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June 10, 2001 at 08:00 PM
The Art And Science Of Growing A Life Insurance Distribution Firm
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Long-term growth is an amazing, almost magical accomplishment for any business. It creates that heady feeling that inspires employees and creates wealth for all stakeholders. It has an almost supernatural quality of transforming a static or dying organization into a dynamic, vibrant entity. It breeds confidence and energizes both employees and management. It seems to propel ordinary activities into meaningful steps toward the completion of a mission.
Growth creates wealth for owners and empowers employees to unlock their creativity–and this empowering seems to energize vendors and customers as well. Everyone wants to be on the winning team and to be part of “something special.”
But long-term growth has been very elusive in all industries. There is only one company remaining from the original Dow Jones Industrial Average–General Electric–and even GE left this group for a time.
A recent study by McKinsey and Company has shown that only one out of 10 companies that exceeds the growth rate of their industry in any given year is able to repeat that performance for another nine years. Growth in any industry is hard to achieve and even harder to sustain.
When I was a life agent for Northwestern Mutual, and for the first few years I worked as a consultant for McKinsey and Co., I was convinced that achieving long-term growth in the life insurance distribution business was simply a matter of achieving day-in and day-out excellence in the mechanics of client-building and the two-interview sale. We had our “one card” sales management system and we practiced it over and over again until we became proficient. It worked. And it still works.
In recent years, however, long-term growth, always elusive, has become even more difficult to achieve for life insurance distribution firms. Contributing factors include:
1) The pace of change in the industry has increased significantly. New competitors, new technologies, new regulations and tax-law changes have accelerated all planning cycles to the point where it seems life insurance producers have to change their strategy and approach almost weekly.
2) The degree of uncertainty has increased more rapidly than at any time in the past. New consumer needs and demands have placed the life insurance product in a different light and have forced alliances between life insurance distributors and banks, brokerages, CPA firms, and law firms that were unheard-of a few years ago and are mostly on terms that are not favorable to the life insurance producer.
3) The economics of the business are changing. There are new, larger-scale requirements. Margins are no longer increasing and are slowly starting to decline for all but the biggest firms. Carriers are learning wholesaling and multi-channel management skills and are fighting to get their leverage back.
Given the difficulty of achieving long-term growth in general, and the even more difficult situation facing life insurance distribution firms today, how can successful life insurance entrepreneurs steer their firms toward another 10 years of growth?
Its not easy, but the secret lies in a personal and management juggling act of continually reinventing business while maximizing the efficiency of current operations. That is, life insurance entrepreneurs have to create the mind-set in which they “seed” and “harvest” at the same time by looking at their business simultaneously over three time horizons.
Life insurance entrepreneurs now have to be able to master an environment in which they are managing the present, while slowly taking measurable steps to reinvent themselves by redefining how theyll compete in the future. We have to realize that efficient day-to-day execution still matters, but we also need strategy and a transforming end-game vision.
Ask most entrepreneurs with life insurance practices and theyll tell you that they hope this reinvention of their business will result in an organization with a stream of qualified referrals, a network of professional alliances, a diversified revenue stream, and a feeling of satisfaction that their time is spent solving client problems and not chasing prospects. They hope they will have stable relationships with a short list of high-quality carriers that keep integrity in their products and in their selling agreements. In short, they want to steer their “selling organization” into a “marketing firm.”
To appreciate the difference between a sales shop and a marketing firm, an executive I know will often ask listeners to equate the typical daily work experience of a surgeon to that of the typical life insurance sales person. Can you imagine if the surgeon had to go to work each Monday morning with no scheduled surgeries and no plan to fill the calendar? After years of study and preparation, he or she would be spending his or her time with the phone book calling people hoping to make appointments.
This is the horrible feeling I felt every Monday as a life insurance agent and the one felt every day by many life insurance sales people. We need to do better if we are to recruit, train, and develop life insurance entrepreneurs and sustain the growth that the best in the industry have been able to achieve.
The transition from a sales shop to a marketing firm means managing the business concurrently across three time horizons.
Horizon One is the present situation in which the financial services entrepreneur must defend and extend the core business. Horizon Two involves actively building emerging competencies and exploiting current market trends. In Horizon Three, the entrepreneur must create viable options for the successful transition from a sales shop to a marketing firm. (See chart.)
These successful entrepreneurs who have built firms through salesmanship, enormous energy, motivation, superb execution, and “seizing the moment” must now develop the management skills to concurrently manage their current business successfully to generate cash and hit profit targets, while building developing competencies that will be their main source of revenue and profits in two years, while “planting seeds” for a future business and organizational structure that may be four or five years away.
Sounds hard, and it is, but its not impossible and its definitely necessary. A good example of managing the three horizons of growth is Charles Schwab, especially since Schwabs Horizon Three has been in direct competition with the life insurance business with his direct term and universal life offerings.
Schwab actually began his firm as a full-service, full-commission stock brokerage in 1971, but after an SEC ruling in 1975 allowed brokers to set their own fees, Schwab introduced the idea of the discount brokerage and thus began an amazing 25-year growth run that featured 25-30% annual shareholder returns and almost $600 billion in assets under management.
Schwabs Horizon One discount brokerage is profitable and still growing, and has expanded to Latin America and Asia. But, Schwab has also built two Horizon Two businesses while defending and extending his Horizon One discount brokerage. In the 1980s, he launched a mutual fund supermarket business and then a 401(k) business that continues to grow and should displace the discount brokerage business in revenue and profits.
