“The heck with this deal. He isn’t ready to sell.”

So said Potential Agency Buyer 2010 as he walked out of a really good deal for an agency owner who was considering selling.

The economic downturn has given American business owners a reprieve from the stress of needing to make immediate plans for perpetuation. Many owners have resolved to wait a few more years before taking steps to perpetuate the business. This may help us reach our goal of protecting the independent insurance agency model. However, those who want to perpetuate must get ready.

Internal perpetuation requires an able buyer, a willing seller, a strong business, and a solid plan. You can read a lot of white papers and advice on these items. However, in the last few years I have watched a lot of “willing” agency sellers sabotage great deals. It’s not for lack of a good plan for the business or the financial situation. It isn’t the inability of someone to buy. It hasn’t been because they don’t want to sell. The problems lie in areas that are rarely addressed.

The purpose of this article is to give insight to anyone who is inside of 10 years to perpetuation. We’ll explore behaviors that have killed deals and behaviors that have guaranteed success. Let’s start with the positive and address behaviors that have created outstanding perpetuation results.

Successful perpetuation behaviors

The perpetuating owner’s next season of life is clear. In the best perpetuation models, the owner can’t wait to get out because he or she has something even better to do. It may be charity work, coaching, leadership, politics, travel, grandparenting, or a slew of other activities. The bottom line is that these owners have something that energizes them and that they perceive as valuable. Establishing the next life path first and getting involved to the point that it takes the owner away from the business is a powerful way to perpetuate with dignity.

The perpetuating owner considers it an honor and a hallmark of success to have great talent ready to take over. These owners celebrate others’ success, promote others’ brands, act with humility about their past, and feel pride that they found and developed great talent to replace them. I have seen a few people do this correctly, and they have been respected at the highest level. Great leaders can find and develop talent to replace them. Perpetuating owners who act like they can’t be replaced are publicly stating they didn’t do a good job.

A successful perpetuating owner leaves at his or her peak. We have all seen the athlete who stays too long and ends up with a sad story in his or her last days. People feel sorry for those athletes. Great perpetuation models happen when owners leave before their performance begins to decline. They still have energy to do something else and bring value. Many owners who leave when they are on top become even more successful in the next season of life. It is easier to reach the top the second time you try

The perpetuating owner and the organization follow the perpetuation plan and walk with confidence around clients to help them feel confident about the future. A solid plan for transferring clients and responsibilities must be put on a calendar and monitored. Early in my career I was the recipient of clients from a perpetuating salesperson. He was outstanding. He would receive calls from clients on issues and would give me the answers and let me deliver them. All the value was perceived to be coming from me. It didn’t take very long to transfer the perceived value to me. The departing salesperson left the company highly respected for his humility and commitment to the company, our clients, and me.

The perpetuating owner follows rules that have been discussed and agreed to in advance. I worked with an agency that had some great rules in place for perpetuation. The perpetuating owner sat down with all the future leaders and current board and they verbalized these rules. They specified what could and could not be said to clients, and they established dates for transferring accounts. Rules were agreed upon for internal behavior around employees. The results were amazing. The accountability that was created from this conversation made the perpetuation a guaranteed success. They also agreed to provide monthly honest feedback to the owner so he would know exactly how he was being perceived.

The perpetuating owner hires an industrial psychologist to get clarity. When a business is going through the perpetuation process, it is hard to see the forest through all the trees. The challenge of recognizing what is real and what is false can be overwhelming. An experienced industrial psychologist will understand the thoughts and behaviors that are normal for people who are going through perpetuation. I think it should be a requirement for anyone going through perpetuation to have a monthly session with an industrial psychologist. The honesty and clarity that will come from these sessions will save a lot of heartache for everyone.

Deal-killing behaviors

Now we have to look at the behaviors that can negatively affect perpetuation. The following real-life examples killed the perpetuation or dramatically reduced the price when the deals were completed.

The perpetuating owner dilutes the value of those who are succeeding him or her. I watched one owner/producer who was perpetuating his book tell all his clients that the younger producer was “okay and coming along” but that clients could call him if they ever needed anything. He rolled his eyes at the young producer in front of clients. He called clients on the side to let them know he would not leave until the client was okay with the new producer.

This behavior destroyed the young producer’s ability to create value with the clients. The owner/producer started losing clients because they knew he was retiring soon and they needed to find their next trusted advisor. His tearing down of the perpetuating producer kept clients from having confidence in her. Everyone lost in this scenario.

The perpetuating owner fights to show how valuable he or she still is in the organization. A recent perpetuation deal fell apart because the owner tried to take over every strategic initiative and every job opening in the company. As his book was being transferred, he felt he had to show his value through activity and responsibility. He tried to become the risk manager when that position opened. He tried to take on some new business deals. He tried to increase his position with a local association. In the end, the key people who wanted to buy the business didn’t feel the owner would ever let go. They walked away from the deal to find opportunity elsewhere.

The agency and/or the perpetuating owner put the client in the middle. Clients know when someone is close to retirement. One owner/producer intended to retire in a few years. The plan was put in place, and he was responsible for transitioning the clients to young producers. He would frequently meet with clients and tell them about the incoming people, how the perpetuation deal was not great for him personally because he was worth a lot more than they were paying him, and all the problems with his situation.

Clients suddenly started calling him to let him know they had decided to move their business elsewhere. I knew some of the decision makers in these companies that moved. They told me that they didn’t want to leave but they didn’t want to get in the middle of the drama at that agency.

The perpetuating owner doesn’t have a post-retirement cause or meaningful activity. After 30 to 50 years of managing a book of business and telling people what to do, how does a retiring owner find meaning and value in life? Staying home and telling his or her spouse what to do is not an option; no spouse will tolerate this. Going to the office with nothing to do, playing golf every day, and other time-killing activities won’t do it.

When I was a young man, I was attending a church that I felt was not meeting my needs. I decided to leave and told my mentor about it. He told me: “Leaving something is rarely successful. Going to something is usually very successful.” I think that is great advice for a perpetuating owner. Finding the next place the owner can bring value to will create positive energy.

The perpetuating owner spends the last couple of years focusing on long-term plans. The best thing to focus on is short-term results or strategies to kick off the long term. Long-term initiatives will be vigorously resisted by the incoming owners. Recently a retiring owner began working on a long-term strategy proposition and was creating third-party relationships that would depend on his being there. The strategy alienated the future owners, and they gave up on a stock ownership deal because they knew the owner was never going to move on and give up control.

The perpetuating owner can’t believe anyone has the skills to be as good as he or she is. The perpetuating owner looks at all successors as being less valuable and is threatened by their success. This selfish behavior is painful to watch and gets a lot of play in conversations around the office. The incoming people are looking toward the future, and most of them appreciate the value of the retiring owner. It is better for that owner to encourage the belief that the newcomers are competent and talented than to try to convince everyone how great the retiring owner still is.

The perpetuating owner makes sure everyone knows how great he or she is for offering the incoming owners such a wonderful opportunity. Others know what the retiring owner has accomplished, but it is diminished by this behavior. If the owner would realize that he or she is not the first person to build and sell a successful business, he or she could leave with dignity. If an owner thinks he or she has given someone a smoking deal, the best approach is to keep quiet and allow others to talk about how wonderful they are for building the business and providing others the opportunity to benefit from it.

The economic downturn has given many business owners a few more years to figure out this perpetuation thing. To leave the business with dignity and maximize the financial return, it is critical to do the right things. Hopefully, the good and bad behaviors described here can teach us all how to act with humility and honor when we leave the business. Allowing others to recognize how impressive it is when we do it right will make the process a lot more enjoyable for everyone. Able buyer, willing seller, good plan, strong business, and great proactive behavior and attitude of the seller will protect the future of the independent system.

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