Once your agency reaches a certain size, dedicated agency management is essential for continued success.
Agencies are usually managed in one of two ways: By a “seat of the pants” philosophy, which in many agencies is more successful than anyone at the Harvard Business School would ever believe, or by dedicated management. Dedicated management is almost always required once an agency reaches a certain size. The point at which an agency needs a dedicated manager varies significantly, but once an agency reaches this point, 95% of agencies find a manager with experience from one of two sources: An agency (usually their own) or a company.
There are pluses and minuses to hiring from either source. For either choice to succeed, the agency will need to make important accommodations specific to each. Agencies facing this decision will enjoy greater success by understanding these issues.
MANAGERS WITH COMPANY EXPERIENCE
Ex-company employees are potentially a good option because many have lost their jobs during the past few years and they often have formal management experience/training. However, when hiring a company person, recognize that the cultural differences between companies and agencies are huge. Agents often recognize these differences, but company people often don’t; they seldom understand or accept that they might not have the right personality for running an agency.
Understanding and handling these differences from the beginning can help diminish problems down the road. Here are a few issues that I’ve seen when bringing a manager with company experience into an agency.
Sales Ability. A significant issue with former company people as agency managers is that most are not salespeople. At best, some can take over books (and even keep those books intact), but maintaining renewals and making sales are two very different things. The problem with having an agency president who can’t sell is that they’re disconnected from the lifeblood of what makes a successful agency. Simply increasing profits by cutting expenses is not a sustainable business strategy.
In my experience, producers don’t respond well to managers who can’t sell. People like to follow “can-do” leaders who don’t ask others to do things that they themselves can’t do. When a manager who can’t sell pressures producers for not selling, the tendency is to give the person or the message not nearly as much respect.
Relationship-Building Skills. Another common trait among former company people is that they tend to be far more “numbers oriented” than “people oriented.” This is certainly a benefit in the right position, but it has its limitations — and it behooves agency owners/partners to recognize this fact early. They need to help the manager understand the importance of forming relationships with company people, clients, staff, and advisors; or put them in positions where personal warmth is less important. For example, have someone else attend company functions or always have someone attend social settings with them.
Successful agency owners can make friends easily, make strangers and acquaintances feel welcome, and build relationships quickly. These agency owners understand the importance of working proactively to build relationships. If you hire an ex-company person, be sure that they have this talent and use it proactively; or don’t put them in positions where such a personality is a necessity.
Documentation. Agencies, even large ones, often operate adequately without excessive paperwork and “red tape.” On the other hand, companies tend to deluge themselves in documentation. If you hire an ex-company person to run your agency, letting them retain this attitude will bog them down and keep them from taking action quickly. Ex-company people are used to complete documentation to protect their jobs if something goes wrong. Although complete documentation is great, agencies don’t always have enough extra fat to cover the extra time and energy required. Just make the right decision, document it properly, and get on with it.
MANAGERS WITH AGENCY EXPERIENCE
Another alternative is a dedicated manager with years of agency experience, usually as a producer/partner. These people tend to have strong leadership skills and personality traits that fit an agency environment. They rarely get bogged down in paperwork (since many refuse to do anything but the minimum).
On the other hand, former producer/partners tend to have distinctive management issues that must be addressed:
Desire to Manage. Managers with agency experience are usually adept at developing relationships and selling. In fact, they usually prefer those activities to managing — which can be a key weakness for a manager. For an owner or producer to become a successful manager, they need to have a desire to manage. If they don’t, consider pairing them with an office manager to run the agency.
Producer Accountability. One huge weakness that a good office manager can’t overcome is excessive empathy for producers. Although an ex-company person usually won’t have enough empathy, former agency principals/producers almost universally have too much.
For example, an agency manager whose long-time producers are still generating less than $150,000 apiece in commissions are probably overly empathetic with their producers — as are agencies that pay their producers more than they should be paid. Although this is a subject worthy of another article, if you want to make a quick calculation for your agency, divide total producer compensation for the past year by their book of business, and reconcile this figure with what they were supposed to be paid. For example, with a 40%/30% new/renewal commission split, experienced producers should have earned 31% to 32%, given normal growth and retention rates.
Maintaining producer accountability is by far the most critical daily management hurdle for most agency principals. This requires a detailed plan that must include extra paperwork to make producers follow agency procedures.
CONCLUSION
When an agency reaches a certain size, dedicated agency management is essential for continued success. Almost all agencies will choose an ex-company person or an internal producer/partner for this position. Both have their strengths and weaknesses. Regardless of which type of person an agency chooses, the other partners/principals will need to modify their roles and responsibilities to complement the strengths and minimize (or even obviate) the weaknesses of the manager.
NOTE: None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in the article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.