Survival of the Strongest
Founder & Owner
Progressive Employer Services
Two years ago, the future of the professional employer organization industry looked grim. Chicago-based underwriter CNA dropped its PEO clients across the board after its contractual obligations were fulfilled. At about the same time, the Florida Department of Insurance closed two of the state's PEOs in yet another sign of the times.
As rumors of further shakedowns flew, Florida's remaining PEOs scrambled to find workers' comp underwriters, since they are required by law to provide the insurance to those who work for their clients. For Progressive's clients, the lack of workers' comp would mean shutting the doors.
Steve Herrig's Progressive Employer Services fared better than most, although he cut it close to the wire. He was midway through negotiations to acquire a Clearwater PEO firm when CNA dropped its bomb on the market. Herrig - the risk taker - bought out his partners in the face of losing his own business.
Mike Corley, former chief financial officer and now president of Progressive, says the move was typical of Herrig.
"When these people invested in him, he said he would try to give X return on the dollar," Corley says. "He bought them out knowing he could have been personally wiped out.
"His overall philosophy is to do the right thing."
In the end, Herrig's reputation saved him.
Unlike some competitors, whose average workers' comp loss ratios were greater than 100%, Herrig's company boasted a loss ratio of only about 23%. His trump card: a recommendation letter from CNA that touted his favorable numbers.
Herrig leveraged that reputation for caution - he accepts only about 35% of requested proposals and stays away from high-risk employees such as roofers - to find alternate coverage with New York-based Insurance Cos. of America. And not a minute to soon.
"It was literally a last minute thing," Corley says. "I called him from Tennessee the day before, and he said, 'I might be out of business tomorrow. I might have to sell the company.' I called the next week, and he said, 'You're not gonna believe this. I have comp.' It was literally that close."
Herrig, 43, thinks the worst of the storm has passed - and the strongest have survived.
"The only survivors were those with good loss ratios and the ability to collateralize - we had both," Herrig says. "I think there's a cleansing that's taken place."
Herrig co-founded Progressive Employer Services in 1999 with Dennis Hartig, leaving behind an insurance brokerage he operated. When First National Bank bought the insurance end of his original business, he used the money as expansion capital to fund the PEO. Hartig ran the PEO in the early days while Herrig transitioned from his old job.
Herrig remains the only shareholder.
In 2001, revenues for Progressive Employer Services reached $84 million. In 2002, they hit $189 million, before climbing to $209 million in 2003. Average annual growth has been 67.5% in the same period, with the number of employees increasing from 42 to 65.
PES represents about 570 companies.
Herrig looks to aggressively grow the company in the immediate future. He plans to triple his current sales force, which is about a dozen strong.
As part of that plan, Herrig promoted CFO Corley to president in March. Corley helps with day-to-day operations, freeing Herrig to focus on the big picture.
"He doesn't enjoy the day-to-day aspect of it," Corley says of his boss. "He's very much the entrepreneur - he sees the big picture. He recognized that the company needed more formalization in terms of infrastructure, in terms of processes in place."
Corley is setting processes into motion - like how to present financials to the public, and how to deal with the public - so the company won't have to continually reinvent the wheel as it grows, he says.
Employees: 2001: 42; 2002: 56; 2003: 65.
Revenues: 2001: $84 million; 2002: $188.6 million; 2003: $209 million.
Average annual growth: 67.5%