dad worked until he passed away at 81, full of optimism about the business and his progress, but also hard at work.  I know almost no one who has become successful, and then maintained that success, without putting in long hours.  Dad was a great example of that.

My father’s first business was very successful for several years until circumstances beyond his control caused bankruptcy.  Most people after failure give up.  Dad started another business and worked hard for years to get back where he had been before.  Grit is an indispensable ingredient in success, and I learned that as Dad taught it to me by example.

Dad hated his bankruptcy and was determined to pay every one of his creditors back, even though he wasn’t legally obligated.  He understood that his own integrity, honesty and self-respect were critical.  He couldn’t become successful again without those key assets.  Dad had to force a local bank to accept repayment for a debt written off.  But, he was bankable as a result.  I learned integrity and honesty are worth more to a businessman than a strong balance sheet and positive cash flow.  He taught me to, “do what you say you’re going to do.”

He valued his independence and wanted to control his own future, even if it meant hardship.  I grew up thinking there is no better way, and I find that this value is a common thread in all of those who build their own success through entrepreneurship.

As a boy, we lived for a number of years with no furniture in our house.  We literally sat, ate, and slept on the floor.  The new business didn’t generate enough money for such luxuries for a long time.  I learned that you feed the business first and that you must be willing to sacrifice to be successful building your own company.  Most people look at the end result of success and the perks that brings.  They aren’t much interested in the truth of the journey’s struggles, but I learned from my father that they are necessary – and worth it.

There are many other lessons to be sure, but I think all of these have value, and relevance to all of us who are building companies.  Thanks, Dad.

In a recent post, I made the point that the future belongs to big insurance companies and small agents. My reasoning in support of large insurers is that the cost, and speed, of technological change favors them tremendously because they have the money and management talent to invest quickly, in order to take advantage of the disruption technology is bringing to the market. The reason I believe small agents, particularly in personal lines, will win is because of the same nimbleness. Of course, they will need assistance with market access and the sophistication or marketing and book management companies like OAA and SIAA bring to really leverage their strength.

It’s interesting to note that the 15 largest personal auto insurers control 77.5% of the market according to “Digital Insurance” and the 10 largest homeowner insurers write two thirds of the business according to www.statistica.com. So, the huge already have a position of incredible dominance. How do smaller carriers ever catch up?

Six of the top ten homeowner’s insurers are direct writing companies and they have roughly half the market. Eight of the top ten auto insurers control nearly 45% of the market currently. Just two direct response companies have 23% of this business and they are among the five fastest growing insurers in the country. Further, according to Chris Burand, columnist for “The Insurance Journal” direct response advertising produces better underwriting results than agents.

Many industry observers believe that direct writing companies will be increasingly disadvantaged in the future as their captive agents have a limited product set to sell in a marketplace where pricing and coverage is increasingly transparent. And their costs of distribution which are higher than both direct response and independent agency companies compounds their problem. This is why they are trying to set those agents free on the product front, while keeping them captive, by giving them access through brokerage to other products. And this is why they continue to reduce commissions. Not a pretty picture and, unless they develop a better strategy, they will probably lose market share.

A lot of that share is being taken by the direct response companies who are using their marketing clout to move increasingly into the homeowner’s segment of the personal lines business.

The implications of all of this, for the small independent insurance agent, seem obvious to me: to be successful in the future IA’s need to align themselves with the largest of IA carriers in the personal lines market. The channel itself, and the large carriers it represents, needs to continue to encourage small agent startups to facilitate market share growth as this is where virtually all of it comes from. The opportunity for this comes from increasingly disadvantaged captive agent defection to the IA channel. How this is done at scale will be by organizations like OAA and SIAA cooperating with IA carriers in finding those agents and developing them as new IA’s and giving them access to the winning large IA carriers, technology and business management smarts to win.

Listening to the radio this morning, I heard former Oklahoma State University football coach Pat Jones say that “it could be a great team or just a collection of talent”, in discussing the risk pro football players take when they are traded from one team to another. His point is obvious – just because a team has a lot of great players doesn’t mean they are a great team. One only has to look at the current Oklahoma City Thunder NBA franchise for a great example of how true Jones’ comment is.

As I thought about what he said, it occurred to me that Jones’ wisdom is especially true in business. The word “team” is very popular now in business circles. In fact, it’s almost required that employees are referred to as “teammates” rather than colleagues, employees, workers or the now quaint and old-fashioned “associates”. Everyone wants to build a great team, and of course, to do that you have to have great talent.

Or do you?

Are great teams made up of great players? Sometimes. But there has to be more to it than that, or the Thunder would have a better record! Can a team without superstars be great?

I think so. In fact, if you look at sports history, there are plenty of examples of teams with tremendous winning traditions but no stars. What do they have? I think the first thing is a shared vision of the future. They know what winning looks like to them. And they have a passionate desire to achieve their vision. They want to win!

Whether they are stars, or benchwarmers, members of winning teams want to make a contribution. They believe that what they are doing individually matters to the team and they want to do their best. There was a man in the early days of the NASA effort who wanted to go to the moon who wasn’t an astronaut. He was a janitor who, when he was praised for the cleanliness of the restrooms, said “he was just doing his part to put a man on the moon”. Winning teams are full of people like that.

As business owners, it’s natural to want to find the most talented people we can to work in our companies. But as Pat Jones knows, talent is of only limited value in winning. A common vision, passion for the purpose and commitment to helping the team win, has much more value in creating a winning team than star power.

I remember a bit of doggerel that was a favorite of my friend’s, in our early school days, which began, “have you ever thought when the hearse came by, that you may be the next to die?” The rest of the verse describes what happens after death in a morbid and disgusting way, so I won’t repeat it here. But, the question posed in the first line is important.

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 families and employees survives us?

Recently, a principal in an agency my company is a partner in, 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. As in the recent case, however, lack of planning leads to confusion, disruption, and potential loss of value and income.

What happens to your business when you’re gone is entirely up to you.

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:

1. Prepare or update your estate planning documents.

2. Prepare a list of important items that anyone running your business, after your death will need. Those include: list of passwords, list of bank accounts, list of carrier agreements and contact information, as well as anything else someone would need to know to run the business.

3. 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.

4. 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.
The end of the little doggerel quoted above says “…and that’s what happens when you’re dead!” Death is a part of life and comes to all. What happens when you’re dead is up to you.

Thirty years ago, a friend picked me up for lunch in a huge Mercedes Benz car.  Having a rough idea of his income level, I asked if the car belonged to his boss?  Nope, it was his!  So naturally, I asked how he could possibly afford to drive such an expensive car?  His explanation was that cars like the Mercedes cost less to own than cheaper cars because they didn’t depreciate as much.  I never take things like this at face value, so I checked into this and discovered that there was some truth to his story.

Sometimes spending more costs less.

A few months ago, Chris Burand, a well known insurance industry analyst and columnist for the, “Insurance Journal” reported that the operating results for some direct response insurance companies, who spend billions and billions of dollars on advertising, are better than companies that spend less by paying agents to sell for them.  Now, in the February 19, 2018, “Insurance Journal” they report that, according to research firm J.D. Power, “personal lines insurers with highest commission ratios also have the highest satisfaction among independent agents and maintain the most profitable operating ratios…”

Why does spending more (on agent’s commissions) produce better results?

The answer, cited in the article, is that, “a good relationship between agents and carriers leads to carriers gaining a relationship with the agent’s most valued customers and potential customers.”  This makes a great deal of sense when you think about it.  In fact, in my organization’s experience, this is exactly what has occurred over the last several years.

This is something I hope our insurance company colleagues will dwell on.

It is certainly something agents need to remind carriers about.  In a period of time, in which carriers are seeking ways to reduce expenses in order to maintain competitiveness commission, cuts seem to be an easy answer for carriers.  But as the article, and our experience with hundreds of millions of dollars of production points out, cutting the reward to those who produce the business has a dark and unforeseen consequence for companies.

I have always believed that the independent agent should, and does, take care of her client first.  They also take care of the needs of their business partners, the insurance company.  But, they must take care of their own financial needs too, and it’s clear that the way this works out. Most benefit those partners who are truly committed to agent success, and demonstrate it with outstanding compensation plans.

If you’re paying attention, at all, to what’s going on in the world, you’re hearing and reading about machine learning, artificial intelligence, and other disruptive technologies.  At insurance agent meetings, and insurance company meetings, these subjects have been suddenly discovered over the last 18 months or so and are being discussed in urgent terms.  Technology it seems is going to disrupt our industry.  Old news, right?

Well yes, the subjects have been around quite some time.  But, there is a new urgency about the discussions.  Recently, I reported here that a survey of insurance company executives showed about half worried about the future survival of their own companies.  More recently, we’ve begun to see some of the world’s largest carriers forming venture capital groups to invest in insuretech companies to maintain their competitive edge.

Last month the, “Insurance Journal,” reported that property and casualty premiums in the U.S. were up 4.7%, last year.  Ho hum.  But they also reported that the top 25 largest companies increased their direct written premium 12.9% in the same period while the rest of the industry reported only a 2.8% increase.  That’s nearly 400% more on average!  In addition, these 25 largest of the nation’s 3,000 insurance companies, “accounted for 52 percent of the {entire} growth.”

These are the companies that will have the capital to seize the opportunities that industry disruption by technology is going to create.

Meanwhile, in the last 8 years there have been over 6,000 new independent insurance agencies created, and those small businesses are producing the lion’s share of organic premium growth for the industry.  In the independent agency channel, these new agencies are driving most of the new premium written.  Outside of the IA channel, the impressive growth rates are being racked up by direct response companies, who are spending money on advertising rather than agent commissions.  You know who they are.

The race to embrace technology is expensive, so the big have a huge advantage, because they can afford it. I believe that technology advantages will have exponential impact for them.  At the same time, people still want to deal with people, and entrepreneurs in the agency channel continue to outproduce institutional agency results (among the reasons the big boys have to keep buying production).  We’re in what I believe to be the golden age to create and develop small, nimble and responsive agencies.

The final piece of the success formula for the smaller, or startup, independent agency is a way to create a relationship with these large insurance companies where the carriers can afford the overhead expense of the relationship and are able to pay the compensation that used to only be available to the large institutional agencies.  That’s the role my company, OAA, in partnership with Strategic Insurance Agency Alliance, fills.

My businesses are in the process of growing our revenues 10X.  We’ve done it twice before, and we are currently working to do it again.  Of course, growth like this takes time and anything that takes very much time, has a tendency to get off track, and not get done, without a lot of discipline.

Someone asked me today, how I stay on track to continually reach goals and milestones which often take many years to accomplish?  I’ve used a number of tools throughout my career to do this, but none of them have approached the effectiveness, for me, of the, “Pocket Coach” from The Strategic Coach program.

The Pocket Coach is a tool created by Dan Sullivan, which allows the user to track lifetime goals, goals for the next three years, one year, along with the projects, people and to do lists necessary to make those goals happen all on one sheet of paper.  I’ve used the tool for the last 10 years and found it highly effective for me.

I’ve found that the key is to organize my life, both personal and professional, around a quarterly system.  Each ninety days, I take time to review my goals and the progress I’ve made during the last ninety days towards accomplishing them.  I find this very motivational because I can see the progress I’ve made.  I also take the time to plan the next ninety days and update the projects I’m working on, the list of things I need to get done, and the people I want to engage with.  Then, throughout the quarter, I continually review my progress and check off things as they are accomplished.

In the Old Testament, the people of Israel were told to bind the 10 Commandments in little boxes and wear them on their foreheads so that the Commandments will always be, “before them.”  They were also commanded to post them on the doorposts of their homes so that they would see them “in their coming and going.”  By keeping the things I want to accomplish always in front of me, and reviewing them often, I find I get a similar result.

One other benefit of using a quarterly approach to staying on track with my plans and goals is that it’s enough time to see results, but it’s also short enough not to get overwhelmed.  I’ve learned that the way to accomplish my life’s ambitions is to focus on the next three years and use the current year to move toward the three-year goals.  Similarly, each quarter is an opportunity to accomplish progress toward the annual goals.

It’s been interesting to me to see how much can get done when I use a simple and effective tool, like the “Pocket Coach,” to stay on track.  Hopefully, you’ve found a way to do this that’s effective for you, but if you’d like to learn more about the Strategic Coach method, go to www.strategiccoach.com.

Insurance, Save MoneyWhen I started in the insurance business one of the things I focused on relentlessly was having a lower price than the incumbent agent. I also worked very hard to find problems with a prospect’s insurance coverage. What I learned was that competitive pricing was table stakes. You either had it or you weren’t in the game. But, I also learned that what earned the business, more often than not, was doing a better job of covering the prospect’s risks.

I’ve noticed over the last ten to fifteen years that insurance is increasingly sold on price. It has become, not just table stakes, but virtually the whole game. The company whose slogan is in my title leads the pack in marketing this way, and perhaps because of that and their enormous ad spending, the entire personal insurance industry seems solely focused on price.

The problem, at least for the consumer, comes when there is a claim…

During a conversation my wife had with one of the remediation contractors helping us recover from a disastrous loss at our home she said, “At least we have insurance, I don’t know what we’d do if we didn’t”. The contractor answered, “The worst problem I see is people who have insurance, thought they were covered and found out when the bill came that they didn’t have the right insurance.” I tell people all the time, “Don’t buy your insurance on the internet.”

Those people are the ones who saved a quarter hour, and maybe some premium. But they often face disaster with no one to help them. They bought on price and paid no serious attention to coverage.

Even worse, someone sold it to them that way!

When that happened, the agent cared more about getting the sale than getting it right. That is the very definition of, “not professional.”

This is the opportunity, and the only real future, for the professional independent insurance agent. The very near-term future will feature artificial intelligence and internet insurance sales machines with algorithms that can always find the lowest price. In 15 nanoseconds not 15 minutes, no less. But, will they be able to understand a human being’s needs, feelings, values, aspiration, fears, future financial capability, and past experience, in order to get the right insurance program put together?

No. Not now. Not ever. This is the once and future value and opportunity for agents. I’m grateful to have a great agent who asked a lot of questions and took a lot of time to sell me what I needed, years before I needed it.

What kind of agent are you?

Tonight I will spend the 30th night in a row in a hotel. The first couple of weeks I was on vacation and the last two because our home flooded on New Year’s Eve as a result of a frozen pipe in our attic. The last two weeks of hotel stays have not been as much fun as the first!

As I mentioned in my last post, my wife and I continue to experience gratitude as the most noticeable and profound emotion from this experience. We’re grateful that our disaster wasn’t worse than it is, for the kind and wonderful people who have helped us, the financial resources in the form of insurance we have to put our home back together, and other blessings. But, there have been some other emotions showing up as well.

Yesterday I had to apologize to an employee for something I said to her and the way I said it which is not like me. I also noticed that the Whoop device I wear, which tracks heart rate among other things, is telling me I’m not sleeping well and I’m stressed. As the things that must be done pile up, but the day doesn’t get longer, I am noticing that I feel frustrated.

As I said last week, I want to learn from this experience so that our organization, and I hope yours, can better understand what our clients go through when they have a “claim” so we can do an even better job of helping them.

Here are some thoughts from my experience:

-When people go through a death in the family, or a disaster, people rush to help. Then they go back to their lives and those affected directly are left to figure out what to do next on their own. Even though I’m in the business I have lots of questions. One of them is who to ask? I also don’t want to be a burden or bother people unduly. In our agency, we’re going to catalog all these questions with answers in a FAQ and plan to send it to clients a few days after the disaster.

-While moving into our temporary residence, I looked at my photos of my home that I took before any belongings were removed in order to tell someone where to look for something I needed. I found I hadn’t taken a picture of it. My purpose originally was to record how we had decorated each room so we could redo it in six months. I now know I did a very poor job because I was in a hurry, overwhelmed, etc. We are going to do this for clients in the future so it gets done well.

-We are obviously more emotionally drained than I thought. In our agency we are going to develop something we can send to clients to let them know to expect this, how to watch for it and to let them know, it’s okay. We are going to develop a process to check in all during the claim to just let them know we care. This is something I think we all need for months after the disaster strikes.

What else can I learn from this to help us do a great job of caring for clients after the storm? I’ll continue to share those thoughts I have with you as we go along. In the meantime, I’d love to hear from you about your experiences, or how you work to help your clients get back to normal.