Membership As A Flywheel For Tomorrow’s Growth With Hagerty’s McKeel Hagerty
McKeel Hagerty is the CEO of Hagerty, a specialty provider of classic car insurance and lifestyle company headquartered in Traverse City, Michigan. He is also a Cofounder and General Partner at Grand Rapids, Michigan-based venture capital firm, Grand Ventures. I first met McKeel when I was working with the company as they prepared to launch the Hagerty Driver’s Club. Even as he was leading the company and launching a new membership offering, he was also serving as Global Board Chairman for the Young Presidents’ Organization, YPO, a volunteer role that had him on the road for 180 days over the course of his one-year term. In this talk, we’ll discuss how this insurance company has transformed into a lifestyle organization with a powerful membership offering by focusing on their forever promise.
Robbie Baxter: For people who aren’t familiar with Hagerty, can you describe the organization and its origins for us?
McKeel Hagerty: It’s known by many for our historic origins. We were in the collector car insurance business. We started before then in the classic marine insurance business. It was a specialty insurance organization that was built for people who like cars, not people who had to drive cars to work every single day. It’s already a niche and a small organization. When you fast forward the years since I have been leading the company in 2000, we describe ourselves as an automotive lifestyle company and primarily, as a subscription and membership organization that just happens to sell insurance along the way.
Robbie Baxter: It’s unusual for insurance company customers to refer to themselves as members. I remember being so struck by that when I first met you and got to know your organization. How many people approached you at car shows and events and said, “Hagerty, I’m a member. I’m a member of Hagerty,” before launching into some kind of story about this car or that experience? What do you think makes people so passionate about, for many years, an insurance business?
McKeel Hagerty: It’s a real feeling of belonging. Membership is a relationship that’s slightly different from a transactional one. One thing that makes insurance unusual as transactions go is that it’s a recurring revenue model anyway. You tend to renew your insurance every year with any company. People don’t change very often. In fact, it’s on average of about seven years that they even look. We had spent so much time diving in and getting highly dedicated to our space, to then realize that these aren’t just customers. It’s a community. The automotive world is rich with events and media. There are all sorts of embedded media in magazines, television shows. As I said, events of all kinds, like car clubs.
Maybe the most interesting part of our membership journey is simply been that in a world that was filled with all of these car clubs, we refer to these as marque clubs, which reversed to the brand of a car. They’re not completely dying off, but they’ve been seriously challenged in this more modern world of membership, where membership has been so redefined. You have people come up and say, “I’m a member. I’m so excited to be part of Hagerty.” Probably, the biggest sign of it is, “I love what you do for us.” That’s not a feeling of, “I love what you sell to me.” It’s a completely different type of transaction.
Robbie Baxter: I love what you’ve done for me or what you do for me. I’d love to get your take on, who it is that you are optimized for as a member? Who is it that you want as a member of Hagerty?
McKeel Hagerty: This goes with my philosophy about leadership and building businesses in general. You want to try to tap into human needs that already exist rather than to try to find mysterious ones that don’t exist, or to convince large numbers of people to buy something that never was created before. When you talk to my parents who started the business back when it was very small, my mom, who’s 85 and elderly in her mind and body at this point, we were at a Thanksgiving dinner and I asked her, “Mom, I feel sometimes lucky. I’m so grateful for the fact that you and dad started this thing long ago.” She just said one phrase, “People take good care of their toys.” I heard her say that over and over again. I think that’s the core human thing underlying our whole business. When you go all the way to buy something that you like, and it doesn’t matter whether it’s a car, bicycle, stereo, or whatever it is you like, and you’re passionate about it, you’re going to tend to take better care of it than you would something else in your life.
We continue to add offerings around it, but it’s all based on that core idea of passion, I would say. We’re beginning our first serious journey down different certain member segments where we have to have hold different member offerings because the way people describe their interests to be so different. A quick example, some people like to show their vehicles and drive them. Other people are pretty serious about competition, motor racing, that sort of thing. Those groups start separating after a while. They will acknowledge that there are other car people out there. If you’re big into track driving, if you’re big into racing, even on an amateur basis, you think of yourself as a different person. Literally, it’s a race. I don’t just own a vehicle. We’re starting to experiment with some of that stuff in it. The core idea is still the same. It’s all underneath there. You can build almost anything on a core human drive if you understand it well.
Tap into human needs that already exist instead of trying to find mysterious ones that don’t exist.
Robbie Baxter: The offering that you created that you’re now expanding into layers is the Hagerty Driver’s Club. I remember when you were trying to decide what would that be, one of the exercises we went through was understanding a person who loves cars, this passionate person throughout their life cycle. From the moment that they realized there was such a thing as cars until the moment they were no longer interested, which might coincide with the moment they died, what was that journey? I’d love for you to talk a little bit about that journey of your members that you’ve seen them go through where certainly buying and insuring a car might be part of that journey. Where is the divergence from that moment of buying a car and insuring it, and the journey of a driver of someone who loves cars?
McKeel Hagerty: It goes to that broad idea of identifying an existing need for something that’s a human drive. It starts often and it’s often described by people who get into cars as some of their earliest memories, from their childhood memories with their parents identifying cars. Sometimes they didn’t come from a car family. Their parents knew nothing about cars and had very boring cars, but they fell in love with them and learned the names, brands, drivers, and all the things that go into it.
Typically, the real car person’s experience is a little different than the typical driver’s. When you get your driver’s license at 16 or 17 years old, they wanted to have something special, even if it was very inexpensive. It’s worth noting. Probably, the biggest thing with this world is people either assume that our space is either for the very wealthy or for the very antique things like Model T Ford. It’s not at all. In fact, a lot of people’s car passions are with everyday very inexpensive vehicles. It’s much more accessible, much more of a mass-market thing, but then a lot of people presume. Our job as we created our membership offering was to realize that, if the only gateway that we had was they had to own a car and they had to insure it with us, then we’re limiting ourselves.
We had to start tapping into those earliest passion, foundational periods of time. We created in our club, a lot of different youth offerings from judging to youth design competitions, to all sorts of things like this. We run hundreds of Youth Car Judging Programs around the world now. We even started taking on issues like creating what we call our Hagerty Driving Experience, where we teach young people to drive manual transmissions. It’s becoming a little bit of a lost art. Here’s another interesting human desire. I guess we discovered around this interest in vehicles. This is my nod to Niall Ferguson, the great thinker that identified these six, but he called those the Killer Apps of Western Society. One of them is shopping.
People do love to shop. They love to browse things. Whether they’re buying or not they like to shop. A lot of the reasons that people love internet shopping, not just with vehicles, but with anything, clothing to sports equipment is that you can browse. You can shop. It’s easy. You don’t have to leave your home. That’s a big part of the car world. A lot of the reasons people would buy car magazines through the years was to look at the ads and the classified ads in the back and those things that we needed to create a solution for that. We also realized in our space, there was very scant data around the collector vehicle world. It was all ad hoc. If you wanted to know what something is worth, there was a handful of dealers that were a little bit more expert or a few publications, but they weren’t based on data. We went out and said, “We have to become masters of this data and make it publicly available what vehicles sell for at our car auctions, like you see them on TV, plus private transactions.”
At first, we thought people need this so that we can make sure we insure them properly, but they’re using the valuations to go shopping. They like to shop, “I’ve always wondered what a ’63 Corvette Split Window is worth.” They browse around on it. Again, another human need identified, another solution for it, and all with the idea that it keeps bringing people back. You mature into the car-owning years. The prime buying years tend to be about 40 to 60 years old. That’s often when your core human needs of food and shelter are taken care of. You have a little extra income. You can spend it not just on an inexpensive car, but maybe on one of your real aspirational ones. It does taper a little bit later in life.
One of the, not anomalies, but features of the Baby Boomer generation, a very wealthy generation and have been very much in the firm control of the automotive world for a long time, typically, they tend to simplify their car collection. They’re collecting ideas later in life. If they had four cars, they might reduce them to two. We’re down to one fun car because they have other things they like to do. People are getting smaller homes and would prefer experiences over having things. That all works perfectly because we have now more experiences that we can offer, more driving tours and things that we can do.
Robbie Baxter: Can you quickly describe what the Hagerty Driver’s Club is, what benefits members get, and what access they’re granted through membership beyond the insurance offerings?
McKeel Hagerty: Now, you can buy a Hagerty Driver’s Club membership without being insured with us. That was a big feature of getting it launched. There is a freemium offering, which you helped us understand, which was awesome, which is what we call a test driver. Anybody who signs up to be a Hagerty Driver’s Club test driver, you create an account online, and then you get access to a lot of our media valuation tools. You get invited to events. It’s pretty simple. When you go to the paid version of it, which is forty-five dollars, and then there are some add-ons that you can add to it for a little bit more. The core features to it were emergency roadside assistance, unlike a AAA, but niche-y. It was designed for people with special vehicles. A magazine that comes six times a year, access to premium events, again, more access to more media.
We have a robust discount program of products and features that we’ve gone out to source for our members, whether it’s a discount on something or some new offer that’s made only available to our members. That program is two years old. We have over thirty partner programs in it. In the future, of course, we’re going to keep building on all of these things and looking at our membership more as a marketplace than just a membership thing. The big evolution for us now is this movement from paying forty-five dollars and getting these six features, to also getting to connect with this larger car community. Our membership journey is now moving from the one-to-one to the one-to-one to many. That’s the Hagerty Driver’s Club.
Robbie Baxter: There are so many reasons that I was excited to have you on the show to share your story. One of them is that you’ve taken to heart this idea of looking at your customer and saying, “How would I treat them differently if they were truly a member?” I think it was in your DNA at the beginning. You’ve formalized with Hagerty Driver’s Club with the move to being more of a lifestyle brand. Instead of saying, “We’re going to solve this specific problem, which is when I buy an expensive toy or a toy I love, even if it’s not expensive, I want to make sure that it’s well cared for, hence the insurance,” to saying, “I want this to be part of my lifestyle, whether or not I own a car at any particular point in time.”
You pointed out that at the Hagerty Driver’s Club, you don’t even have to have insurance. You can purely be an HDC member to get access to these things. You’ve moved in terms of your core competencies. Being an insurance organization and having those skills and professionals on your team is quite different from what you need to provide a marketplace, to build a community, and to create content, which are three things that you’ve spoken about that are better benefits of membership. Commerce, the ability to buy things, the physical product. Content, being your video, your magazine, maybe even some of the events that you have, and then this huge community that you talked about. What was that like moving your organization to this model from an operational perspective? Following that customer, that member, what did it take from an organizational perspective to move it toward this?
You can build almost anything on a core human drive if you understand it well.
McKeel Hagerty: I don’t think it’ll ever be done. Part of it is we’re a little bit of a victim of our success. We continue to grow very fast. We have a lot of confidence in our ability to grow organically many years into the future. Now, it’s hundreds of thousands of new people coming to our membership offerings through first finding us through that insurance transaction and then realizing there was a whole lot more here. The journey internally was often this identity problem. I and my senior team can talk about all these cool things all day long. We have 1,400 or 1,500 employees. If 900 of them only do insurance stuff all day long and they feel proud of what they’re doing and they should be, and they said, “We’re making all the money here. What’s all the rest of this stuff we’re doing?” You can get a lot more internal resistance to the thing that makes you special.
As I’ve tried to describe that, organically, if we had stayed in the insurance business, we’d be a fraction of our size. We might be growing three to five percentage points per year, instead of twenty percentage points per year. It’s convincing everybody that it’s a fundamentally different identity. You don’t have to be a car expert to work in an automotive business, but you better show some interest in it. You better be willing to say, “We’re doing an employee driving experience. Last year, we had almost seven hundred employees also drive manual transmissions and learned to drive. We’re pretty proud of those things.” It’s that internal identity stuff, breaking down the internal barriers of resistance. Even little things like, “How in the world, deep underneath the whatever number of thousands of pages that exist on somebody’s website, do you get rid of Hagerty Insurance underneath there?” Google keeps searching. It is that it’s Hagerty.
I understand there was a core business years ago around Bloomberg, but nobody sits there and says, “Bloomberg, the data services company. It’s Bloomberg. It does a lot of different things.” I had to convince people that it was okay just to be Hagerty. We’re an automotive brand. We’re a membership organization that happens to sell a lot of insurance. It was a lot of that redefinition that continues to go on now. In fact, I was in a lot of meetings about this over the week like, “How do we finish this job? When does the transformation ever end?” Maybe it doesn’t. All the dials, all the lights are blinking green for us, so good stuff is happening.
Robbie Baxter: It’s very exciting as an outsider who had a small role in that transformation to see where you were and where you are. While there certainly is more to be done, both the cultural transformation, and also the operational, the technology, the infrastructure, the team, having the right people on the team, all of that, you’ve done an extraordinary job of continuing to deliver on your core value and also expanding to continue on the journey with your best members in terms of what they need from you.
McKeel Hagerty: It’s been extraordinary. We’ve gained confidence in it every day. There are a lot of pieces in it. Even though we’re not a public company, I’ve had a board of directors for over fifteen years of almost all independent directors. I wanted to be held accountable for my ideas, not just to be romanced by them. It’s a challenge, even with them sometimes, to realize there is no business model that looks exactly like ours. We’re going to use pieces of different things that we see that we think will work in this space. We think we understand it better than anyone, but I can’t point you neatly to one other model as an exact corollary to what it is we’re doing. I like being out there on that high-wire act. If you’re one of my board members and you’re new to it, you’d think this media thing is expensive. Are you sure you’re getting the ROI for it? It’s a yes. We can explain it. It’s not that new business model. In our way of its expression, it’s not been done exactly this way. I have a lot of fun doing it, so it’s okay.
Robbie Baxter: In one of my guests, Hunter Madeley, the CEO of Vena, which is a Software as a Service company, he talked about this issue of there not being a real playbook. Even for him who was somebody who had been at multiple SaaS companies, Salesforce, HubSpot, and so on, he said, “It’s not like I can take what we did there and bring it to a new organization and just HubSpot it up.” Every company has their own DNA. There are certain things that you can take from other membership models from other subscription-based businesses. At its core, Hagerty is a unique entity. That’s the first thing that you have to understand. The other thing that I guess your constituents, whether it’s your employees, board directors, customers need to understand also is that, while it is a unique entity, many of the principles and the trends that are happening in the broader world can be applied at Hagerty to allow the organization to more fully achieve the goals and solve the problems of your members.
McKeel Hagerty: That’s right. It’s not like a big, hidden strategy. Certainly, there are things that we don’t broadly broadcast. I’m pretty clear coming on a show like this and explaining, “This is our model. It’s a membership business model, a recurring revenue bundle that includes a lot of insurance and a lot of other features. It’s the execution.” As you so clearly helped us understand, it’s how people feel about you. It’s not what you say, what you sell, or what you offer. It’s how they feel. Different companies have been able to express that well.
For example, Peloton, which I’m sure everybody talks about. As you know, if you don’t think every other fitness manufacturer didn’t think about putting a screen on their exercise bike, rowing machine, or treadmill and say, “We’re connected to the internet. Wouldn’t it be great?” That’s not what they did. There are so many little differences with the way that Peloton build community plus a heaping load of creative, digital product thinking, which is not easy. You can’t just put a badge on it or add some little feature and say, “I’m adding another revenue line, and we’ll call it a membership.” It takes something more. It’s a journey now, and it will never end.
Robbie Baxter: You’ve been very fortunate, or there are some challenges with it too, of having what I call Superusers. These incredibly, intensely engaged customers who go beyond being customers, subscribers, members, and want to devote their own resources to being a bigger part of your brand. In some cases, that means they spend their own money. In some cases, it means they spend a lot of time toward the well-being of the community and the brand. I know that Hagerty has more Superusers than nearly any organization that I’ve ever worked with in terms of the intensity and passion that they feel toward the organization. Maybe you can share an example or two of some of the Superusers that you’ve gotten to know.
McKeel Hagerty: It’s the delicious mix of the car world where you get these fantastic stories. One of the super simple marketing tricks that we did early on as we were launching our membership model was, we were known at events for having these specific types of a bag that we’d hand out. We would carpet bomb events with these well-designed bags. You see them everywhere now. You’d start seeing people come back the year later that they had taken ten of them and had sewn together with a raincoat out of our Hagerty bags or made a car cover out of them. We started randomly seeing people travel around the world and send us photos from the top of Mount Kilimanjaro to Tierra del Fuego to all the Pyramids in Egypt, standing there with the Hagerty bag, these fan stories or people wanting to write in the magazine, work for us for free, or create a Hagerty event in their town.
Robbie Baxter: Another organization that you are very involved with that is known for its Superusers is YPO, the Young Presidents’ Organization, where you served as a global chair in 2016. Is that right?
McKeel Hagerty: 2016 and 2017.
Robbie Baxter: Both organizations have been very successful at building Superusers, people who go beyond just being paying members to contribute their own time and resources for the good of the community. What has been your experience with YPO? You’re an incredibly busy guy. You’re running this business. You talked about how you’re growing it. You’re entering all these new markets. You’re expanding your capabilities. You told me you traveled 180 days during your one-year term as chair of YPO. What made you contribute so much of your own time and resources for the good of an organization where you were a paying member?
McKeel Hagerty: It was an honor to serve as a Global Chairman of YPO. For those who don’t know, it’s the world’s largest CEO or organization for medium and larger businesses. It’s not for just entrepreneurial startups. You have to have a minimum of fifty employees and revenue numbers. We have almost 30,000 CEO members and 100 chapters in over 90 countries. It’s a big global organization. For me, I love to travel. I knew I would do some travel. YPO’s model is that you pay dues. They’re thousands of dollars a year in some cases, a lot more than that based on local fees that people add into the model.
The real beauty of it is that the value comes from members contributing time, talent, and their own resources. My very first experience in YPO when I joined, it was the incredible generosity of fellow members to say, “Let me fly up and see you. You’re working on something. You have an issue in your family business or something you’re working on. I have an idea for you.” You couldn’t pay him. You couldn’t afford to pay them if you tried. It was built on this virtuous cycle of each member giving to each other. The name that YPO uses for these people is champions. You are not just a member, but you create value. I’ve created a hundred events now. I’ve created YPO events in the car world, where I invited YPO members to come to a unique automotive experience. I’m the champion of that event. I’m not getting paid for it. I don’t get anything from it. It’s a way to share my knowledge and insight or access to something unique with my fellow YPO members.
The beauty of YPO was that it almost becomes like one-upmanship. What more can I give? Not just to get praise because you get praise, but we’re also, as you said, busy people. I became enamored with this fact of this incredibly busy group of people who could give so much time and yet flourish in their business lives. It’s not about making money. It’s the quality of the person that does well in that organization. They also tend to have pretty good family relationships. They tend to do a lot of community work. It draws people who want to be creators in their space, but who are willing to give a lot of their time. You might’ve had a conversation with our longtime CEO, Scott Mordell, a great friend of mine and a great contributor to the organization. As he did the calculation of, “If you ever had to pay for the champion time that YPO gets, it would cost you $1 million a month to join the organization.” It’s inspired me to think about back to Hagerty that whole idea of, “Build community through involving people, inviting them in to be part of the mix and to contribute more.” It’s a model that works.
Robbie Baxter: I was struck as you were talking about YPO. Yes, indeed. Scott Mordell, I was able to interview him.
A great thinker, incredibly articulate.
Build a community by involving people, inviting them in to be part of the mix, and encouraging them to contribute more.
Robbie Baxter: There is so much value in the community. I feel like Hagerty has enjoyed that for a long time organically. With your HDC, you’re tapping into the energy and the passion to let your members help each other, which is often honestly, #ProTip. If you’re building a membership model, the most valuable thing is most likely to be the members themselves helping each other.
McKeel Hagerty: From the expert’s wisdom, you’re absolutely right. I’ve; experienced it so much, both in YPO and in the development of our membership offerings at Hagerty. We’re in the process of launching a whole new membership tier. It will be a completely separate group at Hagerty for our ultra-high net worth space. Those have been done a lot. You think of the Amex Black Card type offerings, but it will be very community-based. It will be very community-driven in a group of people willing to grant access to special things, but only to each other. I think that’s critical.
Robbie Baxter: Often, those people who want to have membership organizations say, “I could never reach that person. They would never want to share.” If you can create an environment that is safe, that is well-facilitated and that has the right people in it, people will talk and they will devote their time. It’s such a unique resource for people. Those connections are tremendously valuable. Now, I want to get your advice. Especially for people who’ve run successful businesses for a long time that are now in the process of rethinking what’s possible and expanding to refocus on the member’s journey, as opposed to just the products we’ve always sold in the past, what would be your advice for organizations that find themselves in a similar position to the one that you might have been in maybe few years ago?
McKeel Hagerty: First and foremost, you have to think long-term. This would be very hard to do from a public company quarter-by-quarter perspective, unless you’re Jeff Bezos who can stare down his entire board and shareholder group and say, “You will sit tight and make money when I say you’re going to make money.” Most people don’t have that luxury because it’s not that you won’t make money. In fact, you could make money in so many new ways and reinforce the revenue streams that you have in your more transactional business models. You’ve got to think long-term. Whether it’s with your board, your finance team, or whoever is with yourself, don’t get yourself back into the corner of thinking you have to make money in six months.
The second piece is, be prepared to test yourself across a broad range of activities that you didn’t think you’d have to be good at before. I’ve mentioned media and the data side of our business. Some of the new offerings that we’re starting to roll out is that you’re going to become inventors of new things. You’re going to want to set them up as experiments and Jim Collins’ Bullets Then Cannonballs. You’re going to be launching a lot of new things, and not all of those soldiers will make it back from the front line. You have to be willing to be ready to do some things that you’d never thought possible.
In this digital world, though, you talked about the customer-to-member journey. The disciplines around digital product design are going to become ever more important in this space. There are a lot of people who have a good idea for a business or a good idea of how to translate the business into something that looks more like a subscription or membership model, but they don’t dive into the weeds of that customer experience. Do you click through every page of your website or your mobile app? Do you listen to what the menus sound like on your phone? Business like ours, we send out all this correspondence. Probably, a lot of it sucked. A lot of it was horrific compliance-based insurance stuff and never mentioned what we were all about. There were some departments in our organization that thought they had to send it out and it had to look exactly like that.
Be prepared to become a product leader. Especially in the digital world, if you’re going to go into this, you got to be willing to go into the weeds and make sure like, “That’s not very member-like. That’s not very subscription-like.” You have to be willing to challenge a lot of the orthodoxies of your industry to soften it up and make it more welcoming and make people feel like they’re treated as a guest in your home. If you’re willing to do all of those things, it’s a transformational journey. I can’t recommend it enough.
Robbie Baxter: Organizations that have been around a long time often have a lot of depth of stuff that you have to wade through, things that have been done that way because they’ve always been done that way and how hard and slow-going it can be to get through the slog of all of that history. When I first started working with traditional businesses that were transitioning to subscription models, my career was all with subscription natives and digital natives. Up until that point, one of the metaphors that was helpful for me was, people always say, “Startups, they’re like speedboats and you’re like this slow cargo ship that’s barely moving, old company,” but then you say, “The reason that the startup can be a speedboat is because nobody’s on the boat. They have no cargo. They have no people. They can go very fast because nobody’s depending on them.” When you have this big boat that has all this history and all these customers and all of this revenue riding on it, changing direction is a harder task that requires a lot of gumption.
You’ll find yourself feeling like that school teacher with the rule around the knuckles a lot. If you want to go to that level, you cannot relent. I mentioned this whole thing about Hagerty Insurance. Go to Google Maps and look up what our headquarters says. It says Hagerty Insurance. I can’t figure out how to get that thing off of there. There’ll be things like that drive you insane, and yet it’s part of the journey. Unless you’re hotheaded, you’ll make it. You’re going to have to have a lot of patience to make the transformation and have it feel real again in the minds and hearts of your members.
Robbie Baxter: What was the first subscription you ever had?
McKeel Hagerty: Road & Track Magazine.
Robbie Baxter: Favorite subscription now?
McKeel Hagerty: Monocle Magazine.
Robbie Baxter: A time you felt like a member that you belonged? That’s your question that you helped me with.
McKeel Hagerty: For sure, it’s been YPO. YPO, from the beginning, I felt like I was with my people.
Robbie Baxter: Your favorite way to recognize a Superuser?
McKeel Hagerty: My favorite way is when they print up their own business cards with your logo on it. I get that all the time. Somebody will hand me a business card with my logo on it and I’m like, “You don’t work for us,” but they do. They’ll make up clothing with your logo on it, which is also awesome like T-shirts. It’s all about brand identity. Yes, it drives the legal department nuts, but it’s a sign of a Superuser.