How Dave Michelson differentiates National Interstate through its value proposition Featured

8:18pm EDT March 31, 2012
How Dave Michelson differentiates National Interstate through its value proposition

Integrity. Peace of mind. Working hard. No surprises. These aren’t just the types of adjectives Dave Michelson hopes his employees, customers and investors associate with National Interstate Corp. They are the very words that these groups used to describe the company when asked to participate in its recent rebranding campaign.

“We developed focus groups and we hired a consultant, just getting descriptive words about what it means to be working here, doing business with us,” says Michelson, president and CEO of the transportation insurance company headquartered in Richfield, Ohio.

Rolled out in 2011, the people-focused branding campaign features the new corporate tagline “an insurance experience built around you.” This line aptly sums up Michelson’s strategy for growing National Interstate since he became CEO in 2008. This involves continual growth through new value-added products and services for customers.

“People in businesses have to buy insurance,” Michelson says. “So it’s really just a matter of finding the niches that we want to be in, attracting new customers and retaining our current customers.”

Here’s how Michelson leads National Interstate and its 494 employees to take advantage of strategic growth opportunities.

Marry up

When you reach a certain size as a business, growing in new niches is no longer enough to significantly impact sales.

“When we were a smaller company, way back in the ’90s and didn’t have a lot of sales, we were growing rapidly on a percentage basis year over year, but you could move the needle pretty easy by writing one new $10 million program if you were only $30 million in overall sales,” Michelson says. “Whereas when we got bigger and bigger, it’s harder to move that top line needle. We recognized that while we’re still innovators and creating new products and product extensions, in order for us to continue to profitably grow we needed to look at other ways to do it.”

So in 2008 and 2009, Michelson gathered a handful of senior managers from his leadership team to begin searching for acquisition opportunities. In this initial evaluation process, there were several things they looked for in a partner. First, they wanted to marry up. Michelson and his team specifically looked at acquiring expertise in industries that complemented or enhanced the business’s existing insurance products so that they could offer customers a deeper value proposition.

“One of my successes is that I married up,” Michelson says. “I think if you do that, you’ve got a fighting chance being a world class company that I think we are.”

You also need to make sure that your companies have aligned interests. So just like in marriage, it’s important to partner with companies that are honest and transparent about their goals. The rewards are much greater when you take the time to find the right partner instead of rushing the process only to discover serious differences in opinion down the road.

In August 2009, the company began M&A discussions with Vanliner Insurance Co., a moving and storage industry insurer based in outside of St. Louis, Mo. Michelson knew that National Interstate was in the running with several other companies that were looking to buy the business. Yet you don’t want to use the preliminary period just trying to win over your potential partner. It’s also about making sure that the match is right by sharing goals and developing an understanding about expectations of the partnership.

“You’ve got to kiss a lot of frogs to find the prince or the princess,” Michelson says. “So we do that and it takes a lot of time from the entire senior management, … but it’s one of the ways that we’ll be able to strategically and profitably grow this company.”

As you get more serious about the opportunity you can ratchet up the level of involvement from your team.

“If we want to forward with it, we’re going to involve at least another half a dozen senior managers if we think it’s going to be taken to the next step,” Michelson says.

Because the company doesn’t have an M&A department, it spent months performing due diligence prior to closing the deal. However, this was an important step in ensuring a smooth transition and identifying potential roadblocks moving forward.

“We knew that there were some things that we were going to have to do and we did them,” Michelson says. “There were a few small bumps, but by and large we had no major surprises.

“Ultimately they liked us better, and we actually liked them from the get-go. They were very straightforward, very honest. I think we pride ourselves on that as well. So we hit it off.”

Build a team

In June 2010, the company acquired Vanliner from its parent company, Unigroup Inc., for approximately $130 million. After taking control of the business in July, Michelson knew it was going to be challenging on the home front. Inevitably, merging the companies resulted in staff redundancies and there were people who now had jobs that weren’t relevant to the new strategy. In both cases, those employees received a severance package.

“We shed some premium out of their overall portfolio because some of their business we were actually already doing here in Richfield, Ohio,” Michelson says. “So we saw no need to compete with ourselves. As a result, we right-sized that business by about 40 percent downward, but then we had a great moving and storage platform in St. Louis.”

As you make changes within the new company, you have to be cognizant of employee feelings, especially when it involves job restructuring or making cuts that can negatively impact morale. “You want your communications to be straightforward,” Michelson says. “You don’t want to mislead anybody. You have to understand the sensitivities that are involved.”

At the same time, you need people to buy into why the changes are an important part of the long-term growth strategy. Once the ink is dry on an acquisition or you begin to pursue a new niche, it’s your employees who will have to work together carry out the changes.

One way to unite everyone in the success of the company as a whole is to give them the same scorecard. Michelson says the company has all employees on the same bonus plan matrix, which is based on underwriting profitability and how the company performs on sales relative to plan.

“It’s a beautiful thing,” he says. “If we’re all working together towards the same goal and they move those numbers in the right way, everyone benefits to the same degree because they’re on the same plan. That financial aspect I think carries forward into how people interact and work together in the workplace.”

Transparency about results throughout periods of transition is also critical. It not only motivates employees as they see progress but encourages camaraderie as they spot challenges together. When everyone is aligned on companywide performance goals, they see the value of helping out where they are needed instead of just doing their jobs.

“We talk about our results at our monthly employee meetings,” Michelson says. “It’s very transparent and open so everybody knows where the results are and who is driving them favorably and unfavorably. It also creates an environment where if somebody approaches a coworker and needs some assistance, they’re more inclined to drop what they’re doing and help them out.

“They know if there is a product that’s not hitting on all cylinders, in a nice way, they might say to that product manager even walking by in the hallway, ‘Hey John. Hey Sue. What’s going on with your product? You know are you addressing this or that?’”

Lastly, it’s important to articulate the vision of the company so that as more people come on board and changes are made, employees see how they fit into the picture. Part of the reason for the company’s recent rebranding strategy was re-engaging people in the vision, mission and values that continue to drive company’s success and strategy for new growth opportunities.

“We’re not changing who we are or our culture,” Michelson says. “It’s really just more about confirming how we feel about ourselves and how our various constituencies feel about us. So we’ll use this in ads and other things, and it will be fun and it’s something that the employees will own. I found the effort and the tagline to be interesting in that we’re not one-size-fits-all.”

Grow responsibly

Michelson says that the company takes a conservative investment strategy when pursuing new niches in order to avoid growing irresponsibly.

“Growing is fun, but growing in the wrong niches or growing in the right niche at the wrong pace will generate very bad results,” Michelson says. “That’s not fun and it’s not fair to shareholders. Having that discipline on the operations side is extremely important.”

This strategy has helped company establish a footprint in a number of underserved and difficult niches where it thinks it can make a difference relative to its competitors long-term, for instance, in insuring high-hazard types of vehicle exposures.

You want always to be pursuing opportunities but with the right knowledge and understanding of your business strategy and your capabilities.

“We have to grow our competencies, our skills, our employee base with passion but also in a somewhat patient manner because we want to attack it every day,” Michelson says. “We don’t want to come out passively, but you’re just not going to be able snap your fingers and change some aspect over night. You want to stay on it every day.”

To accomplish this, Michelson relies on his management team to help him evaluate growth opportunities from all sides.

“The feeling that I get in my gut is usually the right feeling but you want to confirm it,” Michelson says. “I’m more of a collaborator in my style, so I tend to get the views of others on my management team. I might not always agree with them, but I seek them out. It helps you make better decisions and more grounded decisions.”

Equally important to having a capable management team when pursuing growth opportunities is having a company culture that embraces innovation at all levels, which casts a wider net for success.

That’s why Michelson tries to step away from the innovation process until his managers have already performed due diligence to evaluate a new niche in terms of size, competitors, barriers to entry, technology and other areas. By letting them drive that part of the business, he can be more long-term in his focus.

“The new business growth and finding new niches is much deeper in the organization, where it should be,” Michelson says. “We’ve got professionals who are going out to industry trade shows and talking to people who run businesses that are in new niches. We’ve got our HR function using recruiters and getting leads on people out in the industry, and we’re getting leads from customers who are really pleased with our service.”

Michelson says he tries to keep an open mind whenever his managers want to enter a new niche, specifically because he knows they’ve done their homework. The key is to ensure that the company grows responsibly, but doesn’t rule out an opportunity just because it’s unusual or challenging.

“If somebody comes in with new or different, I’ll let them show me what new or different is,” he says. “We’ll try things that are well thought-out and if they don’t work we’ll adjust them.”

As the company grows its value proposition, its revenues have followed suit. The company has also achieved double-digit raises for its shareholders annually since 2005, and generated $438.6 million in revenue in 2010, a year-over-year increase from 2009. The financial results of the Vanliner deal are also already meeting expectations just one year later.

“So we’ve opened up our minds as to the different ways you can go at niches and not try to just have one playbook, but have something that’s pretty flexible and scalable,” Michelson says.

How to reach: National Interstate Corp., (330) 659-8900 or www.natl.com

Takeaways

1. Partner with businesses that add value.

2. Engage people to drive growth together.

3. Be patient evaluating investment opportunities.

The Michelson File

Dave Michelson

President and CEO

National Interstate Corp.

Born: Grand Rapids, Mich.

Education: Bachelor of science degree in business administration, Miami University; master of business administration degree, University of Alabama at Birmingham, 1991

What part of your daily routine would you never change?

I wouldn’t change my 5 a.m. alarm. With the early start, I’m able to work on top priorities before the meetings, phone calls and e-mails.

What makes a good culture?

You want to have fun working with the people that are here versus you see somebody walking down the hall and you just want to walk the other way. We don’t have that here, but I’ve been at companies where it existed and it wasn’t fun. You didn’t want to be there as much because it just wasn’t comfortable being in that building around some people that you just didn’t want to interact with. So the group we have here is an interesting group. It’s a fun group. We’re not perfect and we’re looking to get better every single day here, but the people are our secret sauce.

If you could have dinner with one person you’ve never met, who would it be and why?

Bill Gates. I’d be interested in his perspectives on entrepreneurship and running a fast-growth company. But, of as much interest, I’d want to learn about his views on philanthropy as he gives away the vast majority of his wealth.