Going it alone

It’s never been harder to start your own business. In the midst of recession, start-up funding is scarce and regulation now is tougher than ever before, bringing huge costs to bear on brokers. In a sector filled with slick, professional national and global players, it’s a brave broker indeed who starts up on their own.

But the profession was built on entrepreneurialism and, for some, that sprit will never die. We asked the winner of last year’s Insurance Times IT Pack, young entrepreneur Matthew Stringer, to put three common problems facing new brokers to three of the industry’s biggest success stories: Towergate executive chairman Peter Cullum, Bluefin chief executive Stuart Reid, and one-time Layton Blackham boss and now non-executive director of Howden, Chris Blackham.

QUESTION 1: A lot of insurers aren’t keen at all to sign up new brokers that don’t have an existing client book. There are obviously network or alliance solutions for this problem, but some new brokers may not want to pay, or be able to afford, membership costs. What advice would you give?

Peter Cullum: It’s immensely difficult for new start-ups to attract the attention of mainline insurers and secure agencies, let alone decent terms. Consequently, a partial solution is to align your new business with a well-established network in a position to fast-track and overcome difficulties without the imposition of personal guarantees and mortgaging your home, family, pets!

Regarding cost, there are more choices these days about what level of service you subscribe to. In simplistic terms, the cost of network membership is almost always negated by benefits such as the additional margin your package is likely to yield, so my advice would be to look at the whole picture.

Stuart Reid: This is a common problem and one of the reasons buying a small existing business is, to my mind, preferable to a greenfield site set-up. Insurers can be persuaded, but only if they can see professional management with a solid business plan, both for the business itself and any account requested.

I wouldn’t dismiss the network/alliance model – many of these give greater commission and service and better pricing, and these can serve as great tools in winning new business that would not be won otherwise. Therefore, they pay for any fees due.

When I started my company, we accessed GA Bonus through our software provider’s network, which became a great new business tool that we simply would not have had applying for an agency on our own.

Chris Blackham: The days of going it alone with insurers without a decent established book are long gone, and somebody starting from scratch will be making a false economy if they do not join some sort of network or group.

The core challenge for any new business is winning business, and this is where the start-up must focus their time and effort, not in opening up agencies that may only pay lip service to supporting them.

I have seen both sides of the coin, having started up a broking business from nothing and also having started a network, and in today’s market, you need to hit the road running, in a pack … not alone!

QUESTION 2: I started my business on a shoestring budget, but this still reached just under £30,000 when you add in regulatory capital, systems, PI and so on. For most people with any financial commitments, this is just too much money, especially as provisions also have to be made for a period of little or no income, with the current financial market. Do you have any recommendations on where new brokers can look for funding?

Peter Cullum: Funding in our current environment is tough. It has probably never been more difficult to secure seed-corn funding for new enterprises, irrespective of the sector, from manufacturing to consulting. Despite political rhetoric, many banks simply aren’t open for new start-ups … at any price.

Sadly, therefore, one’s best hope is a rich aunt, family or friends! Then, insurers and major brokers are an option. After that you need a ‘business angel’; for example, I established a £10m fund for entrepreneurs with Cass Business School.

But, and it is a big ‘but’, any investors really need to see a great business plan – not just good ideas, but a plan capable of great execution. With that, you will get more open doors.

Stuart Reid: Starting a business is a bold move for anyone. With this sort of challenge, you yourselves have to be bold. Financing a start-up on £30,000 can be done, but it will prove to be a long and difficult journey.

Beg, steal or borrow finance to get you going. Family members, friends, banks, insurers and brokers such as Bluefin can and do help start-ups to get access to cash and give the financial clout to be able to get going properly.

Buying a small business is for me the best way to start, enabling you to have an infrastructure, agency base, staff, IT and so on, which gives you a firm foundation from which to start. They may not be what you would choose but they enable you to start a few rungs up the ladder, with the obvious advantages that might bring.

Chris Blackham: This is a real problem, and borrowing money from companies or people who do not understand your business or add value is asking for problems.

The reality is you need a sound business proposition and a detailed business plan that supports it. You can no longer set up a business on a wing and a prayer, and entering the insurance market is a costly and complicated business these days.

I am considering setting up a fund to provide financial and business support for people with quality propositions … so watch this space.

QUESTION 3: I have seen my SME clients very interested in using a local start-up business for their insurances, but more often than not this also instantly hinders your chances when against direct markets, established brokers and aggregators. How would you come back to a client who is negative towards placing their business with a start-up business?

Peter Cullum: Most up-and-coming brokers trade off a strong personal franchise. So historical ties are not essential, although it helps if you can point to a healthy number of years’ experience between you.

A convincing story and clear positioning in your area is key to give a client confidence – be known for something, whether it be a specialist niche, best service and so on.

This differentiation is essential. If you are just a ‘me too’ player, it inevitably comes down to price, and that’s a road to nowhere. Anyone can do ‘deals’. Be confident to charge a fair and realistic fee, and don’t be afraid to walk away from business that will not make you money.

Stuart Reid: I would always advocate the larger business winning the case, as I run one myself, but if I were in your shoes, and in competition with anyone other than ourselves, the difference has to be service. If anyone ever asked the secret to business success, the answer surely has to be hard work: on call 24 hours a day, putting the client at the heart of all you do, going that extra mile. Some of the larger companies struggle to compete on these terms and it is where you score.

You also have to put your clients’ minds at ease that the size of your operation, its limit of PI cover, its experience, its skill set and its solvency are all consistent with insuring them. These are issues that the larger brokers find much easier to answer and ones you will have to counter.

Chris Blackham: Well, if you are doing this on a shoestring budget, you only have your good name, supported by other client recommendations and the protection provided by the FSA and your PI, to back you up. The reality, however, is that larger companies very cautiously buy from smaller companies, usually only when the smaller company has strong financial backing, a personal relationship or a specialism in a particular field.

That takes you back to having a well thought-out, focused business plan and strong financial backing. IT