Stephen, the dynamic 56-year-old owner of a highly profitable benefits firm with almost $3 million in revenue, recently sold to a national firm. He still loves the business and plans to work for another 10-15 years. Yet he still sold, giving up control of his firm to work for someone else. Why?

Agency acquisitions like Stephen’s are remarkably common and have a lot of observers scratching their head. As the industry consolidates, owners like Stephen should be moving to dominate their market, acquiring agencies — not selling theirs. So why sell?

There are three types of agency owners that are taking a deal. First, owners in their 60s or older with no succession plan are selling now as their exit strategy. The money is right and the time is right.

Second, some owners who are nowhere near retirement are made a Godfather offer, one they can’t refuse. For those few offered crazy money, good for them.

But the third type of owner who sells, the puzzling ones like Stephen, usually are making a terrible mistake.

What’s next?
This third type of owner has built a million-dollar or more agency with a healthy valuation — and that’s the problem. Despite their success, these owners are afraid they can’t maintain their firm’s valuation until they are ready to sell in five, 10, 15 years. They don’t know what to do next to prevent their valuation from falling in the face of declining medical commissions, stronger competition, and an agency business model in its death throes.

They don’t know what to do next to adapt and thrive, but they refuse to stand by and watch their valuation begin a slow but steady descent. So, in desperation, they cash out now, trading their independence for a check.

Lacking an answer to “what’s next?” these owners decide to make “what’s next?” someone else’s problem and let the acquiring firm figure it out.

Their decision to sell is a mistake — a tragedy really — because these owners don’t need to sell. They don’t need to give up control. The answer to “what’s next?” is readily available and being implemented by agency leaders across the country.

Next Generation agency strategies
There is no single template. But my book, DO or DIE: Reinventing Your Benefits Agency for Post-Reform Success, provides a huge range of options. Innovative firms offer plenty of examples. Our agency clients are building Next Gen benefits firms by embracing “what’s next” in a wide variety of ways:

All are managing their firm more like a business. All are making strategic investments in technology, people, and themselves. All are using or moving to a consultative selling model. All are leveraging technology. Most are implementing effective marketing strategies. Many are moving clients to self-funding, including captives. Others are leading with HR consulting & technology. Some are taking a broader business-solutions approach. Most have fee-for-service offerings and many are moving to a fee-based consulting model.

Some of our agency clients have opened retail benefits stores. Others are focusing on niche markets. Some are deploying powerful cost-containment strategies. Some are championing population health management and data analytics. Others are innovating and solving HR problems with enhanced (formerly “voluntary”) benefits.

So look at your options, choose “what’s next” for your firm, and take the first step to survive the chaos of reform and emerge as one of the long-term winners in your market.

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