WHAT THE EXPERTS SAY
MARKETER
KATE KINKADE
President, Time Financial Services, a Reseda, Calif., insurance brokerage firm; managing editor of California Broker magazine
Nolan's certainly right in that he's created a plan less complicated for the broker and buyer, which seems to offer more benefits than other plans. I would recommend the plan to my clients over other plans I've seen, absolutely.
His problem, though, is depending on the broker as a means of marketing. He plans on getting a substantial number of his clients from group sales, but I don't think the market's there. Employers aren't ready to put money into it. They have to provide medical and life insurance because everyone else does, but there's no pressure to offer a group legal plan. And with recent increases of up to 40% for the medical plans, they've been cutting back on benefits, not adding new ones. Brokers are already struggling to put together reasonable packages of basic insurance for their clients. Convincing those clients to do anything else now is tremendously difficult.
Nolan also shouldn't depend on the brokers to sell the individual plans. If I sell one of those plans, I'll only make $40 -- and it's hard to make me do that for $40. Having brokers sell the business plans, however, is reasonable. For the broker it's more profitable -- $120 to $150 -- and it's a good service for the client. I can see marketing that plan.
I would recommend that he sell the individual plans directly, with advertising and direct mail. I know it's expensive, but brokers just won't be eager to market it.
Will he succeed? Not with the current marketing plan. If he can figure out a way to get the company off the ground with a smaller number of customers, and then grow slowly, he might get somewhere. But with the money he's thinking of putting into it, and the number of people he needs to sign up, I think he could go bankrupt.
FINANCIER
E. BULKELEY GRISWOLD
President, MarketCorp Venture Associates, a Westport, Conn., venture capital firm specializing in consumer products and services
I would not invest in this as it's presently constituted, and as it stands now, I don't think it will succeed. I've just read too many plans from individuals who have observed an industry but not run a company or been accountable for profits and losses. They see a need, but a lot of it is still supposition and hasn't been tested properly. Prepaid legal services is an industry that hasn't succeeded in this country; there's a lot of missionary work to be done. And whenever I hear talk of missionaries and development of a business and proving a need, I remember that missionaries do good work but don't usually get wealthy.
I think Nolan is running into the market too fast. He's got to test his thesis: how he'll market his plan and service it, and what kind of renewals he'll get. He's got to withdraw from three or four of the markets he's talking about, take one particular area, run a fairly decent test, and do some focus-group work with the consumers and with attorneys' groups to see exactly what they are willing to do and how appealing his fees are.
The money he says he needs now is far too little. It's probably more like half a million to a million dollars to take a market and test it. When he says venture capitalists want too much of the company, it's the classic story of the guy who's sold his house and is betting the ranch, is now in search of that next chunk of dollars, but is very unwilling to consider giving up control. And that potentially can lead to failure. He can't let the fear of losing control get in the way of doing it right.
He also talks about raising $3 million with an equity offering -- but if you think having an IPO in your second year of business is a godsend, then you haven't done it before. All of a sudden you're trying to satisfy shareholders instead of really building the fundamental strengths of the business. You could end up getting too much equity too fast during the period you ought to be doing testing. And if you have a good public offering and the stock price goes to inordinately high levels and you do not perform, there will be disappointment -- and those shareholders tend to sell that stock pretty quickly. Then there are all the attendant costs of an IPO and the amount of time it takes to do it. For all those reasons, it's better to forestall that kind of financial arrangement until you've proven the concept, built the team, and have some strength under your belt.
COMPETITOR
HARLAND STONECIPHER
Founder and CEO of Pre-Paid Legal Services Inc., a legal service company he started in 1972. In 1987, the company was #92 on the Inc. 100.
There are a couple of problems here. The biggest fallacy of Nolan's plan is its marketing. I don't think anybody's had more experience trying to work with insurance brokers than I have, and it's been one of the most disappointing things I've ever tried. It did not work.
Despite the fact that we've signed up literally thousands of brokers across the country, that we pay higher commissions than Landmark, and that we advance those commissions, the amount of prepaid legal services sold for us by brokers wouldn't pay our light bill. These people are used to selling life insurance and health insurance, which is a totally different ball game. With legal plans, there has to be some education about the product before the sale -- you have to introduce the consumer to the product and convince him there is a need for it before he'll buy it -- and most insurance brokers for some reason can't do that, or won't.
Second is the middleman strategy. It's a great theory -- I wish I could do it -- to farm everything out. That's what he's doing, saying he's going to get somebody to do his marketing and pay him a percentage. And get somebody to do his administrative work and pay him a percentage. And get people to do the legal work and pay them some percentage. Then he's going to be left with 28% for doing nothing? If I could get that kind of work, I'd be doing it.
