Just imagine if… You no longer had to worry about a key account calling you up and saying they were a) leaving you for a competitor, b) retiring, or c) selling…
That sinking feeling in the pit of your stomach? Gone.
Instead, your agency would continue to flourish.
But what about right now—would this situation concern you?
This is called concentration risk, and your business model is at the root of it. In this article, I tackle this topic. Keep reading to discover how choosing the right business model can help eliminate this potential threat and others.
The unfortunate truth is many agencies would barely survive, if it all, should one of their key accounts leave. Why?
They’ve banked on a few core accounts that provide the bulk of the business.
What makes putting all their eggs in one basket even more risky is they might also be relying on methods that worked in the past to keep agents/agencies close, but that aren’t cutting it anymore.
There is good news—surviving is simply a matter of adapting. If you can adapt to the changes impacting our industry, then you can thrive.
My hope is that after reading this article, you’ll understand the importance of moving toward that place of awareness about what your agency is or isn’t and then being honest and sharing concerns around that conclusion, so you can improve your situation.
As an IMO, we are constantly scoping out the trends and seeing how the agencies we work with are differentiating.
There are essentially two different business models, or ways of doing business, and they are to go deep or go wide.
Here’s what I mean by that:
With the wide business model, you are providing one product type to a large scope of people. Since you don’t go deep in the number or quality of service/value you provide, it makes it easier to scale. As more of these types of businesses enter the market, the more commoditized the services they provide become.
That’s why I feel the greatest opportunity for longevity and profitability for entrepreneurial firms is to go narrow in who they serve but deep in how they serve them.
The key is to become known as THE firm for a select group of clients, which is also referred to as having a “niche.” Then you serve those clients by addressing many of their financial needs like a family office would.
In working with other agencies, carrier executives, insurtech firms, and vendors, I’m able to get a sense for trends and emerging markets. Niches I’m especially excited about right now are pre-need planning and women’s initiatives.
Agencies work with us because they want to know where the puck is going and how to position themselves well for it.
While you're busy running your agency, we provide insights that let you know what direction you might want to take your business in or what areas you could reasonably and responsibly focus on.
Out with the Old, In with the New
So, how important is your business model?
I might be biased, but I consider it very important because it’s what is going to determine how profitable you can be, as well as how long your agency will be around, i.e., your longevity.
And according to the CFO Insights report from Deloitte1, it’s also important when thinking about selling your agency— “The screening criteria vary substantially across companies. It could, for example, include criteria such as size, geographic footprint, scalability, EBITDA, leverage, market share, and earnings impact. Today, boards demand more information and justification for acquisitions. They are increasingly interested in the sustainability of the target’s business model, the competitive advantage, and the post-merger requirements to make the deal a success.”
Whichever model you’re best suited for—Deep or Wide—they’re both valid, but you have to choose one. The agencies and IMOs in the most dangerous spot are those who stay in the middle—walking that fine line and not choosing a side.
We have to understand that not choosing is a choice. And it’s not a good one.
If you can articulate your agency’s unique value proposition clearly and execute on it, you can be successful, and you can continue to grow.
Back in the day, agencies and IMOs could hang their hat on a few key things that created stickiness with agents/advisors. What we’re finding today is these old ways just don’t work anymore. Have you used any of them? (we all have)
- Key relationships: People are leaving organizations as part of the Great Resignation, which means you can’t count on them staying and you don’t want that one relationship to be the only value-add because they could end up taking your downlines with them. Instead, you want to hire and acquire top talent so your organization is filled with team players and key employees who together, create a great experience for producers.
- Best economics: You might have been able to provide the most value here previously, but with agencies and IMOs making technology a large part of how they conduct business these days, they are able to run a leaner organization and potentially offer more in compensation. If you don’t have sound tech infrastructure, it can be hard to compete.
- Location: This used to be more important—downlines wanted to be able to drop in to their BGA or IMO office on short notice for in-house trainings or meetings. This is less relevant due to the virtual world we live in.
- Trips: Incentive trips had their heyday and were a great opportunity to reward producers and get face time with them as well as an opportunity for a tax write-off. But with changes to what you can write off and COVID—things are different. Not to mention, another benefit of trips was producers could gather and communicate with peers, but these days, that can be done without the IMO facilitating it.
- Access to ALL the products: It used to be that agency owners were told to pursue appointments with every carrier under the sun. And maybe, back when there were fewer players in the game that made sense. But today, it can be too costly and too difficult to gain traction with all of them. With new carriers entering our space all the time—better to focus your efforts on a few core carriers.
If you feel like these are the only ways you can add value, that’s where we come in…
There are new and improved ways to keep and attract people to your firm.
An agency that immediately comes to mind is one of our top agencies. They are serving their clients on a very deep level by offering P&C, lending, real estate, tax planning, wealth management, and even college prep courses. This means their clients have multiple policies and services under the agency’s umbrella, which strengthens and reinforces the relationship. This is the business model of the future for many entrepreneurial agencies.
Facing the Truth
Consider what happens to an agency whose business model has become outdated and their value proposition stale…
What are downlines, competitors, and carriers going to do about it?
Let’s look at each one:
Agents: They’re going to look for a “better” IMO
Competitors: They’re going to call you out and claim their competitive advantage
Carriers: They’re going to make decisions on the hierarchy structure so those who add value get compensated appropriately while those who don’t add value get cut out of the equation. Disintermediation is a reality.
This might sound doom and gloom, but I’m optimistic that agencies and IMOs can rise to the occasion. Some will try their own solutions—demand more override, jump ship to a new IMO, reduce costs, or do nothing.
While these might provide a quick, temporary “fix”…
Without adapting your business model to the times, the end result is you go out of business, become irrelevant, or are unable to sell when you want to exit the business.
If you don’t have a solid business model with a unique value proposition—and all it takes is one large firm leaving and you’re facing bankruptcy—you’re not going to command a high value at the time of sale. OR run a thriving business if you choose not to sell.
But here’s the thing:
I understand that thinking about changing your business model while you’re trying to run your business is like trying to change a tire while driving down the highway at 60 miles an hour. How are you supposed to do that? You can’t brake or take your eyes off the road ahead or your whole business might crash.
This is why we’ve developed Escape Velocity—a framework for agencies to follow when forming their business model—so they remain relevant into the future. But additionally, it means we help you work on changing your business model without stopping momentum or losing revenue.
It’s just four simple (but not easy) steps:
- Review your current model — where are you today and what are you doing well?
- Identify risks in your current business model.
- Assess where your options are to drive more value.
- Set up a course of action to achieve this through a strategic plan, help of vendors, partnerships with IMOs.
This framework helps you get clear on the areas of your business that will maintain or increase revenue and answer the question of what to do with those areas that don’t make that list.
I understand talking about your business and how to make it healthier is personal, but if you’re willing to be open about it—so that you can have a long future in the industry—please schedule a call with our team.
We can help walk you through this process, so your business model allows you to approach your future with confidence and continue providing value for years to come.
Start by checking out our NEW Escape Velocity Resource Center. The educational content on this page is for you if you want to explore the five forces that could be holding your agency back from reaching the level of success you’re looking for. Access to this resource center is no cost/no obligation, so you have nothing to lose by checking it out today.
You can schedule a call as well, if you’d like. I look forward to sharing the opportunities I’m seeing in the industry as well as success stories with you.
We can help you decide which direction you should head in and how we can support you along the way.
1CFO Insights: Target screening and evaluation: One size does not fit all (Deloitte) 8763_Gerlock_CFOMAtarget.indd (wsj.com)