What web-based strategies help agencies achievegrowth?

Demmie Hicks: No growth strategy is moreimportant than emerging in the dialogue of the marketplace. Createa blog, which allows agencies to push the thinking out and invitecommentary back in. Social media adds fuel to this conversation:First, by amplifying what an agency has to share, then by sparkingothers to share, too. The question is, where does this dialoguelead? In the intermediate term, it elevates the position andreputation of the agency; a business that has something to say andinspires others to communicate is seen as a contributor of value.In the long term, it prepares the agency for what mega-investorJohn Doerr calls the coming “third wave” of the Internet–a newmodel “that's all about people and places and relationships.”Agencies that fail to prepare for change or even fail to staycurrent will find themselves left behind.

Patrick Linnert: The two most prevalentstrategies right now are pipeline management systems and servicetimeline platforms. A third and emerging trend is the evolution ofe-commerce.

Pipeline management systems help organizations track individualprospects through the various stages of the sales cycle to maximizeclosed business. Such systems provide a consistent focus onoutstanding prospects, the ability to track the activities andbehaviors that lead to sales success, and a mechanism to forecastnew business expectations by organization and individual. More than60 percent of high-growth agents report having a pipelinesystem.

Service timeline technologies govern the service commitment ofthe relationship by warehousing each customer commitment, theresponsible parties and target dates for completion. The web-basedapplications then send out proactive service reminders and reportsfor upcoming activities while providing compliance audit reports(by account, department, individual or agency) for pastactivities.

Finally, from a website perspective, most agents are stuck in a“brochure ware” model. The agency website talks ad nauseam aboutthe agency while rarely addressing the customer. Growing agenciesrealize two things that most others do not:

1. Websites need to be customer centric. Consumers do notnecessarily care about the agency. What they really care about ishow the agency can benefit them as the consumer. Thus, agency webverbiage must clearly articulate the agency's value proposition tothe customer.

2. Leading agents are migrating toward more interactive portalsites wherein A) prospects can, at minimum, access purchasinginformation, and B) clients can efficiently access account-specificinformation.

What strategies do you suggest for agents to survive thebad economy and achieve growth in a soft market?

Tom Doran: Organic growth in this market isvery tough to come by, even for very well-run agencies. To a largeextent, many agencies are waiting out the storm, as there arelimits to short-term strategies to overcome these macro issues.Today, we see organic growth industry-wide at 1 percent. Agenciesthat are doing better than average tend to have one or more of thefollowing qualities:

1. Dynamic sales culture: Agencies that have historicallyinvested in a steady stream of young producer talent and with ahigh degree of producer accountability are doing far better thantheir counterparts.

2. Specialty practice groups and niche business offerings thatoffer a real competitive advantage with competing agencies.

3. Geographic good luck: There are pockets of the country(Florida, Michigan, Nevada, Arizona) that are bearing far more thantheir fair share of the economic downturn. In these areas, whichare heavily dependent on real estate, heavy industry, constructionand recreation, organic growth for the past 18 months have beenvirtually impossible for most.

Hicks: If you're focusing on the bad economy,you're focusing on the wrong thing. We all need to be focusing onthe agency because we are all in the “new normal.” One client wroteme recently, “This is the market we will be living with from nowon, and we need to find ways to be successful in it.” For leaderswho are having a hard time weathering the transition–not the storm,but the transition–it's time to fix what's wrong with theorganization and begin differentiating in the marketplace. It'stime to get people aligned around a vision and engage them incollective effort to reach that vision. So many of our agencyclients are growing in these tough times because they've masteredthese fundamental steps.

Linnert: When we think about top line revenues,there are many factors not in the direct control of agents:investment income, miscellaneous income, supplemental income, ratesand exposures. Thus, there exist only two fundamental strategiesfor driving organic growth:

1. Acute focus on new client acquisition

2. Increase retention in the face of heightened competition.

With average organic growth rates ranging between -47 percentand 4.5 percent, the primary difference between average andhigh-growth agencies is the amount of new business productionwritten. While revenue retention is indeed critical, retentionrates remain fairly consistent across all agencies. High-growthagencies consistently write 70 percent to 100 percent more annualnew business than their average agency counterparts. Under the sameaccord, agency owners repeatedly state that the single largestobstacle to commission and fee growth is non-performing producers.Toward that end, high-growth agents establish annual minimum newbusiness requirements backed by negative consequences fornonperformance; implement minimum commission account thresholdsunder which producers do not receive renewal commissions onaccount; leverage pipeline management systems; annually reviewbooks of business and trade downs to create sales capacity andinvest in sophisticated service personnel to support sales andretention efforts.

From a retention perspective, high-growth agencies realize anadditional 1 percent to 2 percent revenue retention versus peers.They do this by developing proactive customer contact strategiescatered to the top 20 percent of the accounts based on commissionsize. Despite the fact that consolidation continues, there existsincreasing competition for accounts as agents simply are notgrowing with current clients. The result is agents focusing on newproduct lines, expanding the target account size and expanding intonew geographic territories.

Are the agencies you work with well-positioned forperpetuation?

Linnert: In general, our clients arewell-positioned to perpetuate. Roughly half of our agencyrelationships stated in a recent poll that there is a greater than50 percent change the agency will perpetuate internally. MarshBerrybelieves that the biggest challenge is that most agencies do nothave a formalized plan to perpetuate.

Perpetuation is a continuous transfer process. And stock is justone of three pillars upon which perpetuation is founded. Inaddition to the stock transfer, executives also must perpetuate theleadership of the organization as well as the relationships(clients, carriers, vendors, new business sales, etc.)

According to our relationships, the largest obstacle within theperpetuation plan itself is financial issues (34 percent ofrespondents) and lack of candidates (19 percent). And even thoughmany agencies may have the financial wherewithal and people toperpetuate, they lack the executive level commitment to startexecuting a plan as a long-term and consistent process.

Hicks: Most of our clients have establishedtheir financial model, so they know what it will take to perpetuatethe firm financially. What's lacking for some of them, however, isthe next generation of producers and leaders who will fund thatmodel. And since agency successors will likely come from theproducer side, agencies are sales organizations, after all.Recruiting and developing young producer talent is critical.Fortunately, most of our clients do an exceptional job developingtheir leaders by involving them in execution of the agency'sstrategic plan. Working in collaboration with colleagues around theexecution of a plan is a great form of leadership development; it'slike on-the-job training. The plan is clay, and key people withinthe agency learn a lot by shaping it.

Doran: It depends. We recently released thePrivate Ownership Study which provides a good sense as to theperpetuation readiness in the industry. We surveyed over 900 firmsand found:

? A vast majority (more than 80 percent) expressed a highcommitment to private ownership.

? Given the cash-flow realities of internal ownership (buyersare generally heavily reliant on agency profits to help meet thefinancing obligations they take on as buyers), the current economy,soft market and the uncertainty regarding healthcare reform,profits (and a lack of growth in profits) is marking internalperpetuation harder than ever.

? Although a majority of agencies say they are committed tointernal perpetuation, more than 53 percent of agencies in thestudy indicated that selling shareholders are unwilling to take adiscount to what they could receive if they sold to a third-partybuyer. This is potentially a problem. For a number of reasons,third-party buyers can and do generally pay significantly more foran agency than the internal buyers can afford to pay.

? Seller financing (rather than back or outside financing) isstill the norm; more than two-thirds of the agencies in the studyindicated sellers take their money, when they sell out, overtime.

? A majority of the agencies in the study indicated 100 percent(or more, on a pretax basis) of the funds necessary to pay for thefinancing of stock purchases by individuals is bonused ordistributed to them. In other words, agencies are largely allowingbuyers to pay for most of their stock using bonuses/distributionsthey qualify for once they're owners.

? The No. 1 challenge faced by agencies in perpetuatinginternally remains a lack of able buyers. Other issues include alack of operational health for the agency, unreasonable sellerexpectations and the lack of a perpetuation plan, but, by asignificant margin, a lack of buyers is perceived anyway to be thebiggest issue to overcome in perpetuating internally.

How can agencies recruit and mentor youngtalent?

Doran: I think it's a good idea to have a senseas to what level of investment in young producer talent is healthy.Reagan developed a metric a few years back called NUPP (netunvalidated producer payroll), which is simply the amount ofpayroll (not benefits, just payroll) devoted to unvalidatedproducer compensation. By unvalidated payroll, we mean whatdeveloping producers were paid versus what they would have earnedas a straight commission producer.

For example, let's assume you have a young producer who you paid$50,000 in payroll over the course of the year. The producer has a$75,000 commission book of business and your agency pays a 30percent commission rate. Therefore, the producer “earned” $22,500of the compensation you paid him ($75,000*30 percent), so $27,500of his compensation was unvalidated payroll. Add up all theunvalidated compensation and express it is a percentage of revenueto arrive at NUPP.

We find less that a less than 1 percent NUPP investment to be anindication an agency is likely not investing enough in futuregrowth resources. 1.0 to 1.5 percent is a “yellow light” — it's OK,but top-performing agencies generally operate with an ongoing NUPPnorth of 1.5 percent.

Once you have determined what you should be investing (and howmany new producers to have “in development”), implement somestrategies we learned from our 2009 Young Producer Study (availablefor free at www.reaganconsulting.com)regarding how to successfully recruit and develop youngproducers:

? Hiring college graduates is a winning strategy. Fifty-threepercent of successful young producers included in the study werehired directly out of college; only 1.2 percent were hired fromanother agency. Why hire out of college? As one agency owner toldus, “Because that's where the talent is!”

? For firms that do hire directly out of college, 59 percentrecruited directly off campus or had internship programs.

? Of the successful young producers in the study who did notcome directly from college, more than 75 percent came from outsidethe industry and most had no prior sales experience. So whenlooking outside the industry for young producers, look beyondsales. The financial services industry accounted for roughly 25percent of the successful producers recruited from otherindustries.

? Mentoring is a must when developing young producers.Ninety-seven percent of the study's leading firms employ astructured as opposed to informal mentoring program.

? Training methodologies vary widely in the industry. A majorityof firms, however, make liberal use of carrier schools and outsidesales training with their young producers to supplement theirinternal training.

It's the best to hire young producers in “classes.” Thisapproach helps in three ways: It diversifies the risk of anagency's unvalidated producers, allows for more efficiency intraining and creates camaraderie and competition among thetrainees.

Linnert: The biggest thing agents and brokerscan do differently to recruit and mentor young talent is to changethe pre-existing mindset regarding this issue. Recruiting anddeveloping talent must be viewed as a proactive andrelationship-based sale in the same manner as identifying,nurturing and closing a top prospect. While most agencies may statethey are always looking for good talent, they rarely allocate thenecessary time and resources to successfully execute. Just as thebest accounts do not walk into an agency asking for a businesspartner, neither does the best talent walk through the agency'sfront door asking for a job. The best talent, like the bestaccounts, must be identified and sold by the agency.

Agencies will employ several full-time sales and servicepersonnel to recruit, train and service a top account. Likewise,the best agencies hire and retain twice as many producers as theiraverage agency counterparts. They do this by making recruiting anddevelopment a cultural priority, maintaining internal trainingprograms, allocating one or more full-time equivalent employees tothe process, establishing internal goals and metrics relative toweekly resumes reviewed/candidates called/interviews set up,incorporating investment dollars into the annual budget andassigning each new producer to hire a senior level closer.

Many agents state they have neither the time nor the money toembark upon building such a regimented process. They do. It is justa matter of where they choose to invest these resources.High-growth agents have done the math, quantified the returns andproven that the investment returns on a well-structured producerhiring and training process is double to triple that of an agencyacquisition.

Hicks: Agency leaders tell me it can be hard toget college recruits to work in this industry. That's because somany agencies don't look like places where young people want to be.This is fixable. Agencies can create a culture that's attractive toyoung talent–a culture that engages everyone in the direction ofthe agency, celebrates and rewards its people, fully leveragestechnology, maintains a contemporary work environment and embracesa point of view. Such a culture helps retain young talent, too. Asfor mentoring, the key is to have a mentoring plan that peopleactually follow. One agency we have gotten to know has hadtremendous success by formalizing its mentoring program rather thanmaking it a happenstance activity, and by creating a compensationconnection for the mentors. In such a scenario, everyone comes outahead.

How can agents best leverage their existing technologyto automate more agency processes?

Hicks: Because we help agency CEOs achieve whatthey want to achieve in the big-picture sense rather than providespecific IT solutions, we are not experts in how best to leveragetechnology for automation. I will say, however, that some agencieswe work with are directing their technology investment to improvethe direct experience of the customer, in addition to enhancingback-office systems. By putting more control in the hands of thecustomer, and paying close attention to that “user experience,” theagency takes a step toward further differentiating itself.

What would you say is the biggest challenge agents face,and what can they do to overcome it?

Hicks: I'll address the biggest challenge fromthe standpoint of the CEO, because that's who we work with, andit's this: learning how to lead effectively. Many agency CEOs gotthere because they had breathtaking success as producers. They havetremendous “people” skills. But as leaders, they face a whole newset of challenges, and they need to develop a new set of skillsthat include relational skills and the ability to influencefollowers. Some can't understand why the producers in the agencydon't consistently perform at high levels, as the leader did whenhe or she was producing. And these CEOs often struggle withcreating alignment among their leadership teams. They feel the“system,” for whatever reason, is resisting them, and they don'tknow why. To overcome this challenge, we work with CEOs to clarifytheir vision, create alignment around that vision and, perhaps mostimportantly, get the enterprise to execute to plan and getresults.

Linnert: By far the biggest challenge isleadership. Too often, agency executives bypass leadership anddecision making in exchange for consensus. Most executives fearcultural disruption, manage by committee and subsequently fail toexecute necessary and evolving change strategies. Conversely,leaders exhibit the belief, focus and perseverance needed to buildand run viable operations. True leaders believe cultural evolutionsare always happening and thus embrace change. They think positivelyand proactively about the benefits of change versus makingconsistent excuses as to why new ideas do not pertain to theirspecific operation. Leaders also consistently communicate to theentire agency that change is good.

Leaders have to focus to rebalance and reallocate where time isbeing invested so the most productive initiatives are beingaccomplished. They surround themselves with people who share commonbeliefs and values and filter out the position. Finally, leadershave the perseverance to execute. Most strategies fail becausethere is no long term commitment to execution. We see it withbusiness plans, perpetuation strategies, new technologies, etc.Leaders recognize that leadership is not granted or assumed bytitle or position. Rather, leadership is measured by theindividuals who follow, and individuals can only follow anexecutive who is moving somewhere.

Doran: I don't think most agencies are tryingto respond strategically to many of the short-term issues they face(the economy, P&C market pricing, etc.), as there are limits toone's ability to overcome these temporal issues. As I said earlier,many agencies are simply riding out the storm rather than changingtheir businesses fundamentally to respond to a tough economy. Evenmost agencies' response to healthcare reform is somewhat modest todate, as the playing field remains largely undefined for mostagencies. It is very hard to plan strategically until you know theactual lay of the land, which remains very uncertain with regardhealth insurance.

The biggest differentiator between winners and losers in theindustry, regardless of the time and regardless of whatever macroissues the country's facing, remains the quality of an agency'ssales culture. In this economy, those agencies that can writesignificant new business are doing just fine. Those who cannot arereally struggling. As always, a vibrant sales culture is bestcharacterized by:

? Better than average individual new business by producerresults

? A high degree of accountability for sales results

? A commitment to the ongoing investment in and development ofyoung producers

? A heavy investment on developing value-added services (claimsmanagement, loss control, wellness, etc.) for the benefitclients

? A focus on specialty practice groups and specialty niches.