GSR: Jonathan Holfinger: The Challenges of Scaling Up In Title

The Challenges of Scaling Up In Title

It didn’t take long for me to learn that I was going to have to focus on growing referral relationships if I wanted to grow a title insurance agency.  It took me a little while longer to figure out that I needed to risk losing money by hiring more employees if I wanted to compete in the marketplace and grow our market share.  And it's taken me two decades to understand the interplay of factors between growing a title agency compared to other lines of business.  

“Accelerate Your Business Growth!” they advertise.  “Scale Up By Niching Down!” they tell you.  Advice on how to grow a business is everywhere.  Especially on social media, most often from expert talkers, not expert doers.  Their advice is often like nails on a chalkboard to me.  The simplified, memorable expressions of how to scale up just don’t match my experiences in growing a title insurance agency, nor a law firm.  Perhaps they apply to online businesses, or perhaps they apply to companies that sell tangible products.  It’s clear to me that the ‘entrepreneur business bros’ have never worked in the unique world of title insurance though.

The title industry is unique, and it’s also not one-size-fits-all.  It’s most often a B-to-B-to-C type of business, with referral partners like realtors or loan officers.  But it can also be homebuilders, or commercial developers, or attorneys, or it can be a B-to-C business.  You could be doing refinances, or HELOC’s, or purchases.  You could be selling title insurance, or maybe judicial reports, or just title search reports.  Or you could be replaced by attorney opinions that can only be issued by, and paid to, law firms.  You might be physically located on Main Street near the Courthouse, and have a consumer walk-in and ask your receptionist for title work for a split of their family’s land.  Or you might be remotely providing title services, receiving digital orders from a national mortgage lender, where you never actually see the consumer, nor the loan officer, nor physically signed documents.

So if we're going to analyze scaling a title agency, the first step to that analysis is to identify what type of title agency are you trying to scale?  If it's a local, brick-and-mortar title agency, where relationships with the referral sources are expected, then a conversation about scaling is going to center around acquisitions.  Why?  Because if the assumption is expansion to new markets, which in turn leads to opening new office locations, hiring local people, training and managing said people, and building new local relationships in those new communities, then plan to use a lot of time and effort.  You have to gain the local community’s trust and win over their belief that they want you as a referral partner.  While I have proven firsthand that it can be done that way with 20 offices established by that type of effort over a timeline of 15 years or so, it was accomplished through sacrifice and hard work beyond what most people are willing to do.

As a result, I have learned through recent acquisitions, that despite there being challenges to merging two different cultures and workflows together, that it is easier to accomplish top-line growth that way.

Now if you’re trying to scale a title agency that isn’t tied to a local, lawyerly style of problem-solving and relationship building in the community, then focusing on multi-state relationships with large lenders is the best bet to grow quickly.  

Are there still opportunities for that these days?  I can’t say with any certainty, but I can tell you that going the route of a joint venture is likely the fastest way to try and scale from my experience.  

Providing title, escrow, and closing services is challenging enough across multiple jurisdictions, so you want to simplify the types of transactions you take on, and minimize the time, cost, and effort needed for sales and marketing.  In larger joint ventures, ideally there is a lot less need for all of the infrastructure and costs associated with maintaining hundreds or thousands of relationships with referral partners (who could leave you at any time), and simplify to focus on one large referral partner.

In other words, if your title agency predominantly handles residential purchase transactions, then you should focus on a purchase (acquisition) strategy.   On the other hand, if you’re looking to scale up a title agency fast, then you should be looking for ways to do business with high-volume mortgage lending institutions that are in need of low-touch services like refinances, judicial title reports for foreclosures/REO, or title reports for HELOC transactions. 

I envision that those reading this article are nodding their head in agreement and don’t need the detailed explanation, but for the sake of a good list, I’ll share with you some of the reasons these general principles hold true:

• Real property laws are State by State, and in conveyance transactions, rules can be County by County, and a title agent’s duties, processes, and referral partner expectations are market by market.
• Transactions involving conveyances require more lawyers to advise, more knowledgeable underwriting and processing skills, and more sophisticated communication expectations, because of the likelihood of more complex requests from referral partners, like manufactured home conversions, lot splits, agricultural land, and commercial development, to name a few.
• Scaling businesses require automated processes, and perhaps even most importantly, uniform processes.  With purchase-oriented title agencies operating across multiple marketplaces, the nature of centralizing processes/support will cause you to have to build alternative processes, with varying workflows and orders of operation.
• Purchase transactions inherently involve real estate agents.  Agents see us as their vendor, someone there to serve their interests and needs.  Therefore, you have to earn their trust and spend time showing them how important they are, no different than a maître d’ at a high-end restaurant showing deference to VIP’s.
• The concept of title insurance by itself is complicated to learn as a starting point, but further than that, real estate conveyance transactions are like 100x more complex, and risky, than refinance transactions.  The amount of time and effort it takes to train, support, and guide employees through the learning process to get to the point of being able to understand and communicate effectively with referral partners and consumers is often underestimated.
• Geographic distance creates obstacles to quality and connectedness.  It’s hard to hire people, train and develop trust with people, or support them when needed, if you are not within a reasonable driving distance.

All that being said, there is a silver lining to the hard work that goes into learning all the ways in which growth is challenging.  It’s that growth begets growth.  As we added more offices, our sales conversations with larger prospects got a little bit easier.  As we added more expertise and centralized services in our parent title agency, it was a little bit easier to come to terms with title agencies looking to be acquired so they could plug into those services and knowledge.  And as we grew our revenue, whether organically through sales efforts, or through acquisition, our reputation and culture was enhanced, which helped with talent recruiting and employee retention.

Title is an industry that has all different types of businesses within it.  From national underwriters’ direct operations, to a 1-employee title agency, they all find a way to capture some real estate transactions due to relationships.  There are multiple ways to build a nice business, so don’t let my thoughts here distract from that.  Scaling is different than building a career or a local small business that is healthy and sustainable.  Scaling is hard and not meant for all businesses in this industry.  And that’s okay, because sometimes the smallest of businesses can address the consumers’ needs in a way that the largest do not.

Scale and growth always sounds great, but committing to it with eyes wide open is key.  Set realistic expectations and sights on what’s possible with your type of title agency.  Best of luck to you navigating your journey to success!