Capstone Brokerage is a risk management firm that also sells insurance. After 20 years in business, the company takes pride in cultivating a workplace culture where employees can grow personally and professionally.
Buying with the heart and not with the head.
In the insurance industry, you grow organically or you grow by acquisitions. It's kind of tough to get solid growth just by doing it organically, so we've done acquisitions along the way. My biggest mistake was in the very first acquisition that I was really engaged in and was super excited about. I felt like I was really stepping up to the table. I felt like, "I know my expertise; I know what I'm doing."
It was [with] a person I had known who was retiring. It seemed like the perfect setup. I knew his relationships with his clients, and I knew that he had a good reputation in the insurance industry. So we bought on the handshake of the contract and bought with the heart and not with the head.
A lot of the process was paid upfront and we had no callbacks in the contracts. What we recognized as soon as we signed on the dotted line was a lot of the business instantaneously went away. [People felt like,] "I didn't buy from you, I bought from the other agent and I don't want to be with you." So we got hurt really bad because there were no callbacks.
The worst part of it is that there were all these little side deals. He had different people that were referring him business, and all these people that were referring him business over the years he was giving cutbacks to, and he had contacts with them, and all these people were expecting [the same from us].
So, we had no callbacks, and any past relationship contracts were null and void in this purchase. We were taken by the storm. In the first 12 months [of an acquisition investment], usually, there's about a 75 percent retention. In our investment, we had less than 25 percent.
In mergers and acquisitions, you cannot lead with your heart or past relationships.
In mergers and acquisitions, you cannot lead with your heart or past relationships. You have to lead with your head. You must lead with the numbers and results and know the contract and make sure it's protecting both parties, because we certainly were not protecting ourselves.
From a business perspective, I think it's great that most people get to a point where they are looking to do their first acquisition. I would love for them to learn what I learned without having to personally experience it.
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Photo courtesy of Mary Thompson