MILLIONS of copies of management books have been sold in the last two decades, making some business authors second only to rock stars and cover girls as celebrities. People have spent billions on these books. Most buyers probably have actually read them, and doubtlessly some have even tried to implement their ideas. Quite likely, the implementations occasionally have been successful. More often, though, the books' catchy phrases and clever acronyms ultimately have rung hollow. That's why management books and their authors are drawing fire these days.
The books have not delivered results and, worse, have distracted managers from the basics.
A new, non-management book, "The King of California: J.G. Boswell and the Making of a Secret American Empire," by Mark Arax and Rick Wartzman, offers a simple lesson on getting rich: Stick to the basics. This is not to suggest Boswell and his family were simple people. According to the book, the opposite was true. For example, neighbors laughed when the Boswells bought a lot of swampy California farmland. After all, California had plenty of farmland that wasn't waterlogged. But the neighbors quit laughing when they learned the Boswells had gotten back what they'd paid for the land by selling the water off it, winding up with their original capital-and some very good, dry, farmland.
The Boswells didn't employ fancy strategy, sophisticated management, creative financing or crafty accounting. They simply were smart and saw an opportunity everyone else had missed.
One of the great benefits of being a consultant is seeing what works and what doesn't in many different agencies. To date, I have observed that strong fundamentals usually produce better results than elaborate strategies. Why do the strategies get so much attention? Because elaborate strategies rarely succeed. So when they do, they make the news.
Are you willing to risk your agency's future on finding a rare strategy that works? If not, here are some basics that I've seen work time after time:
- Sales strategies that incorporate multiple contacts: Five to 10 contacts with prospects are required before most sales occur. These communications may include advertising, mailings, calls or meetings. Whatever their nature, multiple contacts result in much greater sales success.
- Proper attention to producer management: No matter how hard principals wish their producers would learn to manage themselves, that rarely happens. When principals ensure their producers are competently managed, the agency grows faster, makes more money and incurs fewer employee-related headaches. Examples of productive producer management include holding sales meetings, setting and monitoring activity goals (not necessarily sales goals) and providing sales training. Our industry spends less than half of 1% of revenue on sales training. When sales are the lifeblood of an agency, doesn't it make sense to spend more?
- Demand minimum production: Many agency owners mistakenly believe they make a profit from every sale. Therefore, they don't really care how much their producers produce or what type of accounts they write.
To make a sale, the average agency spends almost a dollar for every commission dollar it earns. (The average used to be much greater but has improved greatly over the past decade). So generating accounts smaller than a certain size actually loses the agency money. The cost of running a $1 million to $2 million (in revenue) agency is approximately $640 per hour, according to the Academy of Producer Insurance Studies' "Growth & Performance Standards 2002-2003." How many accounts do you write that require more than an hour's effort and generate less than $640? Some of this cost is overhead. If you believe it shouldn't be taken into account, then the hourly cost drops to $489. Again, though, how many accounts do your producers write that require more than an hour's effort and generate less than $489 in commission?
Even more important than cost per account is cost per producer. When an agency doesn't care how much a producer produces, it is guaranteed to be giving up sales with high profit margins. Suppose a producer is paid a 40% commission on a $150,000 book. He or she makes $60,000, and one dedicated commercial-lines CSR earns at least $35,000. Employment taxes and benefits eat up another 10%, or $15,000, of commissions; selling expenses take 4%, or $6,000; and administrative expenses typically claim 20%, or $30,000. So the total expense on this book is $146,000, excluding executive compensation and all agency staff expense other than for one CSR. This leaves a meager 2.6% profit margin. Applying the same expense structure to a $200,000 book, though, more than triples the profit margin to 8.5%. All experienced producers should produce at least $200,000 in annual commissions.
- Maintain adequate capitalization: Agencies must maintain at least 30 days of working capital, because sooner or later, every agency will need extra cash. Those with adequate capital will survive the incident. Additionally, adequate capital will provide an agency with a big tool for growth.
- Implement and follow procedures: Well-written, enforced procedures can dramatically improve many aspects of an agency's operations. Productivity increases, E&O exposure decreases, morale improves, and employee reviews become easier. Implementing and enforcing procedures are well worth the effort.
These are five basic practices that will solve a huge proportion of most agencies' problems. None involves elaborate strategies, so probably none will ever achieve great fame. They're just fundamentals that, if integrated into an agency's culture, will help ensure greater success.
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