In today’s post we discuss Siena’s centuries-old exhilarating Palio horse race and explain why it is better to watch risk-taking from the sidelines rather than running a high-risk business.
Each year, Siena, a medieval city in Tuscany, Italy conducts its spectacular 90-second Palio di Siena horse race. It takes place twice a year. The Palio di Provenzano honors the Madonna of Provenzano, which takes place on July 2. The other one is the Palio dell’Asunta, in honor of the Assumption of Mary and it occurs on August 16. Il Palio is unlike any other horse race that you have ever been to for several reasons. First it has medieval origins. The first modern Palio with stallions took place in 1656. Before that the races were on buffalo-back. The horses must be of mixed breed and are assigned to a contrada via lottery. The race has always been very competitive with each of the ten horses being chosen from one of the city’s seventeen contrade or districts. The rider who brings back the highly sought-after hand-painted silk banner (or “palio”) of the Virgin Mary to his contrade is held in high esteem. The winner is the first horse to cross the finish line, with or without its rider. The loser is the horse that comes in second place.
The race is also unique due to the dangerous element of the event. The jockeys ride bareback and must circle the Piazza del Campo three times, which can be quite tricky given that there are a series of hazardous turns to overcome. It is common to see jockeys falling off their horses and there have been a few cases where horses have been badly injured or even died. I would highly recommend attending this thrilling horse race if you enjoy watching risk-taking sports. Your heart will be in your mouth during the entire 90-second race, wondering if both the jockeys and horses would make it past the sharp turns while riding at such a fast pace. I am not prone to risk-taking so I cannot fathom how they can put their lives at such great risk purely for entertainment purposes. I imagine that they do it for the same reasons as people who run high-risk companies.
Many clients who contacted us when they were contemplating selling their high-risk businesses upon retirement. The most basic question should be asked: Is an insurance agency a high risk business? Many would argue just the opposite but most agency owners would agree that the business is high risk. What are the risks that they face:
- Soft markets – Just a few years ago, most agency owners were facing a 20% reduction in their revenue even if they didn’t lose a single account.
- Economic Downturn – This effects all business and an agency can especially be impacted if they have a concentration where a single client represents a large percentage of their business. Specialties like construction can also be heavily impacted by downturns.
- Profit Sharing – Too many agencies rely on Profit Sharing for their profitability. A high loss ratio one year or a new carrier contract can dramatically impact this income.
- Poor Planning – We think that this is an overlooked factor and one that leads many agencies to fail or underperform. Poor planning is often the result of complacency. Things are going well so why change. All of a sudden, systems are out of date, employees are stagnant and the business isn’t growing.
We advise insurance agencies to address their risks before they market the agency. As an insurance agency owner thinking about selling your business, you need to mitigate the risk faced by potential buyers in order to maximize your own reward. It is an inescapable fact that buyers search for companies that offer low risk and high rewards. You have to put yourself in their shoes. Would you purchase a high-performing company if it involved assuming high risks? If you want to sell your company for the maximum price, then you need to mitigate management, technology and market risks. Learn how best to do this and enjoy watching adrenaline-filled risk-takers from the sidelines instead of worrying about risks affecting your company’s sale price.
