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October 07, 2001 at 08:00 PM
The Art And Science Of Growing A Life Insurance Distribution Firm–Part II
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In Part I of this article (see NU, June 11, 2001), I outlined the conceptual framework of a growth planning process for life insurance agents and financial services entrepreneurs. In this part, we will go through the next steps in growing your revenue and I will also take you through a practical exercise to think about growing your businessnowand creating the conditions to sustain that growth for the next five years.
As Part I described, life insurance agents/brokers and financial services professionals, are faced daily with a topsy-turvy, frightening array of decisions regarding how to grow their business. These decisions are difficult given that consolidation in the life insurance business has made carriers stronger and smarter in multi-channel management techniques and better equipped to take value (i.e., money) from life insurance producers.
Non-traditional competitors like banks, lawyers, and CPAs have also taken value (i.e., reductions in compensation) and have created new demands for value-added help in the selling and new business process.
Changes in the estate tax laws are forcing all high-end agents and financial services professionals to re-examine their selling processtheir value proposition to clientsand to scramble for new ways to get revenue in the door. This article gives some tips on how to think about the best ways we can scramble more effectively.
In Part I, I highlighted the process of concurrently managing your business across the three time horizons in order to jump to the next “s” curve before business starts to decline and curve downwards. (See illustration 1.) In Horizon One our goal is to defend and “milk” our core business. In Horizon Two, we focus on building emerging businesses that will be our “cash cows” in about two years. In Horizon Three, we “place bets” on future businesses that will develop into Horizon Two and Horizon One businesses in three or four years and start the process over again.
The art and science of this process lies in balancing this tension while concurrently managing across the three time horizons.
How to beat the “s” curve
Once we have created and reinforced this simultaneous or concurrent “three horizon” mindset and vocabulary, we ask our firms that have the desire to enter into a growth planning process to begin with small but effective steps. We call this process “building your fire.” Without “fire,” or strong passion supported by courage and the right economics, even the best of us will succumb eventually to the “s” curve.
The process of building the fire has three major phases, one that requires the entrepreneur to look withinpreparing the base for your fire–and the other to look outsideexploring fuel sources for the fire. The third phase is a synthesis and the start of a strategic plan.
Phase One: Preparing the base for your fire
A strong base requires firm expense controls, a strong commitment from your key staff, and an even stronger commitment from you. First, every entrepreneur has to take a hard look at the operational aspects of their office to make sure they are a low-cost operator. That is, you really cant grow profitably unless your firm has superior operating performance, seamless operations, and expenses that are under control and in line with your current and emerging competitors. If your costs are out of line, you will have difficulty growing your business long term.
Second, you need to earn the commitment from your key staff, whoever serves as your “banker” (your aggregator or primary insurer), and whoever approves your growth plans. You have to build confidence in others.
Third, you should be very clear and honest with yourself about whether you want to enter into a growth phase and whether you have the energy and will to grow your business. It is okay to want to enter into an exit mode and not growjust be honest with yourself. If you are depressed, unsure, or in a rut, fix that before trying to grow.
Once you have looked within to make sure you are a low-cost operator and that you have secured the support of your staff and your “banker,” the next phase is a brainstorming session to explore all the dimensions of revenue and profit growth.
Phase Two: Exploring all fuel sources for the fire
This phase consists of three exercises to flex your mental and emotional muscles and to help you to see the totality of opportunities without constraints or prejudices.
We call the first exercise the “expansion/contraction” session. The goal of this exercise is to create an expansive mindset in which you can remove all constraints to growth and to focus on one specific, fundamental issue: Should you grow by expanding your business or should you limit your focus by contraction? (See illustration 2.) In other words, should you be a generalist or a specialist. It is almost impossible for a single entrepreneur to be both a generalist and a specialist.
This first fundamental decision is made easier if you have joined an aggregator, because you will have opportunities to cross-sell and to leverage network opportunities, thus allowing you to focus on a “contraction strategy” and to dominate a niche and cross-sell into the network or to draw on the expertise within your network to complete your competency gaps.
The second growth exercise is the “passion meter.” Everyone needs to gauge the strength or passion of his or her commitment for growth. That is, you have to decide, today, what excites you, what turns you on, what fills your life with meaning, or, to put it bluntly, what you want on your tombstone.
Passion and commitment are more than legitimate emotions in our business: these emotions are a fundamental part of the selling process. Just go to a Million Dollar Round Table meeting and youll understand that we are engaged in a business that touches basic, deep human emotions in both buyers and sellers. Not only is it okay to be passionate about the business, its a necessary pre-requisite for success; its part of the selling process.
If you dont feel strong emotions, you arent ready to begin a growth process. It is okay to want to develop an exit strategy, just be honest with yourself and dont begin a growth process if you want out.
The third exercise is called “the clock” and its purpose is to help systematically think about all of your growth options and to think without constraints or limitations from your current capability gaps and lack of resources. Because opportunities are fleeting, life insurance entrepreneurs should engage in this brainstorming at least once yearly to reevaluate growth paths and reprioritize options.
To visualize the clock exercise, we use the image of the hands of a clock during a typical business day (see illustration 3) to show the successive degrees of difficulty of each growth option. Each “hour” represents a growth path that is more difficult than the previous “hour.” A “day” represents an exhaustive set of growth options expressed in degree of “stretch” from your core business. And, although the “hours” are not mutually exclusive, only the largest firms can begin initiatives in every “hour.” Most individual entrepreneurs can do three or four at most.
Using the clock illustration, One oclock would be selling more existing products to existing customers through inforce marketing. This is the most fundamental growth strategy and, at first glance, the least costly. In the new estate tax environment, this first growth step could be implemented as easily as contacting all existing customers who have used the $600,000 estate tax limitation and selling them more insurance to increase the size of the estate they leave “tax free” to their children.
This step also includes term conversions, 1035 exchanges, and going back to clients to complete their financial plan or reviewing the pension plans of your group clients to insert more life insurance to take advantage of the new estate tax laws.
