An impressive 91% of small businesses survive after one year of trading in some industries, according a report on UK business demography in 2017 published by the Office for National Statistics.
Unfortunately, fast-forward to five years after launch and this falls to just 40%. These kinds of statistics haunt entrepreneurs and show that launching a business is one challenge, but growing and sustaining it is another feat entirely.
This is where some of the hardest work will start: nurturing an insurance business’s growth and taking it from a startup to the next level (and beyond). So how can entrepreneurs successfully navigate these growing pains?
Plan A or no plan?
At the new and nimble stage, founders of businesses have the freedom to move in different directions as and when opportunities present themselves. However, as an organisation grows it becomes essential to align the long-term targets with an adaptable strategy.
Colin Thompson, who founded MGA Nexus Group in 2008 and now has over £320mn in gross written premium, explains how the choice between following a predetermined strategy and reactively pursuing opportunities is one all entrepreneurs will inevitably face.
“It is key to focus on your core strengths but, for ambitious businesses looking to grow, it is essential to be open to new opportunities and these may well be outside of your current expertise,” says Thompson, who is group CEO of Nexus.
“It is important to identify the right opportunities and have the flexibility and resources to successfully execute new initiatives at the right time.”
This is the view shared by serial entrepreneur and former global head of innovation at Aviva, Anthony Beilin, who is now co-founder and CEO of startup Collective Benefits. For him, the onus is on following a strategy that allows the flexibility of different opportunities but ensures those undertaken add significant value to the business.
“As with any early-stage company, you have to be focused and clear about the world you’re trying to build. That makes it much easier to quickly work out if new opportunities are worth going after,” says Beilin.
“Every quarter we run a company-wide workshop to pinpoint what we’re working towards over the next three months. It’s not about planning every week in precise detail, it’s about aligning behind a few big, impactful objectives to give us clear direction through all of the noise.”
Steve Lewis became CEO of insurance consulting specialist Pro Global Insurance Solutions in early 2020 and has been implemening a structured growth agenda since, in the face of COVID-19. Sticking to a growth plan while navigating uncertain markets has not been easy, but he emphasises ‘focus’ as a crucial characteristic for any business leader scaling up in this situation.
“Identifying where your firm has something compelling to offer, not looking to be all things to all people and partnering for capability where it makes no sense to self-build,” he says.
“It then comes down to getting some early wins on the board to galvanise the team as one looks to change gears as an organisation - as success generally drives success. Ultimately, business scaling is about taking calculated risk, not betting the farm and having the ability to learn and iterate.”
Key considerations when scaling up
At certain points, the growth of a business will meet an inflection point where resources must be significantly scaled up. At this point challenges become extremely pertinent for businesses branching out into new areas.
While this can potentially lead to a boost in revenue, Jimmy Williams, CEO of one of the UK’s top rated home insurers, Urban Jungle, says this needs to be approached carefully.
“I'm amazed how often people fail to do market sizing on new opportunities,” he adds. “How big is the market? What share could you reasonably take given your points of difference? If the answer to those questions isn't a number that is material to your business, then you can easily walk away.”
Business owners often must backtrack from ventures they have already pursued and while divesting from lines of business is challenging, it is necessary for long-term growth.
Nexus Group is in this very position with management currently looking to divest from its broking business, Xenia.
Thompson explains: “This is a good example of a hugely successfully business with a strong management team who will prosper even further by becoming independent from us as an MGA. This also means Nexus will focus on becoming a pure play MGA in 2021.”
However, while these kinds of decisions can ultimately be beneficial to a company, these periods of disruption can bring short term pain. Namely, redundancies. These decisions therefore have to be handled sensitively.
“The decision to exit a line of business can often be met with considerable internal resistance and will typically arrive too late rather than too early,” says Paul Morgenthaler, insurtech specialist and partner with fintech investor CommerzVentures.
“In such a situation, open and transparent communication is key. Stakeholders will be willing to contribute to a solution that is in the best interests of the business only if they fully embrace their reality.”
Long-term and manageable growth
Growth strategies will vary significantly between businesses. The fundamentals, however, will remain the same - as Charles Rowley, director at MGA incubator DA Strategy, explains.
“Having an active and involved board of directors or advisory board is crucial and provides the leadership team with the opportunity to draw on the advice of experienced industry colleagues,” he says.
“Effective boards are not sinecures for the great and good of the industry but are made up of those who will work hard to invest the time and effort needed to challenge management and offer learnings from their successes and failures.”
At this point, the management’s responsibilities can become less tangible than the day-to-day running of a financial services institution. Instead, the onus for leaders is on navigating a challenging and unpredictable operating environment while meeting growth targets.
Reflecting on this, Morgenthaler cites 19th century Prussian commander Von Moltke, who famously said “no strategy survives contact with the enemy”.
As Morgenthaler concludes: “In today’s highly dynamic environment, strategies can very quickly become obsolete.”
