The Pollyanna Complex: Get The Right Prescription For Those Rose-Colored Glasses Or The View From The Top Will Quickly Lose Its Focus

by Rob Lieblein, Managing Principal of Hales & Co.

Fast Focus

• Greatest damage to a business comes from the failure to confront reality.
• Build success by matching an agency’s goals to the realities of its environment and capabilities.
• Don’t let rose-tinted lenses obscure the need for change.

Spring. What a great time to be optimistic! Am I right? Of course I am!
The sun is shining, the convertible top is down, and when a good breeze comes up, you can smell the roses and not even have to stop to do it. What could be finer!

Ever meet a person like that? Me, too. Sometimes it makes me want to call up my friend New Jersey Joey and “talk” some sense into him. Or her. Whether you’re Pauly or Pollyanna, the reality of the world on the other side of those rose-colored glasses might not always smell as sweet. (Pardon the mixed metaphors—my buddies from Jersey seemed to get it.)

A “Pollyanna,” in case you’ve forgotten, is “characterized by irrepressible optimism and the tendency to find good in everything.” Those are great characteristics for a sales person…but perhaps not the ideal attitude for an agency principal, especially if it’s being practiced 24/7.

Let’s break down a few examples of the how and why many insurance leaders become the poster child for the Pollyanna complex.

Doing What Matters

In the book Confronting Reality: Doing What Matters to Get Things Right (Crown Business, 2004), authors Larry Bossidy and Ram Charan posit the theme that the greatest damage to a business owner comes not from poor management techniques but from the sometimes willful failure to confront reality. More specifically, it is the unwillingness to analyze three fundamental components that determine success or failure of a company: the environment it operates in, the financial targets it needs to meet, and the internal activities and capabilities that it depends on in the given environment to meet the financial targets.

The book further identifies various behaviors as the most common causes for failure to confront reality, and they are familiar in many insurance agencies.

• Filtered information: Typically, this is the case of an agency looking at the environment from the inside out, rather than the outside in. Or information distorted by people with their own biases. In either case, the leaders aren’t getting reality from the source, but rather information that is filtered.
• Selective hearing: Some people, and we all know them, receive good information but choose to ignore it. It may be because of preconceived notions, experience, or simply because of the refusal to confront the problem.
• Wishful thinking: An insurance standard! The acquisition will work because it must work. We’ve got the best people and we will deal with it. Commissions will increase because we said they will. In all these cases what we are dealing with are those leaders who ignore reality and see things as they would like to see them.
• Fear: This is more likely in larger agencies where the senior executives hold great power and authority. The cause of fear is that you may be embarrassed over saying the wrong thing at a meeting or are concerned of the consequences for speaking the truth.
• Emotional overinvestment: Commitment is great, but it can skew a business owner’s judgment. Have you ever seen an agency owner who should walk away from the sale of his business because it does not feel right but fails to do so because he has invested so much time and energy in the deal? Emotional overinvestment may blind a person into making bad business decisions even though they know deep down they are making a mistake.

Let’s face it, as managers, owners and entrepreneurs, we all have fallen into one or more of these traps in our professional lives. This theory is reinforced all the time by what we see in the insurance industry. Businesses expect to increase revenue when the industry is in a soft market and product rates are decreasing. Agency owners dismiss the threat of competition from large public brokers because their own firms are more quick and nimble. An employee-benefits broker believes her firm will continue to grow at its historical annual rate of 20%, even though three quarters of that growth is due to market lift rather than true organic growth. An agency principal expects new business development of $200,000 per producer when historically the firm averages less than $100,000. The examples are endless.

Visiting all the agencies I do each year makes me a true believer that Bossidy and Charan are right on the mark. So what is the solution? A reality-based process for thinking. As the authors state, “Everyone needs to fully understand the realities of the new world in which they do business, and they need a new way to mesh their business goals and actions with those realities.”

Failure to Execute

Certain signs of Pollyanna behavior show up in a company’s failure to execute on its strategic plan. This is primarily because too little time is spent coordinating the agency’s vision, or financial targets, with the external environment and the internal capabilities. This is never more apparent than when an agency engages us to perform strategic planning and the first thing we do is deliver an analysis of the company’s strengths, weaknesses, opportunities and threats along with a related list of priority issues that must be addressed. The typical client response is surprise mixed with impatience: “But what are our strategies, our action plans, to grow?” The SWOT analysis, I explain, is a critical starting point. You can’t plan strategically if you aren’t working within the realm of reality.

So what is my point here? You need to address your agency the way it really is, not the way you would like it to be. Sometimes people use the term “business savvy.” But what is business savvy? I would argue it applies to those professionals who consistently make the right decisions because they know what they know and where they want to go, they use those benchmarks for every decision they make, and they constantly reassess the internal and external threats to achieve their goals.

This is the heart and soul of strategic planning. You need to determine your vision (or financial targets) then devise the strategies as a means of meeting your targets—and not the other way around.

The bottom line in avoiding failure to execute is having a real-world view of your agency and matching your internal and external realities with the goals that you set for yourself and your agency.

Ch-ch-ch-ch Changes

A new bank in my neighborhood is rising from a muddy hole in the ground. The sign on the fence carries the bank logo and, in foot-tall letters, these words: “Welcome Change.” Irrespective of the play on words of a bank discussing change, as in the jingling-in-the-pocket sort, this phrase really caught my eye. There are probably some people who liked the old buildings that used to be there and won’t welcome change at all. Some people are just against change in general. Yet others don’t recognize the need for change even when that necessity is staring them in the face. This is true of many agencies. Agencies that fail to recognize that change is necessary cannot succeed long-term and hence will be forced to sell out from a position of weakness.

Here’s what happens: an owner of a small agency inevitably will get burned out and start thinking about retirement. The owner comes to us to market their firm, expecting it to be worth eight times EBITDA (earnings before interest, taxes, depreciation and amortization). Problem is, the firm has no second-tier producers. It has been operating with one leading person—the owner—and has never invested in producers or infrastructure. Now the reality hits: not only can the business not command such a premium, but there are very few, if any, offers.

Game over, and who’s won?

Or consider this all-too-common scenario: a buyer looks at an agency and thinks that if they buy it, it will easily be integrated into their existing operation and, all of a sudden, revenues and profits will grow. Never mind that cultural differences exist and that client demographics are much different than their existing business. One plus one does not equal three, nor does it always equal two. Sometimes…it equals one.

What do these two scenarios have in common? Those tinted lenses are obscuring the view that changes are needed!

Internal Disconnect

If you drop your laptop in the airport and then sit down on the plane and try to boot it up, what is likely to happen? You might get a string of error messages and strange characters marching across the screen, or it may not power up at all. Why? Perhaps you shook loose some of its internal wiring—you caused a disconnect.

I wonder sometimes if out-of-touch agency owners have taken a bad fall and scrambled their wires. Too often an agency on the brink has leaders who either fail to recognize the winds of change blowing through the industry or fail to simply face reality, thinking that the industry’s problems will fall on others but never on them.

Those who correctly, realistically assess trends, change and challenges will recognize them as opportunities and figure out how to turn potential problems into their own successes, even at the cost of competitors. They are viewing the world in full color, not with a rosy tint or a black-and-white filter. Only then can you see the red flags, orange traffic cones and green lights.

Here are a few critical questions to ask yourself to determine which camp you fall into:

• Considering all internal and external forces, what are the realistic growth and profitability opportunities for your agency?
• If you’re looking to buy another agency, what is the current state of supply vs. demand, and can you really compete in that marketplace?
• What current infrastructure problems do you face? Is it lack of talent, lack of capital or lack of markets? In other words, what are your internal weaknesses and external threats?
• How do you really compare to your peers and competitors? Is your position a strength or a weakness?
• How will your market stature affect your prospects?
• How are your products and services viewed by your clients? Do not use your internal view, but rather, look at your business through the eyes of your customers.
• How does your talent compare to that of your competitors? Can your people really lead you to the next level, or are you essentially a one-man band?

If you listen to the advice of Messrs. Bossidy and Charan, you will attempt to overcome challenges confronting reality with a 360-degree view of your business environment as it currently exists. You will understand your clients so that you know what they expect now and anticipate what they will want in the future, and you will ruthlessly assess your company to know whether it has the capability and capacity to withstand significant change or crisis.

While these concepts are not specific to the insurance industry, they track closely with what we advise our clients, especially when they are considering a merger, acquisition or other strategic growth initiative. Early-stage strategic planning analysis must be grounded in these fundamental concepts. In other words, we need to eliminate the Pollyanna attitude or thought process.

What it comes down to is disciplining yourself and your firm to face reality to achieve your potential. Confronting reality has to become a leadership priority, a non-negotiable behavior for all key employees. That means not viewing the world from inside a cocoon, doing away with the selective hearing that causes you to believe only what fits with your preconceived notions, and not trying to merely wish a problem away. For larger organizations, it also means not creating a corporate culture that punishes people who pass along information that management might not want to hear.

Instead, practice Bossidy and Charan’s “relentless realism.” Whether your strategies are built on organic growth or M&A, it is important to be both optimistic and realistic. Rose-colored glasses might look great on Pollyanna, but any fashion experts worth their fee will tell you the hard truth: those specs really aren’t the look you want.

Robert Lieblein   is a Managing Principal of Hales & Co. - one of the oldest and most experienced investment banking firms specializing in the insurance and financial services industries. Prior to joining Hales, Mr. Lieblein was the founder and president of WFG Capital Advisors, a leading financial advisory firm in the insurance industry. He brings more than 20 years of experience in providing financial advisory services to the insurance and financial services industry. He has been involved in more than 100 investment banking transactions, and is known for expertise in insurance-related merger and acquisition services, including acquisition analysis, acquisition strategy, transaction valuation and structuring, due diligence, negotiations, and post-acquisition consulting. Prior to founding WFG, Mr. Lieblein, a Certified Public Accountant, spent 13 years with the international accounting and professional service firm KPMG. At KPMG, he worked with many leading insurance and financial services firms, assisting them with implementation of growth strategies such as mergers and acquisitions. In addition, Mr. Lieblein is the co-founder of Wharton Capital Partners, a private equity firm involved in starting and acquiring companies since 1997. Mr. Lieblein earned degrees in accounting, mathematics and computer science from Shippensburg University.

Contact:

Rob Lieblein
Email: [email protected]
Phone: 717-541-9300 x101

(SOURCE:   Leader's Edge Magazine)

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