The right business partner can help you through tough times and avoid the consolidators’ clutches. But you might have to ‘kiss a lot of frogs’ first
The smooth running of the broking world is built on partnerships, and none is more important than those with the people you work with. But finding the perfect partner to suit your business is difficult; keeping the relationship ticking over when times are tough, even more so.
While start-up brokers are rare these days, finding a good right hand can help steer a new entrant through a tough market – and avoid the consolidators swallowing you up.
Ravenhall Risk Solutions managing director Neil Grimshaw set up his business in 2006 and was joined a year later by fellow director James Daly. He counts the decision as one of the best he has ever made.
“Having someone else involved enabled me to share the load to grow our income exponentially; it also allowed us to accelerate other plans for growth,” the former Insurance Times Awards winner says.
As the economic climate heralds more mergers and acquisitions, many smaller brokers are likely to partner with fellow players to increase strength and retain independence.
“A merger can be an alternative to joining a network,” Institute of Insurance Broking chief executive Barbara Bradshaw says. “It would give you a bigger end product because, even if you don’t go down the network route, a lot of brokers have good rates and special deals with product providers if they are a large enough entity.
“If you are a really small broker, you probably don’t have the sway, but if you merge, the joint package will be attractive to a product provider,” she says.
But there are pitfalls to taking on a partner and brokers need to be confident they have made the right choice.
Macbeth Scott founding director Duncan Macbeth has seen poor planning and lack of trust rupture many partnerships. “You have got to be in a position of trust. That is fundamental; there is no point having somebody who rubs you up the wrong way, does things that you don’t like and that you don’t get on with.”
What if it doesn’t work?
He adds that it can difficult to untangle yourself from the partnership in these circumstances. “Quite simply, if the partnership is not working you have got to dissolve it. If someone has made a mess of something and there is a good legal reason to dissolve the partnership, that’s fine.
“But to get rid of somebody who is a pain in the neck can be very difficult. The only way you can do it is to dangle a financial carrot in front of them.”
So how can you avoid going down this path? For many, the seeds of a future business relationship are sown in a workplace with a fellow colleague.
Grimshaw says that relationship history is the key consideration when choosing a fellow director. “Start-ups are not common … and they tend to be groups of people that have worked together in the past; James and I had worked together. It would not have been something I would have entertained unless the relationship had been founded on a high level of trust on both sides.”
But a good solid business relationship is not always founded on an equal footing. You can, for instance, spot a potential partner in your first steps up the corporate ladder.
Macbeth saw the potential of future partner Charles Scott when the latter joined a brokerage at just 18. “I knew that he would graduate on to a shareholder or partner level because he had the attributes that I spotted earlier on – including a good business head. He also came well connected and I didn’t want him going somewhere else,” he laughs.
But not everyone agrees that relationship history is paramount. Director of broker consultancy Endorphin Geoff Bradshaw, who joined with former broking partner Chris Blackham to form the consultancy, argues that while history can help, having a spark with a kindred spirit can be more important.
“The key is to find people who are entrepreneurial and think in an expansive way,” he says. “If we thought the person had a very good business plan and we trusted that person to deliver, of course we would work with them. Just looking at people you already know can be too restrictive.”
He adds, however, that finding a good candidate remains tough and “he has kissed a lot of frogs” in his attempts to find the right partnerships. He warns that any prospective candidate needs to be both committed and have an intuitive understanding of the business. “It is vital they know what it takes to grow a business and they have a business plan,” he says.
Macbeth believes too that it is vital to divide responsibilities according to any partner’s skills set and aptitudes. “People have strengths and weakness and you have to be open about that.
For example, Charles might say to me ‘oh, it is a staffing thing. You sort it because you are good with that’. You play to your strengths and your weaknesses and that is how a partnership develops,” he says.
Biba technical and corporate affairs executive Graeme Trudgill believes that it is important to set out expectations, especially in the case of a merger in which one broker is planning to leave. “If there is an exit plan over two years, it is important to make sure the clients are happy to stay there and the outgoing person is not going to take them and start a new brokerage.”
But what if everything looks good on paper and in the end the partnership just doesn’t work? Bradshaw warns that brokers must seek the correct legal advice – and from lawyers that understand the broking model.
“Sometimes you go to lawyers and they say they can do it, but you seem to spend a lot of time explaining to them how the model works,” she says. “In the worst case scenario, you end up in court. That will cost you an awful lot more than the initial contract to enter the partnership.” IT
Partnership top tips
- Do a background check. If you do not know a potential partner well, check their credentials and references.
- Have a proper paper trail. All important aspects of the partnership should be backed up by a contractual agreement.
- Divide responsibilities. Each partner should have a responsibility for a certain section of the business that plays to their key strengths. In the case of the merger of similar-sized firms, make sure it is clear who makes the final decision.
- Client retention. In the case of a merger, set ground rules when it comes to the retention of clients especially when there is an exit plan in place for a director of one of the firms.
- Get expert legal advice. If the partnership fails to sparkle, make sure that you look for a solicitor who has experience in working with brokers to cut costs and smooth an easy transition from the partnership.