Episode 133: Agency Focus with Carey Wallace

So the big question is this: how do small business owners like us grow our leadership, develop our teams, and scale our business in a way that allows us to get our products and services out to the world yet still remain profitable? That is the question, and this podcast will give you the answers. I'm Bradley Hamner, and this is the Club Capital Leadership Podcast. Hey, before we get into today's episode, did you know that Club Capital is the largest accounting advisory firm for insurance agency owners in the country, providing monthly accounting, CFO services, and tax preparation. Check them out at club.capital. Welcome to another episode of the Club Capital Leadership Podcast. My name is Bradley Hamner, your host. On today's episode, we have Carrie Wallace. Carrie has for the last 14 years worked with hundreds of independent insurance agencies, helping them understand their agency's value and turn that knowledge into an actionable plan for the future. She's a certified exit planning advisor and provides a variety of business consulting services through the company she founded, Agency Focus. We touch on a variety of different topics in this episode. Many of the terminologies may not be familiar with, but I think even if you don't own or have a business that you're looking to sell, I think this will help you in understanding how to maybe build, uh, value in your business. Without further ado, here's my conversation with Carrie Wallace. Have you ever tried online marketing before and weren't sure if it was working? Maybe your rep talked about all the impressive features and stats and said things were going great, but you didn't know how all that tied into raw new policies written. Well, that's not the case with DirectClicks. DirectClicks is the premier Google Ads and SEO option exclusively for State Farm agents. Why? They're 100% results-oriented with an exclusivity guarantee. Every review call you have with your account manager focuses on what really matters to your business. And that's leads and call-ins received. Everything will get broken down to cost per lead received. By investing with DirectClicks, you're gonna free up time and energy to focus on what's most important in your agency and doing what it is you do best. This will be the best investment you make for your team by spending confidently and scaling your agency today with exclusive online marketing partner DirectClicks. Visit us at directclicksinc.com. Ambition is the first step. Towards success. It's time to level up your agency, and Coach P Consulting will help you do just that by using the same strategies he used to sell over 700 life insurance policies in 2021 alone. Now, this is not your regular one-and-done type coaching. You'll get personalized coaching 2 days a week, every week of the month, and you'll get a live look behind the scenes of his team training and an office that's performing at the highest level. There's a reason Coach P Consulting is the fastest growing coaching company for insurance agency owners in the country. Coach P will train your team alongside his own and show you the exact steps they are taking to achieve Chairman's Circle, Exotic Travel, and Multi-Line Presidents Club and be one of the few agents to be selected to have a third office. So whether your goal is to be at the top of your local market or amongst the best in the country, this training will give you the strategies and the tactics to get there. For just $250 a month, you'll get high-level coaching each week from someone who is already getting it done at that level, and his strategies work, and it's time to put them to work for you. Sign up at coachpeakconsulting.com and get your first full month for free when you mention the Club Capital Leadership Podcast. Carrie Wallace, welcome to the Club Capital Leadership Podcast.

Yeah, thank you so much for having me, Bradley. I appreciate it.

Excited to have you. So we always start with background and origin stories. So why don't you kind of take us back however long and bring us to present day? How did you get started? How did your— what's your journey been like?

Yeah, so my professional career started after I graduated from West Virginia University. I'm a Mountaineer. I'm from Pittsburgh, Pennsylvania originally, but my husband and I put our roots down in just outside of Washington, D.C., and I started my career with a small technology startup. Loved it. It was like a baby. When I, when I joined that company, there were 9 employees. We grew it through several mergers and acquisitions to take it public. So it was a, it was a pretty cool IPO. And it, when I left, it had about 47 employees, and it was a voice-activated body-worn computer. And I just say that with a little bit of tongue-in-cheek right now, because I'm going to show my age, at the same time that I had a bag phone. So if you think about, you know, that technology back then was pretty cool, like Jetson kind of stuff. And so That's how I started my career. I have 2 beautiful girls. I did what most people don't talk about, but I took a big break and I raised my girls. So I call that my middle career. And insurance is my 3rd career. So I reentered the workforce. I'm not suggesting that I didn't work while I raised my girls because I absolutely did. And I did some consulting and all those good things. But anyway, Insurance is really my third career, and I joined an association, helped with a merger at the state level for between Big I and PIA, again at the state level. And then we really talked about what's our value proposition to help agents, and it really was to help them merge and acquire and be informed in that process, number one. And number two, how do we leverage data to help our agents learn from each other and really run their businesses efficiently. So I spearheaded both of those areas and loved it. Grew that through my relationships through the Association, and then I started Agency Focus almost 2 years ago, really consulting on my own. So I've had a pretty cool career, and I love, you know, being able to create something on my own. And I gotta tell you, I love this industry. There's no two ways around that.

Yeah, that's awesome. You know, one of my— for those of you that are not familiar with mergers and acquisitions and selling of any business whatsoever, I think that even if you own a business that you're not really planning on selling or exiting, I think that this is going to be a really fascinating conversation. Just, just dig into how some of those things work. There's a— I want to give a plug to one of my favorite podcasts I listen to all the time. It's Built to Sell with John Wurlo. I love that it tells details out exit stories. Some of them have gone horribly wrong, some of them gone fascinatingly well. And, uh, it just gives you such a glimpse into, um, you know, buying and selling of companies. And so I think that, um, whenever you start, especially when someone is looking to possibly sell their business, okay, for the first time, there becomes a lot of terminologies they're just not really familiar with. And so they probably come to you and they're like, I think I'd like to sell maybe one day in the next 5 to 10 years, but I don't even really know where to begin. What are some of the things that you go through in terms of education to begin to prepare them to start thinking about it? Because I'm sure many clients have come to you and said, hey, I'd like to sell in the next 3 months. And you're like, you're not even close to ready for exit. And so just let's lay out some of the foundational things that I think are important for people to know.

Yeah. So I would say that one of the things that we talk about is timing and what you can do inside your business, what information you need to be able to look at. You need to have a really firm handle of how your agencies or how your business is operating. We look at their financial statements, we look at their profitability. You know, a lot of people focus on their revenue, and they've never ever focused on what, you know, a term called EBITDA even means. They don't even know what I'm saying. It sounds like I'm using a term that is really foreign to a lot of the people that I'm speaking to. So I explain why the profitability and the growth of their business and how those correlate correlate really impact the value or the intrinsic value of their agency.

Yeah.

The other thing is the predictability of your business is really important. So what can we expect your performance to be? And how do you measure that? Again, when you're in your business, you might not be thinking about it the same way. So we start looking at factors that would predict how the business would perform in a transition, when the owner transitions, when key people would transition, and what those risk factors are, in order to make sure that they understand what those predictors are. So, you know, I think it's funny, it's, it's really changing how they look at their business, in order to be able to think about what that transition would look like. And it's super foreign to even think about how it's going to operate without them. So there's a huge education process that people go through because they typically correlate what they've known someone else to do and they assume it's going to apply to them. And you and I both know that's not true. Like every business has different factors, right?

Yeah. Yeah, that's true. So let's, let's share with people. So EBITDA is earnings before interest, taxes, depreciation, and amortization. Super fancy way of saying effectively profit, but it definitely is calculated a little bit different. One of the things that I've always— well, not always— in the last couple of years, I became Value Builder certified. And so I kind of held in my head that businesses over $5 million in top line revenue, they will typically use EBITDA. Businesses maybe less than that, a little bit smaller, they'll use a thing called seller's discretionary earnings or SDE. They're effectively the same. But the reason I bring this up is because everybody that owns a business listening to this can definitely relate to this next thing. And so I'm curious how it begins to affect the— what you share with them to make certain decisions around profitability. As an example, is that the business owner in a smaller business will begin stuffing personal expenses, running them through the business, which I'm not necessarily saying that that's, you know, the tax code allows for that. And obviously, like, there's things to do that. So I understand it. But when you're looking at selling the business, now those decisions are looked at a lot differently because they are going to remove that right there. They're going to, in their due diligence, they're going to look at that and say, no, that, that, that's not going to be there, that's not going to be there. And then they'll even sometimes do some add backs because they have to kind of look at, well, we've got to replace you and how much is that going to cost? Can you just walk through a little bit of some of those things?

So I like to call those discretionary expenses. And honestly, to be fair, this isn't a judgment on those discretionary expenses, because oftentimes business owners are given advice by their tax advisor to say, hey, listen, you want to run that through there because it makes sense for you to minimize your taxes. So hear me when I say it's not a judgment, but you're 100% correct. Some of those expenses that are run through You typically want to strip those out 3 years in advance because I will tell you, a potential buyer may not think the, the business can actually operate without all of those expenses running through there. It might become a problem that you actually don't have your handle on what those discretionary expenses are. And then if the adjustment is so large, it might actually put in question whether or not the business can operate like that. So if you can demonstrate that you operate very clean and profitably, your value goes up without question. And some of those expenses, it could be owner compensation, it can be cars, it can be insurance on cars, it can be memberships to certain things, it could be people unrelated to the business, their expenses for certain things. So it's interesting when I look at a P&L, there are certain areas that you can have benchmarks where you say, this is what a typical business has in this expense line. You're outside the benchmark. We should really dig in and find out what's happening there to find out, is it something discretionary or is it not? And really doing that pro forma P&L, a pro forma profit and loss statement, is a great exercise. Again, the earlier you know the better off you are that you can operate in that profitability range in order to demonstrate the strength of your business.

Yeah, and, and for those of you listening, obviously it's the Club Capital Leadership Podcast. That's exactly what Club Capital is able to help you do, even if you're not even looking to be able to sell your company, to have that, uh, perspective of like, well, what are other people investing in terms of marketing? Like, what's my range of percentage of revenue and what should I do? But it's even comes increasingly more important if you're looking at possibly having access. So I think one thing you said there about how you got to do it 3 months and 3 years in advance, not 3 months. I mean, you look at it and say, well, you just stripped it out for the last little bit versus 3 years of really solid financial statements. And I think that I'm sure that you've had situations where you've gone in and asked for financials and you realize, oh man, we've not had solid financials. You've got to get your house in order to begin to really think about going forth in a due diligence period before somebody is going to, going to buy that. I want to ask you about something you mentioned I think is really important, and it's risk factors and specifically risk factor around people. Okay. So we've kind of been leveraged a little bit around financials and the importance of having really solid financials, just bulletproof, right? They can look at it and say, these make sense. These are industry standards. Talk about the risk factors of people. So the agency owner themselves, right, beginning to exit, that's a, that's some sort of a discount. I'm sure they are because, you know, how, what, what was the personal brand of that person that's tied to that business? That's number one. And then number two, they have an agency manager, an office manager. They have these key employees where, man, if they leave, that may in some cases be just as devastating or as much of a discount that that person would want to take as your involvement as the agency owner. Can you talk about that?

Yeah. So honestly, I look at risk factors in concentration and people. Number one, you invest the most in your people. We all know that insurance— I specialize in independent insurance agencies, and we all know that relationships are key. So who holds the relationship inside your business is where I look first. So I typically ask for what is the book of business, who manages which accounts, and how transferable is it. It's very interesting that most, most agency owners do not think about the ability to transfer business until they're ready to leave. So you have to think about what are the relationships that got you that business and why are they choosing to do business there, and if something changed. The owner, the producer. Honestly, it's the account manager that sometimes is the scariest one because they're the ones that are in contact constantly with your clients. If those people are not there, what is the connection to the agency and would they stay? And you have to consider, is it relationship? Then it's expertise. Do you have a niche inside your business that it is a specialized expertise that they come to you that the average agency may or may not have? Again, you've got to be able to make sure that a potential buyer or potential future owner is able to continue that expertise. So, you know, niches are fantastic, but sometimes they create gaps in expertise as well. So relationship, expertise, and then you said it, personal brand. Like, they might not care what the name is of the agency, but they care how they were treated, what that culture looks like, and your people are the ones that live out your culture. So you've got to really think about that because the attrition when the culture changes is pretty significant.

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So I liked what you did earlier. So you talked about the size of a business and then what you typically talk in based on the size. So again, my focus is on independent insurance agencies. There's 36,000 in the country right now. 85% are $1.25 million and below in revenue. So I'm going to talk to you about that subset first. Um, if you engaged with me and we were doing evaluation of an agency or an evaluation, I always If it's an agency and not just a book of business, I start on a multiple of EBITDA unless you drop below $500,000 in revenue. If you're below $500,000 in revenue, I'm going to really ask what we're looking at. Is it truly a book of business, or is it a book of business with employees, with a location? Again, if I have all those things, I'm still going to do a multiple of EBITDA, but then I'm going to move to a multiple of revenue. And that's really a book review, not a, not a valuation of the whole business. Typically, people think though in multiples of revenue. So if you're talking among, you know, other agency owners, they're going to say, say, I sold my agency for 3 times revenue, or I sold my agency for 3.5 times revenue. You can really tell the size based on how they're talking. Um, and so, like, you asked me typical ranges. There's also a lot of agencies who perpetuate internally. They sell to someone inside their business, inside their family. That's about 70% of the agents that I end up doing some work with. They want to do something internal. There's a lot of family-owned businesses in the work that I do today, which is pretty atypical. You don't see a lot of family transitions in the technology that you just said. So, you know, that's a, that's a unique thing. So you have to have the right expectations. If you're talking about an internal transition where there's no synergies to bring together with two businesses, that multiple is typically somewhere between 6.5 and 8.5 times EBITDA. Okay, and depending on your size, the more volume you have, the higher it will go. The smaller you are, It really depends what the exiting owner will do in compensation, what the future owner will do in compensation and in running that business. So back to what you just said, getting to that pro forma financial statement of what are all those discretionary expenses helps us really determine what multiple we can place on that agency, if that makes sense. That profitability becomes so important. Yeah, when we're talking in multiples of revenue, I would say the range is anywhere from 2 to 3.5. Um, again, I'm focused on the smaller. The largers can go into the 11, 12, 15 times EBITDA, but that's private equity money. Those are platform agencies with high volume. Um, and unfortunately, those are the ones get reported. So then we have this misnomer inside the industry that those multiples apply to a $2 million agency, which are not accurate.

So yeah, makes sense. That makes sense. Makes a ton of sense. I think people are pulling out their phones and doing calculations right now as we talk, right? So I think that, yeah, so we're talking about EBITDA or again, pre-tax profit for all.

Yeah, it's just used profit, right?

Yeah, it's good enough, right? So immediately with that, you would begin to go, oh my goodness, if I was thinking about selling my agency, I've immediately got to, got to switch from trying to draw, draw profit as low as possible so I can pay less in taxes to— you literally have to think the exact opposite way. So I've got to be able to show profit, but also in a sustainable way. So let me give an example. So you've got a, you've got a $1 million agency that's looking to sell and they've invested, uh, 5% every single year in marketing in some form or fashion, right? And, uh, they immediately— they're going to sell. They go, well, shut the marketing off, let's take it to zero. Well, a buyer is going to go in there and say, well, look, you're not investing anything in marketing, we're going to have to invest some in marketing, right? You know, so they're gonna— they're gonna look at that. And I think that goes back to your benchmarking, to say, no, you know, we're not— we're not that stupid. These people that are buying your agencies, I mean, like well, sometimes they're like, they know what they're doing, you know. But so they're going to look at that and say that's not necessarily in the, in the, in the right realm of what's reasonable to do. I think that, you know, we, before we hit record, we were talking about this. It's oftentimes in any business, there's an inverse relationship between growth and profitability. And so if the business owner says we're We are gas pedal down, we are going to grow. Typically that will start to draw down on profit because you have to invest in people, you have to invest in marketing, you have to invest in all of these resources to make that growth happen. And so in a situation where someone is looking to sell, they may often want to— okay, well, now it's not really about growing. We do want to begin to see growth, but It's more so about me focusing on the, the multiple, because they could get way more value, way more value if they could go from 6.5 times EBITDA, pre-tax profit, to 8.5 times. Can you just talk about that thought process, and then what's the work that you guys do in order to make that happen?

So that's where you can do some scenario analysis to show an agency owner what that looks like. So You're 100% correct. You can't just shut off all expenses because your growth will suffer. The value of your agency has many factors that go into it. And if you have a very profitable agency that is flat or declining, that's not a great situation either. So you want a growing agency that can operate profitably and has volume. Those three things first. Are fantastic. And then it's about the risk around that. So when an agency is looking to sell, we look at those discretionary expenses, we use the benchmark to say, are you inside or outside what a typical agency would operate in? And is it reasonable expenses? You talked a little bit about add-backs. And a lot of people will think, well, if I just take my compensation out of the equation, or my distributions out of the equation, that's an easy way for me to drive the profitability up. And that's the assumption. Somebody has to be paid to run that business. So that's a typical place for an ad back. Same thing with marketing, same— again, they're— they'll view all kinds of things as discretionary. So I will say if someone's going to stay on with an agency in order to ensure that their retention stays, that it— that also strengthens that prediction of how that agency will perform. So if someone stays on and they set a really high compensation for themselves, they're actually hurting themselves. Because if you can get that profitability number in a reasonable fashion, you're going to be paid for your agency much more because of that multiplier that's attached to the profitability. So that's why when you engage with someone who understands and can help you, what do you need to live on? And then what will you be paid for your asset? You can start weighing those decisions much better and not just make knee-jerk reactions and think, well, I'll just change this or change that. So there's a very, I'd say, delicate balance to trying to figure out what makes sense and what, again, is best for the business overall in order to get paid for that asset in an appropriate way. So it's really interesting, the add-back concept, because I'll have a lot of agencies say, well, I've been operating forever without investing in technology and marketing, but they've also only gotten to a certain level. And someone who's buying their business knows they have the next 30 years ahead of them. They might actually apply expenses to say, but I want to take it to the next level and be able to automate and create efficiencies and do all of these things. So it's difficult for them to wrap their head around what I did to be successful and what someone else might apply to be successful in that same business structure, if that makes sense. So ad backs are really unique, and those assumptions are really unique in this whole process.

You mentioned something there that I'm glad you brought up because I would have— I think I would have forgot to ask you about it. You talked about staying on, and so in selling, that's called an earnout. So what percentage of time does— do you see that the current owner will stay on for some period of time in that earnout? And then is that typically they are compensated maybe as, um, you know, with revenue growth or additional profitability? What do you typically see in some of those earnout situations?

So it's actually pretty common. I— and I will tell you, those that are willing to stay on the value of their business is increased. And I would also tell you there's many different structures to sell your business. It used to be people thought there's a price, someone writes me a check, and that's the end of the deal. It's not actually that way anymore. So people can be bought, people can be paid for their business in multiple ways. And the larger you are, the more likely it will be some form of cash, a percentage in cash, a percentage possibly in stock of the purchasing entity that is buying you, and then an earnout, just like you said. Earnouts are typically related to the retention of the business that they're buying, as well as a growth factor. So there's two parts to the earnout, um, very easy to measure both of them. So if you're staying on, uh, I'll give you an example. An agency owner is in their mid-50s, they decide, you know what, I think, you know, I have a great asset here, but I'm not done. But I would like to really focus on selling. I don't want to focus anymore on hiring. I don't want to focus on managing people. I just want to get back to what I love, and I want to sell insurance. Fantastic. That's actually a very attractive situation, because if you're profitable and you're growing and you sell at that point, you now have an asset that is valuable. You're staying on, so the retention will be high, and you actually have future growth opportunities leveraging your relationships and possibly stronger market access in the combined entity. Um, so again, that component for the earnout can be the retention of the current business and also the growth that you might add to the combined entity. Where they get what I like to refer to as really two bites at the apple. They're selling their asset, and now they have stock in this combined asset that they, when they do retire, they get paid again, which is really interesting.

So that's exactly what I was about to say. I was about to say the second bite of the apple they get. They— yeah, that's, that's, that's so true. And I love that you continue to refer to assets. I mean, um, I heard this, the saying that income follows assets. You know, if you have a 4,000-square-foot apartment that overlooks Central Park in New York City and I have a 4,000-square-foot apartment in Huntsville, Alabama, your asset is far more valuable than mine. And so in thinking of how can I build assets that, you know, thrive, keep the business growing without me, that business is more valuable. And again, that's where software oftentimes is a little more of a faceless business. And so therefore they know, hey, if we strip these founders out, that the software is speaking for itself. And so there's not really a brand, you know, behind that. In fact, matter of fact, if you think about like really big companies, if you contrasted BMW versus Tesla, like I have— I don't know a face of BMW at all, and it's been around for a long time. But everybody, whenever they think of Tesla, they think about the brand of Elon Musk, right? And so if Elon sold out everything with Tesla I mean, that, that company, they could still continue to produce, um, pretty large, you know, um, uh, returns, but not nearly what they have because of the, the brand of Elon. I think probably the one that has done incredibly well given that is Apple. I mean, they've been able to continue to grow under Tim Cook after Steve Jobs passed, but that's a, that's a rare situation. So I'm curious around— you mentioned this, um, You know, there's typically 3 types of buyers. There's, there's a strategic buyer, maybe not for agencies, but in general there's a strategic buyer, there's a financial buyer. So that's your private equity companies coming in. And then there's individual buyers. What have you seen? Is it almost like exclusively individual buyers?

You know, it's funny, it's really hard to know exactly what's happening in the industry because there's a lot of private transactions that never get reported anywhere. That's a fact. Yeah, in fact, Optus Partners, you know, publishes what the transactions are. And those are the announced transactions by the large buyers. And there were some, they went up over 1,000 this year. So the first time, you know, over the last 2 years, that's grown by 31%. But it is estimated that that only represents less than 10% of the transactions that are actually happening in our industry, which is super interesting to me. So I would tell you the vast majority is agency to agency, um, or internal, current owner to future owner, or current owner to another partner. Those are the transactions that are happening most likely, but the private equity activity without question is growing. And the reason for it is independent agents or agencies in general are predictable They're very profitable and they can weather the storm very, very well in the current economic environment that we're in. So it's a great place to invest. I would also say there are a lot of people who own these kinds of businesses that are baby boomers, and they are waiting and they're sitting on a book of business, and now they're seeing Maybe this might be the top. This might be the best time I'll ever have to transition out. And I really don't want to make the investment in time and energy and culture, in technology, in automating, in doing all kinds of things. So this is almost— they might even be past the top, believe it or not, given what COVID made us all do and what we're facing just in our society about being connected and the expectations that their consumers will continue to have with access and all. You know, the average independent agency is open from 9 to 5. So, and I'm a consumer, I buy all kinds of things after 5 o'clock. I don't know about you, but I do a lot of business after 5 o'clock. So my point is, there's a lot of buyers And it is, it is pretty ripe for those that are poised and really well positioned to buy, whether you are an individual agency or private equity. I think there's a ton of activity just because of the nature of what's happening in the, in the industry as a whole.

You mentioned for most of the transactions, at least the ones certainly you're familiar with, You mentioned about how as the seller, they're going to have a few different ways they could get a second bite of the apple with addition— with stock in the acquiring entity's company. They can certainly get cash and then they can have a backside of the earnout. Certainly cash upfront is what everybody is wanting. But let's flip it and go to the purchasing, right? So private equity, they're going to come in with their own cash. I mean, they may use some debt financing instruments possibly for that just because of what— where interest rates were. But typically, are you seeing between literal cash bank financing and then how much do you see in the owner financing?

Oh, that's a great question. So again, lots of internal transaction— transactions happening. And there is a tendency, if it's family related or internal, to consider an owner-financed deal. I will tell you, I advise all of my clients, please, please, please don't do that. Please involve a bank. Number one, owner finance transactions typically won't cash flow. They'll either set a price that is unrealistic or they'll stay on and be compensated that profitability can't support that loan payment. And then we gotta renegotiate it sometime. I think I saw a statistic where it's like 70% 75% of internal owner-financed don't, aren't successful, meaning there has to be some kind of renegotiation at some point. But there is a high tendency to do an owner-financed. And I would then say there is a fair amount of bank loans. I mean, money's been very, very cheap for a long time, you know, but the other thing I will tell you is I'm surprised. I love this industry, but I have been surprised about how many agencies have incredible assets stockpiled in order to have an acquisition sketch, you know, strategy in place. So some are, they're financing it on their own because they've run a profitable business and they're able to actually use a fair amount of their own cash, which is interesting. So, but there is, there is a fair amount of owner finance. I just would, you know, caution you that that really changes the dynamic of that family, unfortunately, and We could talk about all kinds of stories of what happens when you have to go renegotiate with your uncle or your dad or anyone. You know, Thanksgiving's never the same.

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Let's go at it from the buyer So from a buyer's side, I think they're saying, where do I even go to find opportunities? And that's a tricky, tricky thing. In my world, that is, you can go to a state association and find other agencies that might be listed to say, hey, I'm, I'm thinking about doing this. They have a very strong network. They make it be known, hey, we're out here and we're looking to buy if you're ever looking to sell. There's like a whole system. I mean, private equity calls. Any agency knows their phone rings off the hook of people saying, if you're ever interested, I'd love to buy. And then I would say carriers play a pretty big part in this. Carriers have a, have a vested interest to make sure those agencies that represent them, that book of business lands in the hands of someone who will hopefully keep it at that carrier and not roll that book of business. So there are carrier reps that are very much aware of agencies who may or may not have a plan or have a potential internal solution that they will introduce their, their key agencies with others in order to, to be able to help create that marriage. And the last I would tell you is agency networks. Some of them are created to do the first right of refusal for the very same reason that carriers do. They want that book of business to stay in place with that network that's aggregating that, um, that premium volume for their commission rates and for their contingencies. So there are places to go to find, to be able to vet and find out, is this a good book of business? I will tell you, um, there, that's a gap. I think that some that are very savvy who have purchased before They're going to tell you all over the board, like, we made a great deal. We did it on a multiple of revenue. It was a handshake. It wasn't a lot of due diligence and it worked out. And then you'll meet someone who bought it and paid, you know, I hate when someone says this, but 3 times revenue. And, you know, half the book disappeared in 2 years because they didn't do any due diligence and they didn't pay attention to those relationships or those reasons why that book of business was the way it was. Or there was a super large account. You know, there's a lot of reasons that you could have attrition. So anyway, I think you should seek out advice of someone who's done this that is an outside independent thought process, because it becomes pretty emotional. You know, it's really interesting how many of these deals become, I just fall in love with the idea of buying another agency, whether it makes sense for me or not. You know, and it's, you know, that's one of the reasons we even started this. So when I was at the association, we watched that happen because we wrote their E&O, and we would see people, you know, with their tail policy because they sold, and it was not great deals. So it really was to help get into the space where we can help advise that and prevent some people from making uninformed decisions. So yeah, I mean, again, marrying those two together is the trick. Like, where do you find all these people? And there's so many more buyers than sellers that it's difficult. You find out after the fact that someone was looking.

So, so you mean to tell me that people buy on emotion and justify logically?

Oh, for sure they do. Absolutely. Yes.

Last question I want to ask. What— how is the economic conditions? I mean, we're, um, you know, rising inflation and interest rates. It's, uh, late July of 2022 when we're recording this. What has that done? What have you— what have you seen in terms of, uh, I guess, volume of opportunities that's out there? Has it gone up or down? Um, and then also, uh, multiples.

Yeah, so here's, here's the thing, and nobody really knows what the long-term impact will be if interest rates go where we think they're going to But what I've seen is it's actually accelerated those that are— have waited too long and now think, again, maybe this is the best time, and now I really need to figure out, um, can I sell my agency? They— I think there's an even greater sense of urgency to sell if you're an agency that hasn't, um, again, invested in technology, invested, um, in, in growing. For the future. The other thing that I would tell you is not just interest rates, but this Great Resignation, losing some key people has also created some stress where, again, it's almost like the straw that breaks the camel's back, that people are like, man, I don't know how I'm going to replace this person. I don't want my business to decline. I would rather sell now. So I think from the selling side, I think it's created some urgency for that subset. Um, again, on the buy side, I think it's predictable, it's profitable, it's a great investment. I think there's going to continue to be demand, and I think multiples will stay really steady in our industry. The last part is everything's rising, so in a hardening market, premiums are increasing, which increases the value of an agency. And everyone needs insurance. It's not like people are just going to cancel their policies and not have insurance anymore. I mean, it, it's really interesting. So I think it's going to be strong, the demand is going to continue. And I think that our industry is going to continue to grow, the M&A activity is not going to slow down. That's my prediction. And what I've seen, I will tell you, in the last 3 weeks, I've had agencies reach out to me, and the reason they want to sell is their people, that they've lost key people. So that is that's creating more pain than what they think that they can recover from. And that now might be the time to sell.

Yeah, which is almost catching a falling knife a little bit, because then the buyer, the acquirer, is going to look at that too and say, ah, well, you know, they're gonna, they're gonna apply a discount to that because they are the key person. So, you know, it's almost— you can understand why that person wants out, but it's not the best time necessarily to sell. Nope. So yeah, I get that. All right. Before we get into— you got some time for some rapid-fire questions?

Yes. Yes, sir.

All right. Before we do that, people want to get in touch with you, connect with you, talk to you about their agency. Where would you point them to?

I would point them to my website. You can reach me at agency-focus.com. It's agency-focus.com. Or you could email me at Carrie@agency-focus.com. I am on Twitter. I am on LinkedIn. I'm pretty much everywhere. But yeah.

Awesome. All right. We'll put that in the show notes and in the email that we send out. All right, Carrie, what's the last book that you read?

Oh, goodness. The last book that I read is, huh, it's actually a personal book. It's Where the Crawdads Sing, because the movie came out and I wanted to read the book before I actually watched the movie. I know that's probably not what you were looking for. But that's the honest to God truth.

No, I want the honest answer. That's great. I've seen that, I've seen it in Barnes Noble every time I go in there, and, um, I need to read more books like that.

So I moved to that section of the world, like, and so I find it fascinating to know what the Lowcountry is and all of that stuff. So it was pretty cool.

Oh, it does have a Lowcountry, uh, theme, doesn't it? That's right. Yeah. Um, book you recommend the most to, uh, other insurance agency owners?

Oh my goodness, I, I actually like the book The One Thing. I think that as entrepreneurs we try to do everything, and I think The One Thing is actually something that's impacted my career a fair amount. And then the second one would be Atomic Habits. Be repetitive in what you're doing because it makes a huge, huge impact in being consistent. So those two books have really shaped kind of how I run my business and how I try to grow as a, as a business owner myself.

Trying like the devil to get James Clear to come on the podcast. I'm trying.

Oh my goodness, if you do, you're gonna have, uh, yeah, that would be an incredible conversation.

Yeah, we've, uh, we've been— anyway, we'll get there maybe down the road. What's your favorite tech tool or app that you use every day? Don't say your iPhone.

Ah, favorite tech tool that I use every single— well, I actually have a Google Home in my room that plays white noise to make sure that I stay focused. So there you go. Yeah.

Uh, let's go back to when you started your agency-focused business a couple years ago. Yeah. Uh, fill in the blank: I had no idea when I started this business this would be so hard.

Posting on social media on a consistent basis.

You know, there's a great book called Atomic Habits. Who would you love to sit next to on a 10-hour flight and why?

Who would I love to sit next to on a 10-hour flight and why? Uh, this is— I would love to sit next to my dad on a 10-hour flight and get to talk to him again. So how's that?

That's great.

Yeah.

What's your favorite travel destination?

Oh my goodness, I love to travel. I've actually seen a lot of cool places, but if it's a place that I've already been, I would tell you my favorite place that I've ever visited is Vietnam. Um, it was a very cool place. It made— it was really unique because we went back to the birthplace of one of our very close friends. He was a refugee who left, and what made it really cool was they were taking pictures of us because they had never seen people who looked like us. And they— it was one of the most, uh, friendly, cleanest, uh, coolest places I've ever been. It was, it was a trip of a lifetime, truly.

When you're not working, what do you love to do?

Ah, I live at the beach, so I catch as many sunrises as I possibly can. I walk my dog, who's an Aussie doodle, and I like to play tennis and pickleball.

I still have not played pickleball.

Okay, you gotta play pickleball, man. Come on.

I know, I know, I know. I'm gonna have some people message me. If you— for one of my friends, text me and we'll go play pickleball. I've been—

please go play pickleball, it's super fun.

All right, dirtiest trick or tactic you've seen in an acquisition someone tried to use?

I think that there's a lot of pressure that's undue. And I also think people have taken advantage of people not being educated, which I think is really unfortunate. So, you know, I think imposing time limits or pressure to someone who's not informed and then truly taking their livelihood away from them, which is really unfortunate. So yeah, the uninformed dealing with the uninformed and really capitalizing on that.

Yeah, you know, and, and the thing about it is there's so many great resources, podcasts and books and and, and people like yourself that people can reach out to. You don't have to— all this stuff that we've talked about today, some people say, I have no idea what that is. Well, I didn't either. I had no idea either. I mean, you're not born with this. I mean, you just learn it along the way and you, you develop skills. I mean, you, you did the same thing, right? I mean, that's right. Have experiences and, and you, and you stack those if it's important. So I mean, with YouTube and so many other things, I mean, I feel like a YouTube everything. Now I was pressure washing the other day and I was like, I can't get my soap dispenser to work. YouTube. All right, last question. What's the best piece of leadership advice you've ever received?

Surround yourself with people who are smarter than you and let them do what they are good at.

Awesome, Carrie. It's been a pleasure. Hope to have you back on in the future.

Yeah, I love it. It was great. Thank you.

I, I enjoyed that conversation. I It was just maybe 3 years ago or so that I began the process of— I think I read the book Built to Sell, uh, by John Wardlow, which I referenced his podcast and his books previously. And I just really got interested in the whole process of buying and selling a business. And, uh, it does take a while. You begin to hear terminologies you're not familiar with. So hopefully some of that was helpful to you along your own journey, whether it's your current business or you're looking to possibly buy or sell a business. In the future. There really are so many great resources out there. I think some of the takeaways that I had is she continued to mention about, you know, do you have an asset, right? And whenever I said income follows assets and thinking about all things within your business about how can I make this an asset, because an asset is not dependent upon you and you having to be there. So building assets in business, that's your systems, that's your processes, that's how you do things. Even your culture can be an asset. I think, uh, you know, your financials— she talked about just the importance of having a really good handle on your financials, not just, I mean, whenever you're selling and benchmarking against what is standard in the industry, but also, you hear me say it all the time, right? What the importance of understanding your financials to be able to make better decisions in your business. And then that actually leads to my third key point, which she mentioned at the very end, which is just uninformed decisions. And I think that not just within buying or selling a business. I think it's a good reminder is to be able to say, you know what, I'm not going to be pressured into making a decision or make a decision that's just based solely on my emotions. But I'm actually going to take the time to think. We all make impulse decisions, impulse buys, whether you're at the grocery store or going into Target. That's one thing. But then making a decision that is impulse to buy a business for half a million, a million dollars, that's a totally different thing. And so I think those are some of my big takeaways. Hopefully some of those terminologies and perspective was interesting to share with several of you that are out there. Reach out to Carrie and her team. Go to agencyfocus.com. A big shout out to our podcast sponsors for this episode: Club Capital, DirectClicks, Coach B, and Rock Solid Assistance. I mean, you just heard me talk about throughout there about why and how Club Capital can be able to help you to understand your financials so you can make better informed decisions, whether you're looking to be able to sell your business or not. Go to club.capital and book a no-obligation demo. Make sure you talk to them about their CFO services they just launched this year, which has absolutely been received with incredible fanfare and will absolutely transform the way that you look and view your financials instead of just a back-office burden, but into something that can really transform the growth and the profitability of your agency. You know, you heard me mention a minute ago about the importance of building assets in the business, and I mentioned like systems and processes. And, um, you know, can you go too far to over-systematize business? I mean, yes. I mean, you've heard me say that on the solo episode, Is Business a Garden or Is It a Machine? And that's true. But for the most of us, we've got to be able to build some systems and processes so we can provide a unique experience. And one of the ways to do that is you want to be able to have some really tight sales processes within your agency. And if you're a State Farm agent, you want to reach out to Coach Pete, go to coachpconsulting.com. Make sure you tell David that you heard about him on the Club Capital Leadership Podcast, and he'll give you your entire first month for free. Uh, I also was mentioning on there about marketing. I just happened to pull that one out. And you know, if you're investing X amount of percent, say 5 to 8% of your top line gross revenue back into marketing so that you can continue to grow. What are you investing that money in? You want to be able to invest in, in lead sources that are going to give your team really quality leads so that they have the highest conversion, so that your money, your dollars go further. Look, there's a time for branding. Of course, you're sponsoring your Little League baseball team or the basketball team banners. Are you going to get a return from that? I mean, probably not. Is it good to do? Of course it is good to do. That's why big companies do branding. But if you're in direct response marketing, you want to be able to actually see that there's a return on my investment that I'm making on a monthly basis. You want to work with a partner that just knows that space and is getting the type of results. They're going to take care of you. They're going to walk you through the process, get to know your goals, things that you want to accomplish, and then they're going to be able to help provide results. That's where DirectClicks comes in. So go to directclicksinc.com, directclicksinc.com. Let them know that you heard about them on the Club Capital Leadership Podcast. You know, somebody who I've really learned a lot from over the years— I do see a few things a little bit different, but has been incredibly successful— is Michael Hyatt. I know many of you listen to his podcast, Lead to Win. Maybe been a part of his business coaching programs over the years. And if you listen to any of their material or find out anything, you find out really quickly that they all— a lot of them, they really believe in having executive assistants. And, you know, that was one of the first places years ago that I began to really kind of lean into this idea. I had my first executive assistant probably too early on in my career, and it was full-time, and I didn't need a full-time assistant. And so I think because of that experience, um, it was way too early for me to get an executive assistant at the time, but it was especially way too early for me to get a full-time executive assistant. And that is the biggest difference. And so because of that experience, because I was influenced, I just never went back to it. I thought it needed to be an in-person, full-time, 40-hour-a-week-plus, uh, EA, and I didn't need that. But what I did need is a specialized, specific person that could do, you know, 10 hours a week of work, uh, for me. And I just didn't even believe in that until I was first exposed to it, Michael Hyatt. And so if you've been thinking about this, or maybe you've never considered it, but you want to know, okay, well, where am I going to find somebody like that? I mean, do I go online and just post it on, uh, one of the job posting boards that are out there? Uh, I mean, you could, but, and maybe you'll get some great ones, or you could go to Upwork, but it's finding a needle in the haystack. You don't know what they're vetted, you don't know how they're trained, you don't know the accountability. And if, what if it doesn't work out? You're back to the drawing board. But that's a totally different experience when you work with rock-solid assistants. So Tracy and her team do an incredible job. They want to find really great clients like all of you, but they want to match that with world-class assistants. And they do that and they vet them. They are growing. They are oversubscribed because of the job that they do. So go to rocksolidassistance.com. Make sure that you mention that you heard about them on the Club Capital Leadership Podcast. I thought this episode was great. I enjoyed the conversation with Carrie. We appreciate all of you. This was helpful to you, and I hope that it was. If you'd consider sharing it with a friend, that would be awesome. All right, everyone, till next week. So the big question is this: how do small business owners like us grow our leadership, develop our teams, and scale our business in a way that allows us to get our products and services out to the world, yet still remain profitable? That is the question, and this podcast will give you the answers. I'm Bradley Hamner, and this is the Club Capital Leadership Podcast. Hey, before we get into today's episode, did you know that Club Capital is the largest accounting and advisory firm for insurance agency owners in the country, providing monthly accounting, CFO services, and tax preparation. Check them out at club.capital.