#344 - Rusty Reid - CEO @ Higginbotham - Building An Insurance Business That Has Compounded 20% YoY for 35+ years

Chris Powers: All right, Rusty, welcome to the show.

Rusty Reid: Thank you. I'm happy to be here. 

Chris Powers: Your energy is high every time I'm with you. You bring that to the table. I want to start there because when I talk to people who work for you, most will say he has an infectious energy. Where does that come from? 

Rusty Reid: It's funny you say that, and I'll digress just a moment.

So, I have not been sick for 25 years except for COVID. I did get COVID in December of 2020, and back to back, I had flu A, and I always take a flu shot, and then I came charging back because I felt great. And then I ended up with a sinus infection. So for two weeks, I was down in the dumps, but everybody that works with me is like, okay, when he reads down in the dumps, he's still higher energy than I am on a regular day.

And I honestly have no idea. I've always been like this. My wife, Molly, would tell you I pop out of bed like this. So I'm curious if it's just my love for living or how I'm wired. Somebody asked me one day if I was on any medicine. And I was like, Well if a centrum vitamin does that, I only drink one cup of coffee in the morning.

If I drink more, it might be a disaster for everyone. Right. And I've been blessed. I love what I do. I don't view my job as a job—many people do—so I look forward to what that holds; every day is new. By the way, not every day is easy.

So maybe an element is me getting fired up and ready to go. No way. Now, I'm going to step into the battlefield. I've been wildly blessed with a wonderful family. So who knows, who knows? But yeah, this is sad; this is me. And for somebody that doesn't like to get rolling early in the morning, I'm not an early morning guy, like some of my partners, but when I wake up, I'm like this, and I can go the distance and still be like this when I shut my eyes, whatever hour that may be.

Chris Powers: Well, it's a superpower. I've known you for a while, and it's this consistency, but you are always energetic. It's fantastic. 

Rusty Reid: Well, thank you. 

Chris Powers: And I'm sure we'll talk about how that plays into business. Let's start with how it all started. So you have built, everybody I spoke to, if you've made it this far in the podcast, it's a partner of yours who has said it's one of the most significant investments or being a part of it that I've ever been a part of.

We know many of the same people, and unequivocally, you had to have gotten into Higginbotham. It's a miracle. So, let's go back to how it all started. How did you even get into the insurance business? 

Rusty Reid: He's candidly a partner, so I've broken many standard business rules.

I've hired many of my friends. So, when I was in the insurance game, I'd start in college because this tells a funny story. So initially, right after graduating from high school, I went to the University of Texas; I was excited growing up a Longhorn.

My parents, aunts, uncles, etc., went there, so I'm locked and loaded, ready to go. Marty had a down to my two fraternities. I would pick, depending upon which of my friends was joining them. And the other one was joining there, and I was struggling with it.

And then boom, my dad dies, and there's a significant change of plans. He was only a kid of his parents and was 43, so naturally, he was young. And my grandparents said, Hey, you must stay close to home. And I grew up in Dallas. And so I said, well, great. Yeah. I'll go to SMU. And they're like, well, that's not in the budget.

And I was like, what do you mean? I'm just going to. I've paid most of my college tuition to be within my budget. And I later realized they were much wiser than I was. So I had two choices: North Texas, where I ended up going, or North Texas State University.

And, UTA, I had three of my buddies, Don Robinson, Dan Sullivan, and Rob Hardy, all go to Hillcrest, with me going to North Texas. I just followed them and immediately thought I wanted to go into pre-med. Could you not ask me why? Because I loved science and math and always loved kids. I'd be that dad.

Everybody's like, Oh my God, I'm like, I bring them over. Well, mine, I have a ball, and the more, the merrier. And, so, I thought I was wired to be a paediatrician and got into organic chemistry. And it's not that I failed, which everybody always asks. Still, I just got to a place where I was like, Oh my Lord if this is a precursor, what's coming? I'm out & fortunately, Dr. Drenner, his daughter, is a retired banker here in town. I met him, and I remember it's like, I shut my eyes and see us; we're standing on the steps of the biology building, where pre-med was at North Texas. Then there's a courtyard, and the business school is across from it.

And I remember him going, well, tell me about your family. And I said, well, my dad was in insurance. He's deceased. My grandfather was in insurance. My one grandmother was in retail, and my other was a homemaker. My mom's a psychologist. And I mean, he, like, in a nanosecond, goes across the street and sees Dr.

Thornton, and he'll fix you up. And hence I did and told him the same story. And he goes, well, here's the excellent news. In business school, you can major in general business and then pick a minor. And he said you hit insurance twice. So why don't you make insurance your minor? I was like, perfect.

So that's what I did. I'm working many jobs. One of my fraternity brothers, Ed Coker, works for an agency up there, Ramey, King and Menace. In 83, he graduated and went to work for American General. I followed in his footsteps. And he said, Hey, I know you're working many jobs. You have back getting a real job. I was like, well, I thought my career was real, but I hear you. And he said, well, it's a one-to-five deal. You work under the principles. And so I did. And so I worked for them. So I graduated upon graduation, Terrell King; God rest his soul.

He's now deceased, but he had three job offers lined up for me, American General Trinity and Hartford, and said to me, Hey, if I were you work under JD wide at American General, you'll learn a ton from him. He's a great guy, and he's hard, and I'm not scared of hard work. So I was like, that's perfect.

So I didn't; I had the other two interviews and didn't even care. I moved on. In August of 84, I went to Houston and started in their training program, hoping to get into their marketing arm. And so I did. And so I started there. J. D. White approached me at an insurance conference in Austin and said, Hey, I know you're from Dallas.

Nothing's available there yet, but we've got a territory in Fort Worth, and it's a claims office. And would you be interested in that? I said. I'd love to do that. So I came up, checked it out and said, I'd love that job. My job at that time was to be some personnel responsible, but really, my job was to get agents and brokers to sell our product and then find new agents and brokers to sell our product.

Thank the Lord. I met a guy named Bill Stroud, who was Paul Higginbotham's nephew. Bill had bought the firm in the sixties, which was interesting. He became the dad I didn't have. And I think he's got some beautiful son-in-laws, but I was, at that time, the son he didn't have. And so we hit it off wonderfully on an interpersonal level. And he hired me on December 1st of 86. And, you know, I always like to say the rest has been history from there. I mean, he wanted to find an exit from the business, and why he put faith in this 27-year-old to lead that effort he did, but thank God he did.

That's where it all began. Unfortunately, I've only had two professional jobs: American General and Higginbotham. I always tell people, particularly, we're so interested, and I'm always like, what do you think about Higg? I said I was not the guy to ask because I'd been there forever. I don't know any difference.

I don't know. The only other job I will discuss is from August 1984 to December 1986. Most people can't even remember back then. That was the beginning of my professional career. 

Chris Powers: I've read a lot about you and watched a couple of podcasts you've done, but I've never seen you talk about 1986 to 1987 because you started in 1986 and bought the business a year later. Please walk me through how many months it took to get to that point. What happened? 

Rusty Reid: So, let me slightly adjust your comments. Okay. So, at the start of December 1st of 86.

Yep. When I came in, Bill had two underwriting programs. That meant he was acting as the insurance company for Krumman Forrester in Providence, Washington, and I was running both programs overnight. I really wouldn't have qualified, but I was running it.

Then, his aunt Edith Higginbotham, who was married to Paul, passed away. He's the sole heir to her state, so his financial life changed slightly. He also worked hard. Here's a guy born and raised in East Texas who worked for Firestone Tire and Rubber Company and got thrown in. A year later, he thought he would partner with his uncle.

He's buying out. From his aunt, the business and didn't know the insurance industry at all. Right. So he, I remember it was like yesterday; our birthdays were a day apart, and we were 30 years apart. And so Bill got to a point where he was ready to modify HIG's ownership.

And he was not tapping me on my shoulder, getting rusty. It's if you want it. And so we went down many of the traditional paths. He was on the board of bank commerce, going there to borrow money, buy him out, etc. We also encountered Ron Lent, an ESOP consultant with Weaver and Tidwell.

The light bulb went off for me and, more importantly, for Bill because then it was his call what he wanted to do. So we partially funded an ESOP in 1987 and went full bore in June 1989, when we bought the company. It was the perfect storm.

At that point, he was ready to move on. He was 57 and anointed me to say it's yours. The only thing that was a little different for me was when I was at American General; I would always see this. If you didn't have equity, the competing agents or Agents in that particular business would often start up shop across the street and become a competing firm. And so I'm sitting there going, okay, I'd like growing. When I first came into HIG, I realized real quickly selling and all that would be. Probably part of my forte, and I was ready to go.

Growth was important. I saw that we could add other lines of coverage to our portfolio mix, so that was important. I kept being haunted by whether we could figure out a way to solve this equity deal. Again, I don't know what that meant then, but if guys didn't have ownership, they'd pack up and become competitive.

So, the ESOP. Which is what we landed on. The employee stock ownership plan was just the perfect storm. It was great because not only would it create a vehicle where we could you'd lever up basically, but it's almost like an LBO you're going to lever up. Then, as you pay the debt, shares get released pro rata based on your ownership or salary versus all salaries.

So it kind of, and I wouldn't—I wasn't an MBA. I didn't even know how to do any of this. Right. And so it became a perfect way to transfer ownership. If you think about it, if I was the 12th employee and Bill was the first, there were 11 people there before I showed up, and I'm just a generous person.

And I thought, well, they need to have ownership, too. By the way, if we buy them and they don't get equity, will they pack up and create a competing firm? Right? So this eShop was just the absolute perfect storm. And then Bill had many, corporately speaking, it's all for ownership transfer.

You could borrow money at 80 per cent of prime because banks only had to declare 50 per cent of the interest as revenue. So you could borrow cash below prime. Now, what's comical back then? Prime was 10%. So you're talking 8 per cent now, but here's 8 per cent, and they're freaking out because we had all those years of free money, right?

Then, we must deduct the corporation as a contribution principle and interest, so you have to pay for it with pre-tax dollars. For Bill, it was a tax-free exchange, and he could live off any ordinary income from whatever you invested. So, for all parties involved, it kind of—I wish I was smart enough to say, well, back then, I just knew we needed to be an employee-owned company.

Cause that would launch us into the future. Not at all. We did that. That was the option that made great sense to Bill and me. And I'd say, Bill, you should always have this wonderful saying he'd always go, man, God takes care of children and idiots. Aren't you glad we're still kids?

And I'm like, amen, brother. It turned out to be that perfect storm for all of us, and still very much a part of who we are today. 

Chris Powers: I know the ESOP. You've already landed on a few questions quickly. Is what you did then even available today, or was it like you could do it back in the day but couldn't do it today?

Rusty Reid: ESOP, we walked down our journey in 07. A group of us said it's time to buy out the ESOP and let those who need to diversify. And then, we still have complete availability to buy stock. We still effectively give away a promotion. And that promotion goes for me as the chairman CEO down to the reception at no cost to anybody.

Working there, you can earn the equivalent of stock in the business. It's a different structure, but ESOPs are still prevalent today. They may have the features that they had back then. Again, it might've been the perfect storm. I know. I remember reading that the interest exclusion for banks is now gone.

Some of the nuances that were wonderful for us are gone. And I love my CFO, who always says it best. He says what Rusty kept was what was great about being an ESOP. He just removed ERISA from the equation. And there were a lot of regulatory dynamics that were just part of what you had to do.

So, it never was painful, but we have tried to preserve ownership. Again, synthetic equity, which you earn via sweat equity and then being owned, literally employee-owned and controlled, is all we have kept in place as we still sit here. 

Chris Powers: Okay. So it was 86. We'll call it 89.

Did you know this would happen when you joined in 86, or was it just lucky? 

Rusty Reid: I wish Bill were still alive. Because he, we could get it. We might have spent 10 hours telling stories if we had both been here. So I was one of these guys. Again, I'm very loyal, and I always have been.

And when I was with the American general, they had the northbound train. And effectively, when you're doing your review, there was a box that said, are they on the northbound training? That meant that's back to model net X, and I won't get into all that, but on the northbound train, you are eligible for growth and development within the organization.

So, I've got this guy over here, Bill Stroud, recruiting me to join for batting. It's been More than a year. So I've known him for a long time, and his wife Lou, who's still alive and I love to death, had her recruiting him. And at that point, they have Molly Reed hook, line, and sinker recruiting. Right.

As time passed, I didn't know that I would necessarily be in that position, but there was no doubt that Bill was recruiting me to be his successor, period. Life is interesting, you know. And this is a healthy characteristic.

Even I see myself differently than others, and that's healthy and good. There's a word out there called arrogance, where people think they're something. And sometimes there may be not. I'm just not that guy. I'm the opposite of that. And so Bill saw something that I didn't even know existed in me.

Now, I still think he's nuts for letting me do what I did when I did it, but I'm glad he did, let's put it that way. 

Chris Powers: Before we get to 89, do you remember how they calculated the amount the company would sell to the ESOP? Was it a formula?

Rusty Reid: I think, again, he's not here to defend himself, but I think for Bill, the idea was I'm going to sell a hundred per cent because that maximized his liquidity. I got it. Right. And I'm glad we went in that direction. And I remember it like it was yesterday. We borrowed a million six, six, eight, three 32. He and I were the only two on the note. I had no assets, so it was comical that I co-signed, but our banker said, I'll own you for the rest of your life.

If you default, that was enough for me to go. I'm focused not to, and then Bill had to post collateral, but as the debt was paid down, the collateral was released. So, initially, it was a 15-year amortization, and I am trying to remember. We paid it off in about six or seven years. And from a vehicle perspective, the ESOP — if you don't grow the business, I don't know if that's the right tool you should use.

But in our case, man, we had the wind in our sails; we were growing leaps and bounds, and this allowed us to get him off the debt, which I thought, again, some people go, Hey, leave him on his collateral, hold us forever. I wanted to, at that point, be just our regime. We control not only the business but also our destiny.

And I will tell you, Bill was a fabulous mentor from that perspective. And he would undoubtedly bark if I screwed up, but he never got in my way, which was awesome. And I'm that way today. Many people laugh at us because we don't have a lot of bureaucratic board meetings and meetings for the sake of meetings.

We know our mission: to take great care of existing clients and add new clients, or more broadly, live our values, right? Be family to our employees, advocate for our clients and partners like carriers, and get back to the communities. If you stay focused on that, you only need a few people getting in your way.

We've been blessed with our Cager since 89. So when we launched this journey, it was 20.5%. That's for whatever, 30; I'm not good at math, but many years, that is a long time—35 years this June—that we've grown at that clip. And so not many companies have done that. And by the way, grow; I have this saying: with growth, stop decay begins.

I have another saying that growth cures many sins. We've been blessed with growth, right? It's helped us.

Chris Powers: I told you at the beginning, everybody I've talked to this work with you said it's a miracle 20 per cent for 35 years. And we will spend a good portion on how you've grown.

Okay. 1989 rolls around. You start with 12 people. What did the organization look like by 1989? You'd been there three years. Was it still 12? 

Rusty Reid: We, I'd jumped into the employee benefits arena at that point. And again, I wish I had this remarkable brainchild and thought, okay, we need to add benefits.

But we had a gentleman named John Park who worked for a time insurance company. And he just bugged me all the time. Very bug is the wrong word. He's very persistent. And he's like, Rusty, you realize your business insurance clients. At that time, we had about 65 per cent business insurance and 35 per cent personal insurance. Okay. And he's 65%, just let me go with you. We can sell benefits to them, and our company's good at that. Right. So I finally agreed to that. And I had this epiphany because we went out, called on three customers I knew wouldn't fire us if we messed up, and wrote all three.

And so I had a fraternity brother, still one of my dearest friends, Jim Hubbard, working for New York Life. And I called Hubbard and said, listen, I am sitting on a gold mine. I didn't know it before, but now I'm walking it. I'm living it. And it's genuine. Then another, my first actual social friend, who was really in Fort Worth, or one of them, was Michael Parks, and Michael was working for Mass Mutual.

And I called him and gave him the same spiel I gave Hubbard. And then there was one other whose name I won't mention protecting the innocent, but I went to all three of them and say, guys, I need to build out an employee benefits business because I'm a property casualty guy. It's not the way my brain's wired.

They formally started our life and health business. And that started. Jim joined me in April of 1989 and Michael in November of 1989. So now we had this three-legged stool: property-casualty on the business insurance side, property-casualty on the personal insurance side, and now life and health, predominantly employee benefits.

They still dabbled in quote-unquote life insurance sales, but they became and are two of the best employee benefits brokers in the country. That's now a massive part of our business, which we'll save for a little bit later. But that was our new gig. If you were, we would be new in town.

None of us. Michael was from Fort Worth, and you've been in Fort Worth. It is very kind. We might let you in. We may not. So you had a boy from Mobile who grew up in Mobile, spent most of his younger years in Texarkana, and went to school in North Texas. So, not TCU; you had a boy from Dallas who went to North Texas.

I'm not from Fort Worth. And then we had all of us in Michael, who grew up in Fort Worth and went to TCU. That helps us a little, but we have not been in the business long. We just began to go out and call on people and tell our story, and we began to see early success.

We would see those people, and then we were young. I mean, in 89, we're all 27 years old, And I'd been at it since I was 26. I mean, Bill Stratton, Mary, I won't—again, I won't use names to protect the innocent—but the most significant client brought in a CFO, and they were the clash of the Titans.

And he's like, this is your client rusty. Please don't mess it up. And I'm like, Holy cow, this is our largest client, and you're handing it to me to preserve. Yeah. But that's because of that early opportunity, that early training. And probably being thrown a bit to the wolves, we just started calling on people.

Fortunately, all of us were very competitive. None of us were scared of hard work, and we saw early signs of success in the sense that we'd call on a client, and they'd hire Higginbotham. The only issue we were running into is that many people knew, and these companies have long since soldered and gone, but the branch company or William Rigg—they knew those names, but Higginbotham—they didn't know who that was.

Again, another epiphany light bulb went off. I picked up a client named Ford Sign Company. I said this is back when we were at two 60 Bailey. And I said, listen, it's Bill's building. So I got to do what he approves. But I said I want the most significant sign you can put on that building.

It was a two-story building. It's now, I think, the cutting horse building, but I said, I want Higginbotham across the top, and then I'm going to, I want to get in the arts and other programs, and I want, and I'll make us look big. We will stand out in the parking lot and spread it all out. We will take a picture of those to show the building as if we occupied all of it; by the way, we only occupied about 4,500 square feet, and then I will have a spread out.

So there's a lot of us, but we kept that same look and feel for quite a while. Over time, that parking lot got full, which meant we were gaining a little traction. 

Chris Powers: I freaking love that. My story is that when I was a one-person company, there was a service called Grasshopper.

The way it worked was that you connected it to your phone. But if you were to call me, you would say it would, and it would answer an answering machine at, Hey, it's Fort Capitol for one press accounting for two press. So you felt they all led to me, but it was pretty. Perception is reality.

I've been riding that for a couple of years, and people like me, who run your accounting department and your acquisitions department, me. 

Rusty Reid: So I've been there. What was Grasshopper back in my day? 

Chris Powers: Put a big sign. Yeah, okay, and. When you started early on, were you growing by introducing new lines of insurance or acquiring companies?

Rusty Reid: We did bring in, like, I remember I had not been here that long, and we brought in the likes of a guy named Carl Brumley, wonderful man, but sadly, most of these folks are gone, brought in a guy named Bill Ryan, brought in in 92. Eddie Ryan and Clayberry's firm, Thomas M. Ryan and Company, brought in Don Lance, who worked for Aon, Birch Coates, who founded Coates Something, Something, and Something.

I am trying to remember the name of their firm. And then Doug Dickerson of Dickerson Little and Fitzgerald. So we did, in today's vernacular, they would call those tuck-in acquisitions. But really, it was more about recruiting them to join us. And then, in a parallel path with Rodney Johnson, who I can't forget, love Rodney, still comes to the office regularly, but also in a parallel path, we were recruiting many young people.

So just people that. We're formalized today, and we call them rookies. You're ready to try job number two if you've been in your first job. And so we brought in a lot of wonderful people that, so we were doing some real tech in acquisitions, which was a little complicated with the ESOP early on the ESOP.

He had a lot of shares that you could. Allocate their direction once all those shares are assigned, and then you're effective. I was giving up my shared interest to give some to you, you know, to join us. So that's where we began to think about how we bring back the transfer of ownership, which is one of the reasons why we said, let's buy at the ESOP.

But we really kind of a combination of, and I think the headlines—if you read all the headlines—would make you think, well, all Higginbotham does is acquire companies, and that's how they grow. But the truth is that measured growth is a dual growth strategy. We grow organically as much as we do from an acquisition perspective.

So, as an example, if I look at the calendar year 2023, We wrote about 94 million in new revenue, and we acquired about a hundred million. So it's, and I always laugh, particularly if you look at our kind of M&A teams. Some people think that's a team of a whole department. There's like five of us.

And, as I always say, I'm stealing this from one of our partners, which I forgot to mention earlier. We have a chief partner officer, David Fischel, and Fish, as we called him, brought it up one day. He said, you know, the facts of the matter are that we've got five of us focused on M&A, but the other, at that time, we had 3,000 employees.

The other 2, 995, are worried about writing new clients and taking good care of the ones we have. And so that's what happens today. 

Chris Powers: We'll get into M&A in a second. I want to go back real quick. What do you think you've learned about recruiting over the years? You've successfully recruited like you just went through a list of people. What do you know about recruiting that maybe somebody doesn't know? 

Rusty Reid: I will tell you. And I love citing Jim Hubbard. He gets a lot of credit for this philosophy. So back when I would say to you that we recruited a young man, and it was an absolute disaster, both on an interpersonal level and individually, he, the guy, was a mess.

And I remember one day Jim came into my office, pounding the table and go, that's it. Read. We only need him as a partner if they pass the Thanksgiving test. And I'm listening because he's just bent and mad as a Hornet. And he'd given this guy opportunity after opportunity after opportunity.

And the guy would fail and fail and fail. And I read a lot of stuff I won't go into in great depth, but I finally stopped and said, hub timeout Thanksgiving test, he goes, you know, if you can't have Thanksgiving dinner with them, why do you want him as a partner? And I was like, you know what, that makes all the sense in the world. So I will tell you, we have an approach, and we do this even with acquisitions today: get the people right. People part right first, you know, unlike buying a building. Or, you know, building a manufacturing plant or oil and gas. In our business, our assets go up and down the elevator daily, and you have to get the people dynamic, right?

If you do, it will succeed correctly. And so, Jim—I forget what year that happened—set that pace for us. And then I would tell you, as we have, that we, to this day, sit there and say, we use the Thanksgiving test, but one of our values is being family to our employees.

Well, we all have family. We always have family members we wish weren't our family, but he's family. So I'm going to have to include it, you know. And then I got this one over here that is my family, and I'm glad they're my family. And so, we do focus a lot on hiring the right people.

And a lot of that is just people you can get along with. We spend so much time at work, often more than with our families at home. And so, by God, be with people you enjoy being with. And I've just been blessed. Nobody told me, rusty, you can't hire friends. Nobody told me you couldn't hire this guy because you liked him or this lady and enjoyed the interview.

We've tried to keep it. If you get along with people, then dig in and try to figure out what knowledge base they have. What are they, maybe? Are they hard workers, et cetera? And it's funny, later in life, you read books like from Jack Welch, and he's always like, you hire somebody, maybe they don't know as much, but they work hard, and they believe in the vision and mission versus a prima donna that might bring in zillions of dollars, but they're a nightmare for you.

Right. We'd try to get the people right first, particularly on the sales side of the equation. So, we have developed a test for those who help us maintain clients and bring in new clients. That test is a personality profile, but it's peculiar and built around 20 of us individually within the firm.

So we're not trying to mirror an architect with somebody in the insurance sector. We're talking about the insurance sector and people within Higginbotham who have enjoyed long and successful careers from that perspective. And it's been interesting if you bring in a candidate, and they take the exam, and you can share it with them; they'll look at that and go, yep, that's 100 per cent me.

And it's an easier conversation to have when you can see you score very low on things like persistence, call reluctance, or things you will have building relationships. So, please help us understand why you want to be a salesperson here. They don't; you don't have the attributes by comparison, and some things might jump off the charts.

That you go, wow, this person's got a servant mentality. They want to be someone other than the front person, but they'll take great care. So what? We are not hiring for sales, but let's bring them over here and put them on the support side. So we've gotten a lot more scientific. Our gut is still an excellent indicator. Still, not only with, again, hiring all new hires, I encourage all of our folks to hire people who have their reputation with clients, their reputation with their colleagues, and their reputation in the community.

That's who you want on the team. Our grandparents always told us that one bad apple would spoil the whole bunch. And there's a lot of truth and wisdom to that. So, we're intentional about getting the right people on the bus. 

Chris Powers: Did you hire someone to create that test for you, or is it culture?

Rusty Reid: And we ultimately did. We went through a couple who were like, they're not there. They're in the wrong industry. I'm making this up, but it illustrates they're in a client relationship. The person is for a bank, but we mean no offence to our banker friends, but many are there to take orders from people who call upon them.

And we're very much going out to call upon clients. So it took us a little while to get that right, but we did. And it's a guy, I don't, and I've got several clients. And I serve on a publicly traded board. I've got several people. I'm like, listen, if you're a people-centric business, you must focus. You build your profile, which will be unique to you and your company, but build your profile, and that's what you ought to measure against.

And I know there's all kinds of other testing, etc., that goes on, but for us, at least identifying talent that's going to succeed has been an awesome thing to do. 

Chris Powers: We have used the culture index for five or six years. I have not heard of Pop Seven, but I'll have to look it up. You set the core value of family for our employees.

The counter to that might be, do you want your employees to get close and know too much about each other? What do you say to that? 

Rusty Reid: If you're bringing the right people in, then absolutely. And the other thing—and I've learned this from you—is that all my partners and I know our strengths and weaknesses.

I'd much rather work with somebody where I know what their strengths are. They know my strengths and weaknesses and won't use them against me. They're going to treat me because they love me. And it warms my heart when I talk, and I spend a lot of time.

In the field or talking to people in the field regularly, when they're like, man, so, and so was having a bad day. And that evil day, like I had a young lady come into my office the other day. I mean, I started crying. She's like, I want to tell you because you had a family night at the rodeo. My grandfather got to go. It was the first time he'd ever been in the rodeo. He's watched on television for years and unfortunately passed away. And so the last picture I had with him was of him and me at the rodeo. And if it wasn't for what you did and opened it up to all family members, That wouldn't have happened, so guess what, not only is she, and I didn't do this for this reason, but she's like, I love Higginbotham.

She goes, I'll do everything; she and her granddad were very close. And so she's like, I'm here for you, Rusty, whatever we need, I'm going to, in my power, do it. And so when you think about family, it's like building the right culture now, as we all know.

You have very destructive families. So there's a proper way to act and a wrong way to act. And if you're acting the wrong way, we'll be the first to point that out. That might mean you might have the skillset, but if you can't play nice in the sandbox,

Go to a place where that doesn't matter. It's exciting. Our turnover: I just got this report the other day. Our voluntary and involuntary turnover is about 7%, so it's de minimis. You can talk about having a great culture, but you have to live in that culture and be proactive about it.

So, that's a message, and I love it. Particularly our younger leaders—man, they are so much better at that. I'm 41, but it's sometimes hard for those in their sixties to grasp the importance of culture and treating people respectfully.

And yeah, go the little extra mile. Those are the things that make a good family member. And it's being an excellent Corporate family member. There's a distinction, but it's something that we encourage our folks to try to live. The lady who runs our marketing is Lady Lane Gallagher, and I will give her all this credit.

She's done a great job in all of our offices. Now, we're putting up what our values are on the walls where they're most crowded. And it's like the other day, I was on a call with one of our young leaders, Carter English, who runs our San Antonio office. And he was on there with Jake Kirkpatrick, Go Frogs, the Bloomington award winner, and Andy Dalton Center.

He runs our Austin office, and both are young men in their mid-30s. When they talk to their respective teams, they always discuss values. And then they reward monthly or quarterly—I can't remember if it's frequent.

They go seek out, okay, who in the operation is living the values and do a public acknowledgement around that. That can be doing something for the community, a colleague, etc. So, that's that grassroots. You have to lay out the vision.

And then you got to have people that, not won't just talk about, well, didn't you read the wall, but make examples of why that matters. And so they help live it and illustrate it much better than I'll ever articulate it.

Chris Powers: Culture is what you're willing to accept. That's right.

That's right. It's not the top of your company. It's where you're with what you're willing to let get away with at the bottom. That's right. It's hard. I can only imagine having 3000 employees when you're buying companies left and right. So we're going to move into that. So when did you say we didn't tuck in, but when did you officially buy your first company?

Rusty Reid: We got very intentional. The first transaction was a buy-yourself transaction. We sold the ESOP to the same people who owned it before, except we brought in a minority capital partner at that time. 

Chris Powers: And for an idiot, what does that mean? How do you sell something to yourself?

Rusty Reid: Well, so, they, the owner, was an ESOP. So here's this company that's wrapped up in an ERISA plan. Ultimately, it had a trustee who voted all the shares. I might've been the ESOP's largest shareholder, but the trustee was the ultimate vote. And so we turned around and said, okay, we want to buy out.

So the ESOP trustees are going, okay. We'll let you buy us out, but we'll get a fair market value valuation. We have to make sure you can buy it out. I can't all my. As a trustee, you respond much like an estate trustee. You're responsible for the well-being of the people within that trust.

In this case, it's a bunch of employees and shareholders. So we, as a group and everybody in that plan, had 206 employees. Everybody could take cash or some money to buy stock or roll chips. My biggest mistake was diversifying my balance sheet.

I wish I had just kept all my chips in. I'm still the largest shareholder, but I mean, it could be something exciting, but anyhow, so we, and, and, and, and, and to kind of bridge the Delta between what we could write a check for and what was left over. We needed a capital partner to help fill that slot.

We started with a group called Allied Capital. Out of Washington, DC, which I'll tell you was our second choice. Our first choice was a group called Stone Point. And they, we went back with an ask, really not even around dollars more around how important the promotion was. I didn't do a good job, or the investment banker didn't do an excellent job explaining we need a big promotion because we're going to spread it amongst the entire company, not just a handful of people.

And so Allied got in the wrong way when the financial crisis hit in 08 and 09. And so they came to us and said, Hey, we're not selling HIG because you're mistaken. We need to sell our interest in HIG. We got to raise money because we got caught in a bad situation in a Unitron fund where they were investors. And so we said, look, we'll try to do so. You can't force us to do it. So we'll try to do so. And we were successful in buying them out. And at that point, we brought in Stone Point. So Stone Point has been our minority partner since December of 09; the first group we bought was a group, all red tops and Mason, and we were already in Wichita Falls on January 1st of 08.

So there you go. 

Chris Powers: Yeah, okay. So, you decided to sell the ESOP to private equity and replace it with another ESOP. 

Rusty Reid: Well, is that what you call it? Think of it to shareholders—the Higginbotham employee group. And then we needed somebody to fill the gap. That could have been debt. That could have been a private equity firm. In this case, Allied Capital was a publicly traded BDC, which stands for Business Development Corp. Allied Capital's job was primarily to be a long-term lender. They got in trouble when they got outside their skis and started playing the equity game, which they weren't good at and hadn't done before.

And so that's what got them in trouble. 

Chris Powers: And the shareholders—I'll call it Higginbotham one—you said you could take cash. Were they also stockholders in the new deal if they took the money? Would they have stayed with the company then? 

Rusty Reid: No, they actually, we didn't say.

Chris Powers: You don't have to be part of an ESOP. Suppose you work at one. 

Rusty Reid: It's correct. Okay. They were an employee shareholder. They couldn't be an ESOP owner if they didn't work at Higginbotham. So when we bought out, it's because it's genuinely an employee stock ownership plan and trust. So they had, you had to be an employee to be a shareholder.

We could have sold a part of the company to any third-party shareholder if we elected to. It would have involved different tax nuances, such as dry income to the shareholders. It's dry income, meaning we may have made a profit. The ESOP wouldn't have to pay taxes because we're considering it.

We're almost like in an IRA or a 401k, but for you, the third party, that profit, we'd send you a K 1, and now you'd have tax on that. Yet. I'm not sending you cash to pay the tax. So we had a great time. We had this vision: my CFO and partner, who's our CFO today, Jim Krause, and I, so funny, we'd sit in at, late nights, sit in my office or his and start talking about everybody wanting to buy Higginbotham.

Suppose we had our structure instead of people wanting to buy us. And we were in, what was it at that time? Oh, nine. I was 47. Sorry, we're not seven; I was 45 when we monetized the ESOP. So, I'm not ready to retire at all. I'm just hitting my stride.

Right. And so it was a vision to build what we called, at that time, the best in Texas. I had this vision that we wanted to be the best place for employees to work with the best client, client advocate, career partner, and community partner, and stealing a chapter may be out of the playbook.

We were operating with the notion that Texans enjoy doing business with Texans. And so, by God, we're ready to hit the street. And so we started knocking on the doors of either people I knew or others within our firm who might've known folks in different agencies with reputations. Again, the Thanksgiving test had excellent reputations and their respective markets. And again, the first one out of the gate was our red Thompson Mason Darty, a well-known firm. And one of our gentlemen, Sam Hulse, who is in our foreign K business, said, Oh yeah, I used to know these guys are great.

So we met with them, which was out of the gates, number one. She then found herself in Houston with a group called Madison Benefits. They were the best boutique employee benefits provider in that part of the state. And it just became infectious, if you will.

So that's how we began to build out the state. 

Chris Powers: All right. I will go back one more time, and then we'll return. You had this vision. You said we are going to start going on offence and buying. We're not going to sell. We're going to buy it. That was probably 2006 or 2000.

Rusty Reid: Yeah, in 2006, it began to get some real legs. It's like every, and I've probably omitted a critical piece here. So we'd gone again by 2006 and 2007. I'll go way back to the beginning of my time at Higginbotham. Nobody knew who we were, and now we're the second-largest broker in Texas under John L Wortham in Houston.

Chris Powers: Okay. And you're going, and you're coming for him 

Rusty Reid: And we're going, we're coming for him. And that's even bigger than folks like in the Dallas market. I am still a dear friend and greatly respect Bill Henry, who built McQuarrie Henry, a great business, a great business operator, and an excellent human being.

Here we are in little Fort Worth, building the second largest. We have built the second largest, growing leaps and bounds organically compared to our peers. And so. As you can imagine, any of the acquirers and suitors at that time—I'm not exaggerating, Chris. I bet you I was getting a call a week ago.

Hey, do you want to talk to me? How would you be? You may not be a rocket scientist, but you'll buy me, and I'm done. I grow 20 plus per cent a year. How am I to capture that growth? 

Well, we'll give you a significant upfront multiple.

Yeah, but that's then done. How'd I? Rule 72 tells me I will double every 3. 6 years. So, how do I double that? The market is going to do something other than that for me. Right. So it just. All indicators kept coming back that we needed to do this ourselves. And I love how you put it. We need to get on the offensive side of the ball, not play defence, if you will.

Chris Powers: So you, and quick, I'm just a sidebar on that. Do you ever worry about the market or the economy? It causes you to say that we grow 20 per cent a year. That was an Oh seven. We're about to, you're about 18 months away from. Catastrophe, at least in the market, you do, you don't think that way?

Rusty Reid: Here's how my brain works, rightly or wrongly. Some of the tragedies I have lived through will continue, but maybe you don't think they will now.

But it does continue. I remember when I joined American General right after one of the hurricanes. On my first day on the job, they talked about losing all this money. And if they didn't improve, they'd be gone, right? And suddenly, a year later, everything was back to normal.

They're making substantial underwriting profits, etc. I remember in the late eighties. The savings loan crisis was the first city to be in receivership six months later, and it was the group that financed our ESOP transaction in 89. If you've got a sound business and a sound business model, you can control what you control, and you can not control what you don't control.

To put context around that, I can't control the market cycles—challenging market, soft market—or the economy. Is it a good economy? Is it a bad economy? I can't control it. What I can control is taking good care of my people, taking good care of my clients, and being great partners with my insurance companies. 

So they also lock arms with me during good times and bad times. And now, you know, it's, it's interesting. The mega test for all of us was COVID. And I don't know if it was stupidity, back to Bill's comment about children and idiots, or courage or wisdom, but I remember telling our CFO, Oh, we need to cut out. I said we're not going to change anything we did. I said. I've never lived through a national crisis like this, but I know the last time this happened, the world we're walking in today is still around, and the people are still around. And so nobody, a global pandemic, can't predict that duration. But I suspect that somebody will figure it out with medical technology. And if they don't guess what, some Bible verses say it's time to move on. Right. And so I'm going to keep operating. And I remember my partner at Stone Point called me; he said, I know you'll laugh when I ask this, but we're stress testing.

So what's your worst-case scenario? And I said flat down 20 or 30%. I said, I, my instincts are, we're going to be up because we're not changing. Businesses aren't going out of business right now. Restaurants are having a hard time right now. You know, the hospitality industry's having a tough time.

But I talked to my banker clients; they're doing well. My real estate clients are waiting to know when they will return to the job, but they're too harmful to jump back on. By the way, my construction clients, et cetera, are still at that time. More than half of our firm is in Texas.

We're growing like a weed for, if we were on an economy, it would be the ninth or 10th largest in the world. So, and by the way, I was more right than that. We ended up having a great year, but much higher than there. They said we think all of our investments will be down 20%.

I laughed at that, but the only reason I did is it goes back to what I've seen—I mean, I've seen S&P or the savings and loan. I've seen the real estate boom and bust, all boom and bust, multiple times. You talk about George being on your deal. Look at George. I mean, multiple boom and bust. You learn how to go. I'm going to be wise around that. I know it's there, but I will run a great business. In his world, I will buy when everybody else is selling, and then I will sell when everybody else begins to buy. Right. And so, from our perspective, we just steady Eddie, if you will, because of our industry.

The market was extraordinarily soft for a long time. It peaked on another date. I remember very well when 11 happened. Right. And that year, the market spiked, and over the next 18 months, it got soft again and even lower. And I'm talking in terms of insurance pricing.

So, we need to focus more on a High retention rate of existing clients and organic growth. We can control those things; if we control them, we'll weather most storms. 

Chris Powers: So I love it. There's a lot of wisdom in that. All right.

You had the vision. You said we would raise some private equity to go on offence. You got to Stone Point initially in Oh Nine. Did you know how to buy companies at that point? 

Rusty Reid: Yeah. And I'll give some kudos to my partner, Jim Krause. I did a lot of the early tuck, so I knew how to identify how to price it out.

He grew up in that world. So, we were then and are now a great team from an M and a perspective. Now, that team has expanded. We have some incredible young talent. Again, we've got David Fischel, who does a great job on business development, identifying who's out there that we should partner with internally.

We've got West Snow, a dynamo on the finance side. We have a great young man named John Ledyard, who's incredible in terms of integration. We're not just buying revenue for the sake of purchasing revenue. They do become Higginbotham. So they're all completely integrated in. And so he holds her hand until we get to the point where they're integrated into our agency management system. Please think of our back office system.

So there was a period when you'd press one, two, or three, and it was all coming to you. There was a time when it was one, two, three, all coming to me, but we've now got some great folks. And ironically, they're all young and do an incredible job for us.

Chris Powers: So do you mostly know the businesses you want to buy, or are they just coming into you, and you're just surprised, Oh, we didn't see this one. 

Rusty Reid: David Fischel is usually really good at his craft. He already knows who they are and has probably already developed a relationship with the principles.

Most of the time, these companies that have joined us through acquisition, we call them partners, but legal form acquisition, most of the time they aren't for sale, and we've just presented the fact that our value proposition is such something they may consider we've now reputationally. We get opportunities from investment bankers who know why Higginbotham is different.

You know, you can have robust employee ownership. We have a great toolbox of goodies that make them a better broker. You see, our employees control us. We've built the business to last. So, we view it as a legacy business. And so certain sellers go if you think about it from this perspective, and I'm stealing one of my partner's quotes again, but I love it.

He said, when I didn't sell to Higginbotham, I bought in, you know, and so that's really. We don't buy somebody who says, Hey, I'm just ready to hang up my cleats. I mean, naturally, in our world, if you think about retention as one of the elements that make it long-term, you know, last for you, if you will, if that, if you, and you believe it's a relationship business, if the guy or lady saying, I'm just saying to my cleats. There's no perpetuation plan in and around that individual's business book, and you just bought something that disappeared from you.

Right. We're not a fix-it company. I know there's a strategy to find troubled people who need help, fix them, and then pretty up the pig to sell them. That's not our model, either. We buy great businesses and people who want to monetize a portion of their lifelong work.

Maybe they're at a crossroads where they're like, God, we'll have to pour a lot of money into investing in technology or bringing on attorneys for contract review, whatever it may be. And they're at a crossroads, and they're like, but we're not ready to give up. We also want to know if our investment can continue to grow post-transaction.

We have become an excellent option for them. And the other thing that's unique about Higginbotham is that we produce executives. Before coming here, I was on a client call. So we're in the game. We're not sitting over on 500 West 13th Street, and all these little Indians are running around, et cetera.

All our managing directors run offices, and every one of our managing partners effectively runs regions, mostly now state or speciality practices. Their day job is selling and servicing insurance clients. So that also goes back to culture; you're not just when I walk down the hall; they're not looking at it. Well, that's sorry, dog. We're just doing this for him. I asked some of my partners who were there late every night and working hard. And who's the guy that if you say, I need help, we'll get back to you immediately. And that is the culture of Higginbotham to lend that helping hand when everybody's in need, not just say, well, I'm past that, et cetera, et cetera.

Chris Powers: Well, you said something before we started recruiting, and you just hit on it, but you said. I'm good when I have more things to juggle, which was interesting. I know you're only 41, look, look 31, but you're 41. 

Rusty Reid: Don't lift a grey hair fully. You're right.

Chris Powers: yeah. But at the stage of your career, many folks sitting in that chair would say, I'm at a point where I'm not in as long; I'm delegating more.

I'm just supervising. You just said I've always been someone with a lot going on. Can you explain what that means? 

Rusty Reid: Yeah. Well, you know, and again, I'm stealing this from some of our colleagues, but you want to get something done. Often, you want to give it to the busiest person.

Because they know they have to jump on it, get it done and then keep going back to whatever had them going. Right. And so I call it an adult ADD. I don't know what legal or diagnostic terms may be, but I've continuously operated best when I have a lot of balls in the air. Yeah. Now, that being said, we've gone from being a firm that was doing when we took over a million, two 88 and revenue to seeing a billion of revenue in the next year or two.

And so it takes a lot more to do what we used to do individually, but I love it. And then I will tell you there's real wisdom to be my age, 41 and younger; the youth factor at Higginbotham has always been very vibrant. And it is today, and youth bequest youth, right? When you're around a lot of young, energetic, high energy, but good moral values, et cetera, man, you can't help, but it's infectious.

It's funny. Every year, we host the HLC Higginbotham Leadership Conference. Ironically, I was on a call and ran late. His program was about to begin, and I was walking down the aisle. On this side of the aisle, there were these 50- and 60-year-olds, and on this side of the aisle, there were these folks in their thirties and early forties.

Where, which way do you think I turned? I wouldn't sit with them, right? I'm not the guy that's going to sit there and go, Oh God, not another HLC. And so I love what I do, which is interesting enough, and I'll brag a little about the stone points. So their CEO, Chuck Davis, is one of the most remarkable men I've ever met.

And I was on a phone call with him today. I mean, he's in the game, and He won't want me and probably mission is his age, but he's the same age as Higginbotham, and he's in it every day. And I love that. So, here's the truth. Some people aren't wired that way. And so if they get to a place where they're done, the worst thing you can do is stick around because, I mean, now you've set the example of everybody to follow, and you're not happy, you're grumpy, or you're not energetic, you're not uplifting, et cetera.

So, it doesn't mean you're terrible; it just means you're wise. There may be wisdom as to why retirement was at 65. There are probably more people who jump off than jump back in. But I also enjoyed grandparents who lived well into their mid-eighties and nineties; they were all very active people.

It was always funny to hear them talk about their friends who weren't very active, how pitiful they were and didn't do anything, etc. So, when I lost my dad at a young age, they stepped in as my parents. And so, I had two sets of wonderful grandparents. And so you look at that and go, when I'm that age, I want to be doing what they're doing at that age.

And my granddad, literally Granddad Reed, at age 84. Working on the roof, our family farm falls through it, lands on the floor, drives himself from Think Commerce, Texas, and drives himself to Greenville, Texas, to use the phone, call me, and say, Meet me at Baylor hospital. I think I'm hurt, but don't tell your grandmother gets to Baylor hospital; come to find out, he broke his sternum.

Right. But here's a guy that backs up a little bit. 84 is out. He had a cattle herd he cared for and liked to do the handyman chores. Needless to say, if that, we didn't let him go on the roof ever again. Right. But you're wired that way, right? You either want to stay in the game or not.

As you can tell, I'm doing this. So, if I'm not good at it, it's okay. I'm good at sales. Let me just be proper. We'll let somebody else worry about the job.

Chris Powers: All right. Before returning to M&A, I have one question: How do you value an insurance business at a high level?

So when one comes in, here's the first question: What's an immediate no? You said if they're not in it, they don't want to keep growing, but aside from that, let's say somebody wants to keep going. They have all the people's issues from a purely financial standpoint.

What are other things you'd be like? Yeah, this doesn't work. 

Rusty Reid: We're all about relationships, but there are parts of the country where we don't think relationships matter. It's more transactional. Okay, so we'll say no geographically. The exception to that might be a speciality practice.

For example, we have an incredible life and executive compensation team in California. Yeah, we won't build a robust brokerage business there. Now, we've got an excellent support team and an incredible team focused on a specific vertical. Still, operating the business like we do today is more difficult in that area of the country due to regulations and other factors.

We won't; it might be a great business, but if it's outside the retail brokerage sector Or a company that can support the retail brokerage sector, we'll pass and get many looks at many things. If it's a business where it's pronounced that an individual controls the client's relationships and that individual will get a check and head to the farm, we're out.

We've got to see a clear path to perpetuating those clients. We don't want to; we're not a fix-it firm. If the industry average for organic growth is a certain percentage and they're not growing, they might have an excellent reputation. We're just going to be the wrong buyer for them.

We want to see somebody grow, so there are criteria. And then, of course, the Thanksgiving test. And that's the top box if we meet with every single party we acquire multiple times. And so if, for example, and this has happened, you might have a party, and I'll leave the names off to protect the innocence. It says, Hey, we're divesting in this particular market. But we can't, and they're treating it like a cattle sale. We will sell this business but can't let anybody internally know we're out. We want to make sure that they want to join us, too. Right. And so if we can't have that interaction to get our arms wrapped around, Hey, there's excitement about us.

Find them as they join us, and then we're out. Sadly, that happens quite a bit in our industry. People show up on a Friday, and they've either got a box to fill because they're gone or a note saying, Hey, your new employer is X. And that's just—I've maybe been overly transparent, but I think when you deal with the people dynamic in our industry, you can't do it that way.

Those are a few nuggets. That's a few nuggets. Okay. 

Chris Powers: So it passes all this sniff test. If we're doing math, how is it generally valued as a percentage or a cash flow multiple? 

Rusty Reid: The way to generally think about it is, yes, it's multiple cashflows in our, in our industry, EBITDA would be the norm because we're very low, we're not a capital-intensive business.

What you have here, a desk and computers, is suitable. But we don't have to; we don't have many CAPEX requirements. Consider EBITDA the proper multiple or the right thing. Then, you apply multiple options depending on the size, growth, product mix, or other factors.

As you dig in a little deeper, you don't want to look and go, wow, that's great. They're doing 5 million in revenue. Oh my God, it's tied to one account, you know? You have to do some in-depth underwriting, but it's typically a multiple of EBITDA. 

Chris Powers: How long does due diligence usually take you all?

Rusty Reid: We can, from the beginning, and we're pretty, our teams, they are doing the heavy lifting on this, but we can knock something out and feel we know the business within 60 days.

Chris Powers: We have yet to discuss day two. I might get there in a second, but on the M&A front, how many businesses have you bought today?

Rusty Reid: Between books, we partnered with books of businesses. So think individual to firms at north of a hundred. And again, that's since our intentionality in 07, when we said, okay, we're going to launch our best in Texas. So, that's over 17 years. And if you divide that out, it's different than we're buying a zillion companies a year now.

Because David, if the shell is so good at what he does, that number is getting larger and larger each year, not smaller and smaller, honestly, north of a dozen. Let's put it that way. I was going 

Chris Powers: You can say whatever you want. I would do quick math in my head. That's one individual or a company every two months for 15 years straight.

It sounds about right. Okay. So you make a deal. The price is right. Everything's checked. What does integration look like? That's to me, I'm all; I've never bought a company or at least for four ingested another team; what happens the day you close? 

Rusty Reid: So, a couple of things: we don't just say employee ownership is essential.

It's a requirement. So, we often want the selling shareholders or shareholders and almost require them to take a portion of their proceeds. And like my dear friends. Stuart Ferguson said I'm buying in; we wanted to buy in and buy our stock to me, that, and to me, Rusty, read that. I'm not asking you to do anything different than I did in 07 when I was the CEO of Higginbotham selling the ESOP, but over here, I was repurchasing the business, if you will.

I want it to be material, so it has to happen or will pass. That was another piece. But immediately, on day one, they have access to everything we have available. So, our day two services, risk management and benefits administration, generally include most of our insurance.

Companies they now have access to, we have several speciality practices. So, think real estate, life sciences, nonprofit construction, and energy. I mean, there's 36 of them. They have access to their expertise to help them with prospects and or clients immediately. They're on our email phone system.

They're on our payroll. We have all HR, IT, whatnot, and financial functions. We take over, and they become their local market's sales and service arm. Sometimes, depending on the size, that may take a little bit, but ultimately, that's what happens. And then, ultimately.

Unless it's a speciality practice, they'll become our brand where they shouldn't be Higginbotham for whatever nuance or reason. It may send the wrong message to the market or cause channel conflict. I don't know, but generally speaking, they will become Higginbotham.

It's an interesting side note. I hear it from our employees, the owners of those prior businesses; they always want to stay, their name. That's just that they want to keep their name, period. What's hilarious is that all the employees, generally speaking, after some time with Hig, are like, when can we change our name to Higginbotham?

It happens without exception. The other unique thing is that all employees now participate in our synthetic equity plan. Think of it like a stock option outside of or within the ESOP. There's no ESOP but think of it as that. Believe it, the employee thinks of you as the shareholder group, and 17 and a half per cent for all shareholders is a promotion.

And that gets sprinkled for me down to the receptionist. What's excellent for these employees is that we are honouring them. So you're an acquisition. We honour your start date with your prior employer. So they immediately start getting these things called HIG units. Now, it could be more straightforward.

It's not; I could walk through the math, and you go, I got it, but it's new for them. So they don't understand it, but you get through one renewal cycle. Then they can go online to share works and go, you mean, I got this, and that's what it's worth today. Yep. That's what it's worth today.

It may be subject to vesting. So, it's genuinely an integrated firm. Now, what we won't do, we're there. I always call Higginbotham an opt-in business. I don't force any of this on anybody outside of its integration. That has to happen. We've got to communicate, leverage our data, and look at it holistically, but we want them to continue hiring.

People in their market know that better than we do. We want them to recruit other firms. You could live with us. If you like what you see, again? All have thus far, then tell your friends and family. Recruit. I need help finding your partners. You find your partners.

That's my saying. What's unique about us is that we intentionally want to add youth to the business. Today, we have about 80 people at Higginbotham University; our program is to teach them insurance, give them an in-depth overview, and almost think of an in-depth introduction to all our goodies.

We want to have a lot of people in there now. We want them to succeed, so we must test them to see if they will sell. And that's typically new. If you're a smaller operator and you haven't had success hiring these new people or young people, if you will, then you've always looked at that as, Oh, my God, but I spent a hundred grand on the last three, and only one of them made it.

So I spent 200 plus, only to make 100 if I could improve. So, if they follow our guidance, we can achieve an 80-plus per cent success rate. So there's a lot, but they've also been going through this transaction, and there's an actual deal. Fatigue is real.

We try to stay away, but it's not like we will fly in on Monday morning and take over. We want them to follow the status quo, and then we're here. We provide many opportunities for them to opt in, and those who opt-in sooner realize they are making a difference.

Thank God we became a Higginbotham partner. 

Chris Powers: I love it. I wish I had a business to sell you with Stone Point. You've been with them for —what? 14, 15 years?

Rusty Reid: 15 years. Yeah. Be this at the end of this year, be 15 years. 

Chris Powers: That's not typical. 

Rusty Reid: Very not. 

Chris Powers: How does that work? You call up. I wonder if I'm assuming they're probably in New York or some other big city.

Do you call up and say, we got another one? 

Rusty Reid: Well, they are interesting enough. So what they don't, in our case, generally between the group we're acquiring, what they're going to put in our stock, and what an earn-out might be. So, an amount we will only pay them once they effectively deliver what they said they had.

And then, in our acquisition line facility, nobody typically has to write additional checks. Oh, so their role has been outstanding. By the way, they have helped. I have my built-in capital markets desk; I can pick up the phone and say, Hey, we're acquiring a firm, and it will cost me a million dollars.

I need to have a facility lined up so I can debt finance half of it or whatever the number might be. They're in the market in a big, big way. So we get to effectively piggyback on their expertise, if you will, no dip in, and they know their role within our business, too.

They get to enjoy our expertise in and around growing an insurance broker. Yeah. 

Chris Powers: So, have you ever heard from Buffett in Omaha? 

Rusty Reid: No, but I know many of you; I've always said this now; this is very tongue-in-cheek. I'm going to say this, and everybody's going to panic. We're not for sale, but if we ever sold to anybody, that would be the person you'd want to because I remember listening to podcasts last week where he just talked about it's all about the people. It's all about reputation. You know, we can buy all the business world, but if we screw up on the reputational side, we'll knock out all the profit we would have ever made.

And so, what he does is similar to what we do, but he identifies excellent leadership teams. He is great; he identifies great businesses, and that's where he wants to park his capital till death does his part. And I know cause I've read enough about him that he understands her market cycle.

So he tries to identify businesses that aren't going to get crushed every time there's a market cycle, and to his credit—and you know, you've read—I think plenty of this as well. He only invests in things he understands, and as we know, he understands insurance. 

At every annual meeting, he talks about, I mean, not all, but a Jeet Jane and what they've done, and it sounds a lot.

I have read a lot about him, and it sounds like two aligned cultures. You're not for sale, yeah. You only want to work with good people. You think long term; you grow 20 per cent a year, and yeah, like he has. 

But again, I want to preface.

Chris Powers: we're not for sale. You're listening to this. They're not for sale. 

Rusty Reid: I don't. I'll have partners that listen to this and go, see, he will sell. No, the answer is no. Warren, if you're listening to this, I want to meet him. That would be that. 

Chris Powers: That would be cool. He owns several businesses in Fort Worth.

BNSF. Yeah. 

Rusty Reid: All of them have spoken so highly of him and, more importantly, the strategy behind what they have built, which is unbelievable. 

Chris Powers: I had to ask one thing. What do you think about it? 

Rusty Reid: Great question. So, there are parts of our business within our agency management system that are already leveraging AI.

AI is interesting, right? And I'm going to back up just a moment. So our whole industry had this big buzz. Insurance tech, you know, you heard every article, you wrote insurance tech, tech, tech, tech, tech, tech, tech. A couple of years ago, I was at a conference and had time to spend with the CEO of Travelers.

And I said, you know, it's funny. It is the first conference. I'm not, thank God, having to hear about insurance tech. He goes, Rusty, let me explain to you our view, which I thought, wow, this will be interesting. He said there are elements. So obviously, we're. Being tech-enabled is very important, but so much emphasis was placed on it.

He said that when the dust settled, we'd apply the elements, the tools that were built, developed, etc., but then the cost for implementation and support didn't bring down our overall expense ratio. So we're out. He said we're done. And so I tell you, there's a lot of noise around that.

It's no different than, again, the dot-com boom and bust. There will likely be elements of AI. They'll make us more adept at doing more with less or being hopeful. The way I'm looking at it is acceptable. How can I be a better service provider to my client? How can I streamline some hiring practices, etc., but I won't do it at the risk of an incident?

So there's a lot of education, and tons of dollars are flowing in this sector. Fortunately, I own NVIDIA stock, which performs beautifully around this. But we still need to learn a lot, and we'll learn over time. Again, I look at it. I'm a retail broker serving clients.

How can AI help us be a better service provider to our clients? And then that's it. Does that mean some elements can help us grow and not have to throw warm bodies at them constantly? And if so, let's make sure that we don't. Again, do that at the detriment of being a good service provider.

Chris Powers: as an insurance buyer, we've been in a challenging market for a while. I am still determining the exact number of years, but it's as, as a real estate owner, it is. Brutal. It's brutal to the point where it's like, are we going to start a captive? Are we going to start our own insurance company?

We're looking at every option. Could AI make customer insurance cheaper because it could provide more insight and data about what's happening at the property?

Rusty Reid: I would repeat anything about being a better service provider, including cost.

I would hope so. Data analytics, more specifically, is being used a lot today and will continue to get more robust. But again, when you go back to insurance tech and the boom and bust there, what happened at the insurance company level was their hope and desire that it would bring down their expense ratio.

If you looked at it, okay, issue a certificate, our costs went from here to here, but then they went up because we had to maintain that system. We had to have people who could do the programming, and so there was; it ended up becoming cost-neutral and, in some cases, more expensive.

They abandoned that, but something must be given in the industry. I'm glad to hear you bring up things like captives and whatnot. Again, I just came through a new partner, but the captive sector was new for us three years ago.

Today, we have over 300 captive clients. And so it had become, when I talked about speciality practice, an essential part of our business, particularly with companies that are doing all the right things there. They're trying to run a safe operating environment. They're trying to maintain their talk about real estate and maintain their facility.

That's the only way they can get credits to help offset the otherwise upfront costs. They understand they might have to pay a little if they have a terrible year, but they should get that money back if they have a series of great years. Then, some, not all, of the money goes to the insurance company.

Again, that's an area that we'll continue to see and hopefully stays with us; it doesn't just cycle and then uncycle. We were fortunate. We brought in a great new partner in Louisiana, where the transportation industry is. At the insurance level, it was just getting devastated. And he's like, all my clients are primarily in the trucking sector or have a significant trucking presence within their operation.

Captive was the only solution where he could bring them a viable option. So he lived it through the eyes of. If I don't come up with a solution, I'm out of business. He came onto our platform three or four years ago, and now he's our managing partner for all captive services.

And again, we make a point when we go out and see a client, we're going to serve up what guaranteed cost options are out there, but also some of these alternative risk options, captive typically being the largest one that exists out there. So very real.

Chris Powers: All right, I want to end this because if I didn't know you, I would still know of you because of this one thing: it's around the word generosity.

Higginbotham is everywhere in Fort Worth. You buy the steer at the rodeo, and I mean, every year at the hospital system. So, talk about your philosophy on generosity. You're a big company with lots of resources at this point, but you were probably generous before you were a big company with lots of resources.

And so. Answer it in a way that any business owner could think: this is how I could be generous, no matter the resources I have or do not have. 

Rusty Reid: Well, I'll first and foremost say this because any employee or third-party shareholder will appreciate this. So, using the steer as an example, we bought it individually and through our Higginbotham community fund. So, the operating entity Higginbotham didn't contribute a penny. And, if I go back in time, I and many of my partners have had what I'll call their pet project that they loved and cared about. In my case, I have been a longstanding member of All Saints Episcopal School.

You'll see if you go out there. Higginbotham signs are all over the place. Higginbotham didn't pay a penny for any of those. It was Molly and Rusty Reed, but Higginbotham deserved the brand credit, not Rusty Reed and Molly Reed, right? Nor did we candidly, personally, want that.

And it's been in our mission, vision and values forever to be generous to the communities we serve. That started with my thinking, dating to when I remember William Blanchard. I went out and saw a client 20 years, 20 plus years ago, and the client picked us up. They stayed with the same program they're on but hired us over their current broker, and I just told them they're in; by the way, that broke an excellent reputation.

I was like, why us versus them, kind of CEO to CEO if you will. And he goes, we're seeing a couple of things. Number one, you have all been persistent. I've checked reputationally. You've got an excellent reputation. But he said I love the fact you give back. We're a business that gives and gives back as well.

And we all receive so much from the communities we're in. It's almost like our, as a citizen, if you're profitable at all, it's almost like tithing. You need to give some to the church. And by the way, you need to give some to the community. And so I remember just leaving that meeting. We must make this a strategic imperative for the firm on a parallel path.

I've told the story before to my dear friend, David Minor, who was one of my largest clients at the time and recruited me to join the multiple sclerosis board. As a professional, it was the first time I could see the difference you can make if you push your shoulder into it.

Yeah. It also was great again, young guy; it gave me some credibility with older folks where they saw, Hey, this young guy's work is hard here as he is working over here to build this company. And so I just saw many great things around generosity, but where we changed the trajectory of who we are dates back to 2011.

We had a lady named Tracy Jackson who ran our business to Chris Rooker, but Chris will tell you, I ran our commercial insurance business, and she was redheaded. She could get pretty fiery if you will if you would be stereotypical, and I loved her. I hired her in May of 1991. So this is somebody that I truly loved to death.

Sadly, we lost her a couple of years ago to leukaemia, but she came to the office; oh, she was always very generous. And there was a dynamic with one of the local charities that said, Hey, if you give to us, we're only going to give to these handful of causes that we care about. And she just was mad as a hornet.

Man, she came in, pounds the table going, I don't want to give to those. I want to give to the charities I care about. And I had just stepped off the Community Foundation of North Texas board, or maybe I was on the last leg of that journey, and I just had this epiphany. I was like, you know what?

Tracy's not here. It is unusual, and there may be an opportunity for us to marry up a donor advice fund so our employees can give that fund and let them give to whomever they want. And so we seeded it with Higginbotham funds, 50,000 in 2011. To date, we now have between employee donations and pledges; we were up to 10 million, we've given back 8 million, and our goal is to give; we don't want this to be a foundation that we want to hire staff.

We're happy to third-party it. Now, we've got a Kind of community relations partner inside our firm, but it works if you give to the fund once a quarter; you can request a grant to go to the charity you're choosing and every location. So, we have more than 100 locations, and every area has a community leader.

That person's day job might be a producer, accountant, IT, or whatever, but we've tried to do a good job. From an advocacy perspective, find people that do care about the community. And it's just incredible. And then we've been blessed because we just run a good business.

We've been able to make distributions literally since 2012, and we always take a dollar or two. Out of that dot distribution, put it in the Higginbotham community fund. Sadly, I've got some stingy partners who could be more generous. So that's the way I can get even with them. Right? I'm teasing, but a few also create sustainability for this fund.

Because we've got an outstanding seven-figure share, that guarantees it will happen. We've got unbelievable participation from our employee group. And then once a year at our HLC or Higginbotham Leadership Conference, I shame the producers, who, empirically, are like lawyers in our industry.

They're typically the largest wage earners in a law firm. In our case, it's typically the producers. So I strong-armed them to give to the fund, and they do. Some don't intentionally give on a payroll deduction basis because I enjoy that bantering back and forth.

But like last year, as an example, that group. Collectively, now you're talking 600 people, but they gave a million and 5,000 to the Higginbotham community fund. So, call it my vision, even though I want to share it with Tracy because her act launched me. I didn't want her mad at me a week after that first meeting.

Right, but that has enabled us to be generous as a company. And again, back to the integration, when somebody joins us immediately, we want one of their colleagues to be part of the Higginbotham community fund. Because when they see that, they realize we're more than just driving profits—we're very profitable, but we're there to support them as a new partner.

More importantly, they support the market they're in and do what they care about, not being dictated to by what comes out of Fort Worth. So there you have it. 

Chris Powers: Rusty, I'm rooting for you in Higginbotham.

Rusty Reid: I appreciate it. We'll take all we can get. I promise you. 

Chris Powers: I would like to know if you need it.

It is an incredible story, and I appreciate you, Shari

I did it today. 

Rusty Reid: Well, thank you very much. Again, as I told you on the front end, I don't think Mike's Ron is flattered. I did some research, obviously, my boys and many of them. TJ Hutchins, you have a lot of big fans, and they all were like, Oh, this is so cool.

Then he said he'd got you on this podcast, so I'm very excited. 

Chris Powers: Well, thanks again for doing it. 

Rusty Reid: Yeah.