Make human assets the most important resources in perpetuating your agency.
A Chinese proverb says, “If you’re planning for a year, plant grains. If you’re planning for a decade, plant trees. If you’re planning for a century, plant people.”
I’d like to update that proverb for the perpetuation of independent agencies: “If you’re planning for a year, cultivate your objectives. If you’re planning for a decade, cultivate your strategies. If you’re planning for a century, cultivate your people.”
I’m more familiar with a proverb that was created by my father when he was trying to teach me some life lessons. “Son,” he said, “If you’re constantly looking over your shoulder looking out for competitors, suppliers, or the public, you’re likely to run smack into a stone wall.” I guess I’m a little dense, because it took about 20 years before I realized that what he was trying to tell me was, “Keep your eye steadfastly set on the future — it’s the only thing over which you exert any semblance of control.”
I recently returned from a client’s strategic planning session in which fully one-third of the time was spent on “blue-sky” activity to determine the future course of the agency and how to guard agency cash flow for perpetuation planning and leverage. The agency had been through five or six perpetuation buy-outs, with internal staff groomed to assume control and ownership. It expects to continue this process into the foreseeable future, because it provides each new generation with a “free” vehicle for agency ownership and each retiring generation with a strong cash buy-out position.
This agency is cultivating objectives in the short term, strategies in the longer term, and people for its long-term future. There are no losers in this process. The agency owners know that they will attract the best possible talent because the “new blood” is assured ownership without the need for heavy investment. The owners also know that they can exert a great deal of pressure and expect strong performance from the younger stars, replacing agency (and value) growth for the dollars that they would command if they were selling outside the business.
The younger owners don’t get away scot-free either. Since the older owners are cashed out in lump sums, the agency must show financial growth and profit stability to the banks that provide the leverage for buying out the former owners. This requires all new owners to pledge literally everything they own to the success of the agency. These new owners now must not only continue to grow the business profitably, they must immediately plan for the cultivation of a new field of owners to take their place as successors, when they’re ready to cash out.
A few generations of owners determined that every new generation should be under continuous financial pressure to perform, with strong downside results if the agency falters. As a result, the agency managers must constantly be aware of their operating and financial results. This is an excellent trait under any circumstances, but the pressure of a financial institution demanding annual agency values to justify its continued support adds a degree of pressure from external influences — keeping everyone honest.
Instead of going for that additional bonus when times are good, the owners invest money in relieving debt or retaining earnings for future needs. Rather than “flying by the seat of the pants,” the agency follows a plan and analyzes statistics continuously to determine if the plan is working. Instead of competing for maximum personal earnings, each owner knows that their future is built on the team, not on their own productivity. This makes teamwork a natural benefit to all. Prospective owners search for ways to succeed, bringing them to management’s attention for ownership consideration.
Not only has this method worked to cement the bonds between producers and internal managers, it has also generated compensation in excess of what most of them would have otherwise expected.
CONCLUSION
The key to cultivating your people is to plant them selectively (choose employees wisely); weed them unmercifully (get rid of the poor performers); nurture the winners, feed (pay) the successful employees well (but not more than they need to grow); and get out of their way when they’re ready to take over the garden. If you pay attention to your future, it will surely pay you off in spades.