Chris Butcher, CEO of Ambant Underwriting Services, sets out the 10 key challenges and how to conquer them to make sure your MGA start-up is a success
- Take real ownership: Entrepreneurial flair of the key individual is essential - it has to be combined with motivation and drive, as well as common sense. There needs to be 100% ownership of the idea, and 100% commitment to it.
- Distribution. You might have the best product in the market but unless you can get it to the client you will fail. Distribution is the most important component. You’ve got to know how to get it to your customer. This may well be through the broker but increasingly we are seeing MGAs in certain sectors using digital marketing and other channels to go direct to the client. You need to understand how the customer wants your product delivered and then ensure you can deliver it.
- Clarity of vision. You have the product, you have the drive to build the business but you also need to have a clear strategy for how and when you want to exit. Consider the exit plan, and make sure that spells out the route from start-up to exactly when you want to exit, however far away that might be. Think very carefully about shareholder agreements. It needs to be robust and it needs to make it clear where you are heading. We have seen an example where a business has collapsed because of a poor shareholder agreement.
- Your business plan. Like it or not, you've got to spend time preparing then reading and refining your business plan, whether it's for raising capital, convincing a carrier or presenting to the regulator. You can make the pitch face to face but it is the business plan that you will leave with the regulator or the investors, and that is what you’ll be judged on. It also makes it clear that you have an understanding and are aware of all facets of the business, not just the product you are looking to provide.
- Market testing: It might sound simple, but if at all possible look to see if your idea and product will fly before you commit. We have seen individuals and teams leave good, well-paid jobs and simply just have a go, only to find the idea is not progressing how they imagined. If possible, test it out beforehand.
- Talking to your suppliers: Engage with as many people as you can for each part of your business idea - capital raising, marketing, infrastructure. Consider a beauty parade, many firms will expect they will have to convince you as to what they can bring to your business compared to their peers.
- Capital: Make sure that there’s sufficient working capital/source of funding for the first couple of years. One of the biggest mistakes we see is firms not adequately financing their business. You have to be realistically pessimistic when it comes to calculating the amount of capital behind the business. Cash flow can always be a problem, as can unforeseen expenses.
- Technology: IT is more difficult than you’d expect and takes longer to implement. Expect delays and hold-ups and build contingency into your cash flow projections.
- Finding an insurance partner: Try to have some ideas early on as to who you’ll work with. The big brokers are always keen to source capacity but that does not mean they are always successful. It is far better to approach the issue with a clear idea of an insurance partner or even better with a commitment which means you can build the capacity via the broker
- Operational support: Ensure that operational support around the business is both efficient and scalable. You need to concentrate on delivering the business and therefore your choice of partner to provide operational support is key. It needs to be scalable and flexible and have the ability to grow with you. Experience in working with successful MGAs is also an asset, as is a clear structure for charging which takes into account the stage at where your business finds itself.
Interested in finding out more? Chris Butcher explains why creating an MGA could be worth your while…