'Twenty-five percent growth guaranteed!" boast some consultants, Web sites and advertisements. Headlines these days are all about fast growth. Magazine covers tout it, articles walk you through how to achieve it and agency conferences build programs around it. With so many people talking about so much incredible growth, agencies not expanding at that rate (which, by the way, would be 90% of them) often begin feeling inadequate and inept. You can't help but believe your agency is falling behind the competition.

Agency owners often damage their businesses because peer pressure to grow quickly drives them to pursue unrealistic results. It reminds me of the people who rushed to the Klondike in the Yukon Territory to prospect for gold. Practically everyone who did lost money, and some lost their lives as well in a fruitless search for the Big Jackpot. Tellingly, people who moved to the Klondike to sell supplies to the men trying to strike gold did just fine.I'm a fan of growth, but it should be controlled, sustainable and profitable growth–and I don't believe anything approaching 25% is. That fast growth is injurious to insurance companies was proven by a 2005 A.M. Best study. It found that fast growth is the second-leading cause of impairment. For all businesses, fast growth is a danger. A book that explains this danger quite well, and which should be required reading for all agency owners, is Profit from the Core by Chris Zook. In his study of several thousand companies worldwide, only 13% achieved sustained profit growth of 5.5% (after inflation) and earned the company's cost of capital. Mr. Zook's analysis showed that attempting to achieve significantly faster growth often led to corporate disaster. In his sequel, Beyond the Core, he found that 25% of such attempts were clear failures, while 50% realized no impact.The reason fast growth is so elusive and often dangerous is because growth is exorbitantly expensive. As the saying goes, it takes money to make money, and most firms do not have the wherewithal to expand overnight. Consider this:o Producer compensation costs. If an agency is paying producers 40% commission on new business and 30% on renewals, with a 90% retention rate and 8% growth, the weighted average producer compensation would be approximately 31%. If growth is increased to 25%, producer compensation increases to 33%. Two percentage points may not sound like much, but that's approximately 25% of an agency's average profit.o Additional staffing costs. For approximately each $100,000 in revenue growth, an agency has to hire another person. This is regardless of size and is largely why economies of scale do not really exist in this industry. Will profits rise as fast to pay for this growth? Note that most of the articles and advertisements boasting fast growth never mention profits, only growth. (Here's another old saying: Volume kills, profit thrills.)o Management costs. Fast growth endangers a company's management structure. Firms cannot grow from 10 employees to 20, 50 or 75 without changing their structure. If the structure doesn't change, the agency won't be able to support the growth. Many agency owners cannot work successfully in a different management structure. If the owner(s) wants to stick to selling yet also wants to grow significantly, someone is going to have to manage that growth. Unmanaged growth almost always results in chaos and collapse. If you choose to hire someone to manage the growth, where do you find such a manager? How much do you pay him or her? Can you wait until the profits arrive to hire one, or do you have to hire one first?Growth should certainly be a goal for any business, including insurance agencies. However, both the insurance industry and the U.S. economy are mature. Mature economies and mature industries grow 2% to 8% a year–period. Aiming for 25% is setting an unrealistic and dangerous goal. Eight percent growth per year is 47% growth in five years. That's respectable, manageable, and more than likely, lasting. If the agency has $1 million in revenue, that means it will have to add one new person every year for five consecutive years. That's five additional cubicles, five more automation stations and five more people with personal problems, needs and temperaments. Think you could handle twice this amount? How about three times that amount?If you're thinking the fast-growing agencies highlighted in magazines handle their growth well, some do. Most don't. As hard as it is to achieve fast growth, it's even more difficult to manage. I've worked with many agencies to repair the damage done by mismanaged fast growth. Appearances can be deceiving. You don't ever see follow-up magazine profiles, detailing how those skyrocketing agencies that failed came crashing back to earth two years later.Research shows that few businesses of any kind can profitably grow at a rate faster than 5.5% annually while earning their cost of capital. Does it not make sense, then, to set reasonable annual growth goals–of less than 10%, for example? If fast growth is so difficult to achieve, with even the mere attempt often leading to disaster, then why chase it?The people interested in selling services and magazines would like you to think that 25% growth is feasible and healthy for your business. If you believe that, I have a map of a great gold mine in the Yukon Territory that may interest you too.Chris Burand is president of Burand & Associates LLC, an agency consulting firm. Readers may contact Chris at (709) 485-3868 or by e-mail at [email protected].