Upstack CEO Chris Trapp: ‘For The First Time We’ve Created Liquidity Options For Agents’

Upstack founder and CEO Chris Trapp says the agent behemoth has created for the first time ever unprecedented “liquidity options” for agent partners.

A ‘Bold’ Vision To Revolutionize The Agent Model

Upstack founder and CEO Chris Trapp says he’s just getting going with his plan to create a global agent behemoth by acquiring the best and brightest agents.

“While we are the largest (agent) today we are still a small business,” said Trapp in an interview with CRN. “We’re proud of that. We are excited about the opportunity. We’ve got a long way to go to be in the Fortune 500. I think we can get there. That won’t happen overnight. But I think we will get there over the next 10 years.”

Trapp’s bold vision to bring together the best and brightest agents is taking hold at a breakneck pace. Upstack has acquired 20 agents over the last 18 months including five deals in just the first two months of this year.

Trapp says he is implementing the kind of reinvention of the agent model that has already taken shape in markets like real estate and financial services with Fintech.

“What we are doing could be considered bold in this industry, but it has been done in many other industries,” he said. “Look at what technology enabled real estate brokerages have done in terms of creating value the last couple of years in residential real estate. Look at what Fintech is doing in the financial vertical and what technology enabled insurance brokerages are doing. As an entrepreneur you always want to look at tangential industries and learn from them.”

Trapp says even though he is building out Upstack with one acquisition after another at a breakneck pace, the business still has a long way to go to be considered a “great” business.

“It really takes a long time to build a great business,” he said. “We have acquired a lot of great businesses. We have invested in a lot of great businesses. Upstack isn’t quite yet what I would define as a great business. We’ve got a long way to go. And we have got a hell of a lot of work to do to get there.”

When you look at the agent business you don’t really immediately think of one single company. It’s a fragmented market. Are you changing that and how do you see the agent market evolving?

We are in large addressable market that is growing at a double digit compound annual growth rate. If you look at the size of the IT channel we think it is going to double over the next seven to 10 years. We hope to have a solid percentage of ownership of that market a decade from now. While we are the largest (agent) today we are still a small business. We’re proud of that. We are excited about the opportunity. We’ve got a long way to go to be in the Fortune 500. I think we can get there. That won’t happen overnight. But I think we will get there over the next 10 years.

Even today, to your question, we are the biggest. But to your point about fragmentation there are tens of thousands of agents that are out there grinding away the same way we are. If this industry can double in size over the next decade and I think even faster than that then we have a great opportunity.

There’s an intersection of great tailwinds hitting this industry today. You have got certain product and service segments that the number of service providers is very highly fragmented. That makes it difficult for technology teams at the end customer level to be able to navigate all those service providers effectively. The more fragmented a sector the more reliant the end customer is to have someone help them navigate and advise them. That’s a great trend for our industry.

That adoption of those types of products and services like security from the end users is also growing at a significant rate. So you have got highly fragmented service sectors that naturally are in higher demand but are also harder to navigate which drives more demand for advisors.

You also have many new cloud based technologies whose go to market strategy out of the box isn’t to spend a lot of money building a direct sales team. It is an indirect sales strategy. That drives demand for the best in the business.

So you have got a number of these trends all happening at once in this industry that I think are going to dramatically increase the influence we have. You contrast our industry with say the residential real estate. My personal opinion – with no offense to any real estate agents- is that over time the value of a real estate agent could go to zero because of technologies impact on creating more and more transparency and less value. The more efficient a market is the less need there is for an intermediary advisor.

So if you look at residential real estate – which is a highly cyclical industry with good years and bad years with one time commissions, not residual commissions, then you can see the demand for intermediary advisors going down. In contrast our industry is getting more and more fragmented, more and more complex, and requiring more and more of our services.

Eighty percent of every insurance premium is sold through an independent agent. They carry a Geico card or a Progressive card, but they are independent agents carrying the brand. Our industry is probably half of that today- somewhere around 40 percent.

I think over the next 10 to 15 to 20 years we will get to that same 80 percent threshold. That is a tremendous amount of room for a business like Upstack over the next decade or two.

What kind of economic impact is the Upstack acquisition of agents having on the market?

I think for the first time we‘ve we’ve created liquidity options for agents that that can provide economics that weren‘t available prior to Upstack. I’m proud of that. Agents have options now. The previous option was when are the children going to take over the business? Or were they just going to ride off into the sunset at some point when they were ready to slow down.

We now have the ability to put in place a partnership with them where we can help them overcome the perpetuity and succession planning challenges that they previously faced with their businesses prior to Upstack. If and when they are ready at some point in their careers to hang up their cleats, we can be there as a partner to make sure the trusted relationships they have built with clients in many cases over decades are in really good hands going forward.

Most importantly, we’re doing it in a way that doesn‘t penalize the value of their company. It actually rewards them for what they have built over decades. That’s one of the things that I‘m most proud of: our ability to come to market with just another option. That doesn’t mean that we‘re the best option for everybody that’s out there. But I think we are one that more and more agents are coming on board as they become aware of what we are doing and as they see the quality of other highly influential business owners and entrepreneurs who are hopping on board. That has more agents want to learn more about what we are doing.

We aren’t just buying out books of business. Agents aren’t coming to us and looking to leave the business. We are not doing that. Our average agent is about 42 years old. You are talking about agents that have 15-20 years left in their career. They see us as a growth investment partner more than someone buying out the business.

We are investing in businesses and putting in very compelling incentive structures, where these owners can make materially more income over the same period of time with Upstack than they would have without Upstack.

That is really our biggest competitor at the end of the day. We don’t really have any competition. Ultimately what we compete with is the business plan and goal that an agent has to be somewhere over a certain period of time. If we can‘t offer them something that has more materially compelling outcome and risk profile than what they would do on their own then it’s not worth the conversation. The fortunate thing is that for those businesses that we‘re most interested in we can always create more compelling economics at the end of the day. That’s what has enabled us to attract such a blue chip roster of agents.

How does the Upstack equity model work?

Just like in any business there is stock in the company. As part of the investment structure when we invest in agents, we issue shares in Upstack. It‘s a very collaborative approach. Some entrepreneurs are more interested in equity than they are cash, and some are more interested in cash than equity and some are kind of somewhere in the middle. So it’s a collaborative approach. But at the end of the day, it‘s important to us that just like we’re invested in their success, we want them invested in the collective success (of Upstack) as well. So we structure it that way.

You have acquired 20 companies, what is the outlook for 2022?

Last year was a really big year for us because of the success we had on the investments that we that we made. I’m always reluctant to use the term acquire. Some of the businesses we‘re acquiring 100 percent of them and some of them it is less than 100 percent. But even if we acquire 100 percent the way that we structure the growth beyond that is they are with us for three to five years minimum. It is always a very collaborative process and it truly is in the spirit of partnership. That is what is kind of fun about it. Whether you love negotiating or hate negotiating at least in this scenario it is not a zero sum negotiation. It is truly going in with eyes wide open and putting together a partnership.

So we are investing for the future and we are super bullish on that. Last year was a huge year for us. This year is going to be bigger than last year in terms of where we are tracking all of our opportunities and the momentum we have. It’s a beautiful thing when you invest in highly influential business owners. They attract other highly influential business owners as well. We have benefitted greatly from that and I think this year is going to be more successful than last year. And I think 2023 will be more successful than 2022.

We have got a tremendous amount of work to do. Walmart had one store for 17 years before they built their second store. It really takes a long time to build a great business. We have acquired a lot of great businesses. We have invested in a lot of great businesses. Upstack isn’t quite yet what I would define as a great business. We’ve got a long way to go. And We have got a helluva lot of work to do to get there.

So how many acquisitions do you think you’ll do this year?

I don’t know the number of acquisitions we’ll do this year, but I can tell you in terms of scale we should double what we did last year in terms of revenue contribution (in 2022).

Is it getting easier to do these acquisitions because you are attracting such strong agents?

Nothing about what we do is easy. When you are disrupting an industry you have a big bulls eye on your back from the incumbents. We are highly transparent with everybody with respect to anybody in this industry as to exactly what our plans are. That is because our plans come from a position of strength and confidence in what we are doing. There is nothing we feel like we need to hide.

But it is very difficult. We have been fortunate to invest in a couple businesses here that have been doing the for a very long time, and know how to do it a helluva lot better than I do.

The opportunity for us is to take the best practices from an RDS, GCN (Global Communication Networks -acquired last October) or TeXium (acquired in January) to redefine what a best practice truly is. We are taking the best of everyone and eliminating the weaker points each one has, we have a lot of work to do to really redefine what that is, but I can say very confidently that nobody has been able to do what we can do. But that doesn’t mean that it is easy. You can ask my CFO and my head of M&A what it was like on December 30 trying to get a handful of transactions done by the end of the year. It is not easy but if it wasn’t easy it wouldn’t be rewarding. We are having a lot of fun.

Although not everything we do is a blast, in aggregate, we‘re having a really good time. We have got a great group of people that I thinkare starting to trust each other more and more every week. But when you have a company that went from nine to 142 people in 12 months, most people haven’t been here a year yet. So it takes time to get these people to start working together.

The benefit we have though, at the same time, is that RDS, for example, has a team of 30 people, at least half of which have been together for 15 years or more. Those are people that have each other’s back. That is true culture.

Upstack might be able to build the largest agency in the world relatively overnight but you can’t build those bonds overnight. A big part of the intrinsic value of these highly influential companies like RDS is they have established a culture that we aspire to have permeate throughout the entire Upstack organization. So it is really working closely with them, learning how they are operating their businesses and building something together.

Is the secret sauce to establishing equity relationships the Upstack platform or the model of bringing together the best and brightest agents?

There is really no secret because we tell everybody what we are doing.

If I were to say what the secret sauce is I would say yes we have a great platform, great technology and a completely differentiated view of support in terms of how we‘re truly enabling and empowering the most talented people in the industry. At the end of the day, the secret sauce is the people. It’s the culture.

If you‘ve got (One time Chicago Bulls NBA superstars) Michael Jordan, Scottie Pippen, and Dennis Rodman all on the team and you are sitting on the bench with those guys that’s exciting.

It’s a combination of not only the top producing agents in the industry, but the best damn people in the industry. We‘ve got some awesome people that you just want to hang out with, You want to have fun driving business and success together. That’s the positive externality of bringing together great people.

Great people attract greater people. We have been very successful in making sure that we are only attracting companies that fit culturally. they don’t check that cultural due diligence box when we are thinking about presenting an offer then there are 30,000 others out there that might. The secret sauce for us at the end of the day is the people that we have attracted.

Do all of the agents use the Upstack platform?

We don’t force anybody to do anything. A lot of people think that by bringing in somebody like Upstack to invest in the business they are giving up control. The reality is we are investing in their success. Nobody knows how to run their business better than they do. We can make recommendations like ‘Have you thought about doing things this way? Or did you know we have this product that might save you a ton of time or differentiate you in front of a customer that you are presenting to? These are suggestions. If we came to the table and said to J.R. (Vernick) and Darren (Jones) from RDS we are going to invest in your business, you are going to have to stick around for the next five years, and by the way ‘It is my way or the highway’ they would never have considered this as an option. The flexibility of the investment structure and honestly the partnership is key. We want to know how they run their business, learn how they do it and then figure out ways to improve upon that. We know they are already the best or one of the best out there.It’s about how we can take them from that top one percent to the top .1 percent.

I tell my people: we are doing something that is very difficult. There is 13 million businesses in America. Ninety nine percent of them have less than $25 million in revenue. I won’t tell you what our revenue is but I can tell you that we exceeded that very quickly.

We are already doing something that 99 percent of the businesses can’t do. This is tough stuff. This is not easy and we are doing it on the fly. We joke around that we are flying the airplane and building it at the same time. That is hard stuff.

We have made mistakes. We are going to make more mistakes. That just happens along the way. That is entrepreneurship.

We don’t force anybody to do anything except run the business with integrity and high ethics.

Are you looking at getting more equity investment from Berkshire and others?

One of our CFO’s jobs is risk management within the organization. It is also focusing on our weighted average cost of capital. You always want to have enough liquidity for the type of business you are running from a risk perspective but also make sure that the cost of that capital is as low as it possibly could be. We also balance the flexibility of the terms of that capital as well.

We’re very fortunate to have one of the most prominent successful blue chip private equity funds in Berkshire Partners behind us. Their investment in Upstack attracted a lot of other people in this industry. The $50 million they invested in us is a small investment for them. I can assure you that we have no shortage of availability of capital.

As long as we continue to be successful capital will never be an inhibitor to our success, our progress or our growth. That will never be an issue.

One of the biggest challenges you have as a company like Upstack is we are highly distributed in terms of a workforce. This is a COVID normality. One of the challenges that is not unique to Upstack but to any business that has employees that is remote is developing a culture where people really can find a way to feel the energy with the contribution and the success we are having with the business. That is hard when you are all working in different areas. In a perfect world we would have all 142 people sitting here in New York City in our office together, rubbing shoulders, getting coffee together. Unfortunately we live in an imperfect world.

I think one of the biggest challenges that every business out there is going to have is this move to hybrid work.

I am an office guy. I have two young kids at home and if I am home I am distracted.

I was a sole proprietor for most of my career. Now that I am working with a lot of people man do I have a lot more fun when I am around them and they are in the office rather than when I have to schedule every idea that I have. It is a lot more fun to be here in person. We have a dozen or so of us here in New York and the rest distributed.

When did the real inspirational moment come to build this new agent platform?

There wasn’t an Aha moment. The whole idea of wanting to build this platform came over years of interacting and learning about the industry. It wasn’t like one day I said I am going to go do this.

I am very much a go big or go home guy. If I am going to start anything I am going to shoot for the stars and hopefully get up there!

The strategic evolution of growing the business organically versus finding a creative way to bring together the best in the business was an evolution. It took a lot of thinking. Then it was how do we actually do it?

Agents have talked for years about joining forces and doing things but the tricky part is actually executing tactically and actually finding a way to make it happen. There was never an Aha moment.

We could stop right now, slow down, take it easy and make good money. Our lives would be a lot easier if we just wanted to grow this business at single digit percentages over the next decade or two. It would be successful by many people’s definition of success. I personally think it is worth the effort and the grind and the hard work and the blood, sweat and tears that hopefully at some point is in a league of its own. We have a long way to go though.