Create Wealth By Sharing It

CREATE WEALTH BY SHARING IT

Over the last several years, I've noticed that higher-value, faster-growing, and superior-profit agencies have a strong willingness to share the firm's ownership. More and more high-performance firms have multiple owners-anywhere from four to 20 stockholders or partners.

At least 10 years ago, the average firm had only one to three owners. Management decisions, new ideas, staff leadership, carrier relations, and product/program development were closely controlled by this small group, which also enjoyed the agency's profits.

The need for size, critical mass, carrier volume, and new ways of conducting business has increased dramatically over the last decade-and the capacity of that small one- to three-person ownership team to create and manage change has not expanded to meet it. Firms with a very limited ownership base simply don't have the resources to keep pace. Each owner is wearing too many hats and is spread too thin. Production lags, carrier relationships are not actively fostered, staff development (disciplined training, education, workflow revisions, and skill building) is almost nonexistent, and creative new ideas are few and far between. One or two owners simply can't do everything they need to build an agency today.

Still, many agency owners are reluctant to part with agency equity and share profits. They want 100% of the pie and full control of management and decision making. Unfortunately, each owner reaches a maximum performance level, which limits the agency and results in stagnant or declining revenues, relatively low profits, and an agency value closer to .75 times commission than to 1.5 times.

The biggest key to agency success has always been the quality of its employees. By limiting their opportunity to obtain a piece of the pie, share in profits, and, equally important, share in the planning and decision making, an agency virtually eliminates its ability to attract top performers. Owners should ask themselves, 'Am I better off owning 100% of a potentially declining asset, or a smaller piece of a larger and growing pie?'

Ways to expand the agency's ownership base are numerous: incentive stock options, stock appreciation rights, incentive stock bonuses, long-term stock purchase plans, deferred compensation plans, and so forth. With the right equity plans in place, it becomes much easier to attract and retain the talent necessary to increase profits and compete in a changing industry.