Business Breakdowns
· Geoff Collette, Matt Reustle
[00:00:00] S1: There's certainly competition without question. I think the important thing to understand is all the different components that go into the value proposition within their specific go-to-market approach. So by focusing on the home purchasing process, winning in that specific channel, that's how they're driving success. Whereas many other agencies are basically spending a lot of money on mailers or Internet leads, which are highly inefficient relative to what Goosehead's doing. And by bringing to bear not just product choice, but the technological capabilities and the service levels, it's the totality of what they do that leaves them in somewhat of a category of one within their preferred way of going to market. [00:00:00] S0: I sometimes try to overpower and isolate things which I understand can't really be isolated because it all operates in a system together. On the referral partner aspects and what that's doing, I thought it was interesting. You mentioned there's not actually a payment made. It's much more about what they can do. In my mind, I'm thinking if I am one of those referral partners, maybe I'm the real estate agent, I would certainly prefer to get dollars in if I can. Is Goosehead really just filling a void in the market where those underwriters that might pay that referral don't have policies but you know you can rely on Goosehead for it? How would you describe that? Because it is an interesting dynamic when there's not dollars and cents being exchanged.
· Geoff Collette
[00:00:00] S1: You have to really think about the different types of competitors that they're competing against. A captive, as we discussed before, they're not able to compete in the vast majority of situations in terms of the best price for a given coverage. If you were a referral partner that's relying on a captive, your clients are being underserved from a product channel choice and pricing perspective. I think that with the affordability challenges today in the housing market and the dynamics around monthly payments, if you're able to bring down that insurance cost, it can really move the needle with respect to people being able to get into the homes that they need. So that part is really important. A more traditional IA lacks the service capability that Goosehead is so known for. Go back to the business model design of separating sales and service. A lot of traditional IAs are overwhelmed with the various aspects of running their business, including servicing their clients, that they're not able to be as responsive as Goosehead. And so in the context of the referral partner, they want to solve for that financial aspect to it. They want the service aspect to the binder and the closing process to always go off without a hitch. And effectively they want their client to feel really well served and be willing to refer that loan officer or real estate agent to their friends or do business with them again. And so I think that in my discussions with referral partners and Goosehead agents, the cohesiveness with which they work together in shared outcomes is really paramount relative to what's really a nominal fee that someone could be paying them to get business that really isn't matching up against everything I just described.
· Matt Reustle, Geoff Collette
[00:00:00] S0: And on the individual agent side, are they compensating their agents any differently? I understand there's a separation in terms of they let their hunters be hunters and not have to worry about the harvesting aspect as much, which I think is an extremely valuable strategy, especially with something like this. But is there anything else when it comes to compensation that differs from the rest of the industry? [00:00:00] S1: I don't know that that's particularly different. I think what's different is the productivity levels result in an ability to scale a business either as an individual corporate producer or as a business owner. In the context of the franchise channel, that's otherwise much more difficult to do. And so I think the way that the franchise commission splits work is Goosehead will receive 20% of new business commission as revenue and then 50% of renewals. And so I think that the value proposition as a franchisee is that Goosehead's effectively providing this proven go-to-market strategy and all this infrastructure, training, support in order to grow their business in a relatively unfettered way that's much less capped in terms of the profitability that they can generate relative to many other franchise opportunities and other ways of operating as an insurance agency.
· Geoff Collette, Matt Reustle
[00:00:00] S1: I don't know that that's particularly different. I think what's different is the productivity levels result in an ability to scale a business either as an individual corporate producer or as a business owner. In the context of the franchise channel, that's otherwise much more difficult to do. And so I think the way that the franchise commission splits work is Goosehead will receive 20% of new business commission as revenue and then 50% of renewals. And so I think that the value proposition as a franchisee is that Goosehead's effectively providing this proven go-to-market strategy and all this infrastructure, training, support in order to grow their business in a relatively unfettered way that's much less capped in terms of the profitability that they can generate relative to many other franchise opportunities and other ways of operating as an insurance agency. [00:00:00] S0: I want to transition a little bit into that franchising, franchisee dynamic. Is this common in the insurance space? And what would you point to in terms of the value prop of creating franchises and why it makes sense versus just having individual agents that are corporate-level agents under one umbrella?
· Geoff Collette
[00:00:00] S1: It's not very common. Goosehead introduced their franchise operation in 2012. There's a company called Brightway that began its franchise model in 2008. Goosehead has scaled its franchise business at a much more rapid clip. As with all franchise businesses, the franchisor, in this case Goosehead corporate, is effectively able to grow its distribution in a much more capital-efficient manner. There's a symbiotic nature that Goosehead has between its corporate agency and its franchise. And to have built a very successful corporate agency and then layer on franchise, which has increasingly become the main thrust for the economic engine. In combination, that is a superior way for Goosehead to thrive longer term effectively. The aspects that corporate has proven out can be taught as best practices, and they work side by side and cohesively in order for the franchisees to be successful. And in recent years, they've really leaned on adding additional producers to franchisees that are ready to scale. And one thing that Goosehead has done very well is create effectively a recruiting machine across various lines of business in order to add very productive capacity to its go-to-market efforts. The franchise model in the context of insurance works particularly well for them. Other than Brightway, I don't believe it's very common outside of those two companies, given the history basically of the captive structure that they've kind of been disrupting.
· Matt Reustle, Geoff Collette
[00:00:00] S0: When I think about the growth of the franchisees. You mentioned it a little bit there in terms of the recruiting tool. Is what you're typically seeing insurance agents from other agencies come over and create new franchises under the umbrella? Are they joining existing franchisees? I know it's going to depend a little bit, but is there anything else that goes into it besides a traditional recruiting process to open up a traditional franchise. [00:00:00] S1: From the time of its IPO through 2021, call it, the efforts on the franchising side leaned heavily on recruiting folks out of captive agencies that weren't necessarily the owners, but were motivated producers that could fit well into Goosehead's system and make a better livelihood for themselves. In the context of what Goosehead is able to sort of unleash with them? There's definitely always been a portion of folks that have no insurance background that can fit well into Goosehead's franchise system. But I think increasingly the company has been focused much more on high-quality franchise partners that have ambition to grow their business to be significant beyond one or two producers. And we can get into some of the components around that. But there was a pivot readjustment phase starting in late 2022 that has really been impactful to the level of profitable growth that the company has pursued and continues to pursue going forward. [00:00:00] S0: Maybe we can jump into that. What was the driver and the ultimate decision around what happened?