I was recently asked, "What are the top three most dangerous trends that could negatively affect independent agencies in 2023 and beyond?" While there are many, my responses were:
As I reflected on my answers, I recognized they aren't necessarily trends but truisms that are way too common in the industry. I also realized that I chose the responses I did because of the increasingly dangerous exposure they create in difficult economic times.
Those difficult times may not be too far away. An October 16, 2022, article in the Wall Street Journal references an economists' prediction—the likelihood of a recession within the next 12 months is at 63%, up from a forecast of 49% just three months earlier. It's time for agencies to reverse these trends and prepare for a worsening economic environment.
How can you do that with an imminent recession? Future-proof your agency by steering it away from these following bad habits that lead to poor performance.
We have long observed that our industry's financial reward for mediocrity has been ridiculously high. It has been so high that most agencies pay little to no attention to the numbers—the key performance indicators (KPIs) that tell their business's story.
Quick quiz. How many of you know the following KPIs with any degree of certainty?
These are basic yet profoundly insightful metrics. Most would agree these are important numbers to know yet, at the same time, concede they don't know them.
During an economic downturn, the margin of error in running your business can erode alarmingly fast. Financial rewards have allowed you to survive despite not knowing your numbers, but this has resulted in many agencies being weak and undisciplined.
Pre-recession advice – Take the 15 minutes necessary to sit down and calculate your KPIs.
It never ceases to shock me how little discipline exists in many agencies. Most lack the discipline to establish and execute consistent processes, and agencies need to follow a process for anything they repeatedly do. These include:
If you don't have clearly defined, documented, and consistently executed processes in each area, you have unnecessary inefficiencies in your operations. Inefficiencies are bad enough when you have the profit margin to cover them up. How much of that margin will disappear as a potential recession sets in?
Pre-recession advice –The next time someone on your team goes through one of the six key activities mentioned above, have them write down the step-by-step actions they take. By the end, you will have a documented process. Likely, it won't be perfect, but it will become more effective and efficient as you refine it over time.
Agency owners are nice people, maybe too nice at times. Because agencies fear confrontation with their team, there is often little to no accountability for individual team members to drive results and work to their potential.
There must be clear expectations of individual team members and accountability for meeting those expectations, especially during difficult economic times. As the "financial tide" goes out, agencies will be exposed like never before; there won't be room for marginal team members.
One of the more obvious exposures during a recession will be with the sales team. The revenue they bring in is your agency's greatest insulation from a recession. Shockingly, producers are usually the least accountable team members in an agency.
Pre-recession advice – Have each of your producers complete our Producer Annual Plan, and use it to create the accountability necessary to ensure you hit your revenue goals for the year. But don't stop with producers; have a similar plan and accountability for everyone on your team.
Each of these "trends" is dangerous enough in and of itself. But the real danger lies in the cumulative exposure they bring and the poor business decisions they lead to when times get tough.
In 2010, while businesses were still struggling with the impact of the 2008 recession, a Harvard Business Review (HBR) article titled "Roaring Out of Recession” studied the three previous global recessions. They analyzed the strategy selection of companies and the corporate performance those strategies delivered.
The study found that:
The study also found that those companies that cut costs faster and deeper than their rivals had the lowest likelihood (21%) of outperforming their competition. Conversely, those businesses that took an aggressive investment approach fared only slightly better at 26%.
The post-recession winners were those companies whose strategy was to find the sweet spot of cutting the right costs while making the right investments. Companies that took this approach gave themselves the greatest chance, 37%, to create separation from their competition. 37% may seem like daunting odds, but it’s a 70% improvement over those who focus only on slashing expenses.
Let's go back to my three trends identification. If you don’t reverse these trends/truisms in your agency, it is impossible to know which levers you need to pull. The likelihood of cutting the correct expenses and making the best investments is all but nonexistent.
These exposures often lead business owners to cut the wrong expenses and avoid the right investment. Way too many agencies will start by slashing their marketing and training budget. That may not be the worst decision for those who haven’t created an environment to ensure the success of these critical initiatives.
However, their more disciplined competitors, who have overcome these exposures, will see those areas of marketing and training as the right places to make additional investments.
They know that as they enhance their marketing presence and provide additional training to improve their team performance, the separation between them and their competition will increase by the day. This is precisely what the HBR article proved in past recessions, and there is no reason to think this one will be any different.
Nobody wants a recession. However, for the disciplined business leader, there is no greater opportunity to separate yourself from the rest of the pack.
Make sure you also have a good future-proofed plan by using the Q4i Agency Annual Planning Guide to help clarify your vision, structure your operations, and plan your goals. Download by clicking below.
Content originally published on Q4intelligence
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