Don’t Let the Unknown Stop Your Strategy

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Over the past few months I’ve had the opportunity to talk with a wide variety of participants in the financial services industry. Most of the time the conversations would touch on the impending publication of a regulatory agency’s proposed rules for the small dollar credit industry. We would talk about what the rules might look like, when the rules would be published and when they would become effective. Frequently we would speculate on the impact the rules would have on consumers and the providers in the industry. As you can see, the common theme in these discussions was speculation. We would gather snippets from presentations at conferences or information from published interviews, but there has been very little clarification provided by the government agency to help the industry prepare. Whether this exact situation applies to you or you are being stalled by some other type of pending outcome with multiple scenarios, the following process can help.

Why is this important?

The lack of information is important because it is stopping some from creating and acting on a strategy for their organization. There are many owners and executives delaying creating or modifying their existing strategy because of this huge regulatory unknown. Whether it is because they don’t want to waste time creating a strategy that turns out to be wrong or they don’t have the available resources to effectively work on a strategy because their best people are now focused on compliance instead of growth, a majority are not working on an effective strategy. This is concerning because there are other significant disruptors, beyond regulatory, in the market that need to be addressed. Changing customer demographics, quickly evolving technologies, and the influx of capital to new competition is creating a challenging environment that requires action to stay competitive.

How do you create a strategy for the unknown?

The first thing you should do is identify where your organization is right now. What are your current strengths and weaknesses? What areas of the organization need help? How is competition affecting you? I highly recommend that you get very granular on this with the review of your people, departments, financial status, products, competition, etc.

If there are areas of your organization that are going to be affected by the proposed rules, I would suggest looking at 2 or 3 scenarios for your strategy. At a minimum, I would look at a best-case and worst-case scenario. You would need to decide, but I can see where you might consider the rules not becoming effective at all as the best-case scenario and the rules coming out as previously defined as the worst-case. If you wanted to add a third scenario, you could create a middle-of-the-road scenario that falls somewhere between the best and worst. Once you have your scenarios, you would follow a decision tree type logic to determine your strategy options.

How does this help?

Granted, creating a strategy that is dependent on different possible outcomes is not ideal, but it will potentially give you important clarity in a few areas that will allow you to act now. For instance, if you determine that you want to add a new loan product in your branches to help diversify revenue, you could start the licensing and product definition process. The earlier you get your application in the licensing queue the better in some states. The other example would be if you wanted to introduce data analytics to your lending decisions, this would be beneficial to your existing way of doing business and if/when the new rules are applied. Getting this discipline effectively integrated into your organization takes time and effort. If you determine that you want to offer your customers an omnichannel approach to strengthen relationships, there is some lead time to create that solution. The bottom line is that this approach allows you to act.

How do I start?

Creating a strategic plan takes effort and commitment from key personnel in the organization, especially senior leadership. You have to balance the work everyone is doing for the present and your investment in the future. An important part of strategic planning is getting an unbiased perspective on the organization’s current situation and its ability to achieve future goals. For this reason, organizations benefit from bringing in an outside expert to help facilitate the process. This person will not have the organization’s historical biases to cloud their judgement or the desire to protect their turf. In fact, the right person can ask tough, clarifying questions that will benefit the process and organization. The other benefit of using an outside party is that it will tie up less of your critical resources – allowing your key personnel to continue working on critical projects. Whether you go through this process with internal or external resources, the most important thing is to start!

If you would like to discuss how to create a strategic plan in further detail or would like some assistance taking that first step, please don’t hesitate to contact me.  I am here to help you!

Contact Mike

 

 

Consumer Lending Revolution

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The more I look at what is happening with consumer lending today, the more I believe we are in the midst of a true revolution. This is not a slow evolution, although some of these changes have been happening over the past few years, this is a substantial change in the lending environment. In my opinion, there are three main areas driving this consumer lending revolution:

Regulatory Changes

  • The CFPB’s proposal for changes in small dollar credit will have a dramatic impact on short and longer term loans. No matter what the final rules say, you can be assured they will dramatically change consumer’s access to credit and lender’s approach to offering credit.  Good or bad, it will be a significant change.
  • The Department of Justice’s “Operation Chokepoint” initiative to pressure financial institutions to cut off access to “risky” businesses illustrates the federal government’s willingness to take an unorthodox approach to affect their change – even as it negatively impacts law-abiding business owners.

Technology & Data

  • There is increasing consumer comfort with initiating financial transactions outside of a branch. While there is still a group of consumers that prefers a face-to-face experience, that group is shrinking. Smartphones are now mainstream and this will continue to drive transactions from the storefront to a mobile device. Not only do you need to be online, your site needs to be responsive and very user-friendly.
  • More companies are implementing data analytics to improve their marketing efforts, risk management, and product offerings. In fact, there will soon be a time when consumers expect an offering that is tailored specifically to them.

Consumer Habits

  • Soon the Millennials will outnumber the Baby Boomers.  According to Nielsen, Millennials and Baby Boomers each number approximately 77 million in population.
  • Also according to Nielsen, over 70% of the U.S. population owns a smartphone with the Millennial segment owning over 85%
  • Barkley reports that Millennials expect to be able to interact with brands on social media and gather product information from their social circles before making a decision

Currently, there is a lot of focus on the impending regulatory changes, but we shouldn’t overlook the impact that technology and consumer habit changes are having on the landscape. By themselves, the Millennials are forcing businesses to rework how they look at customer interaction. Companies that don’t recognize their buying power will have a hard time catching up.

How is your organization handling this revolution? Here are four steps for your organization to complete to effectively prepare for this revolution.

Understand your current situation

  • Do a thorough analysis of how the proposed CFPB rules will financially affect each of your branches.  You may have to look at multiple scenarios, but take the time to fully understand what may happen. Something will happen and it will be dramatic.
  • Review all of your current processes and systems to understand how they could handle the changes in technology and consumer habits.  How adaptable are they?
  • Do you have the best resources available to help you? Whether it is your organization’s team or your vendor relationships, do you have the best team to handle this revolution?  How adaptable and willing to change are they? How up-to-speed are they on these three areas?
  • Grab your smartphone and pull up your customer-facing website.  Is this the experience that will attract consumers in the future? How are you currently interacting with your customers on social media? Are you providing the experience Millennials expect? If not, they will go to someone that does.

Identify all of your options and gaps

  • What changes or additions to your current product mix can you make to improve it? Are there products you can add to attract more customers? How will your existing pool of customers respond to a new product? You should model how this will affect your financial results. Revisit opportunities you may have turned down in the past. They may look more attractive to your customers now.
  • Poll your current customers to learn what they would like to see from you. Poll customers that recently left to find out why.
  • Look at your team and determine who will have the passion and capacity to champion your organization to the next level. Identify any gaps you may have to handle this transformation.
  • Are you using data to make marketing decisions or helping with your risk management?
  • Examine all of your vendor relationships to help position you for the future. Are their positions missing? Do you have a solution for gathering and analyzing data? Sometimes you need to rent expertise.

Understand your timeline

  • This revolution is happening now. If you wait, you should understand that others are not.
  • How long does it take to add functionality to your current systems? If you want to add a new product, how long will it take?
  • If you are not online (desktop or mobile), how long will it take?
  • How long would it take to add a new product and make it work correctly? If you need to get licensed in a state for a new product, that by itself may take multiple months. If you are thinking of adding a longer-term installment loan, it may take 6-18 months to test and make changes to the program to keep losses within your tolerance level.
  • The short answer is you need to start now!

Create your plan and start

  • Don’t wait for absolute clarity on everything to start. Regulations, technology, & customer behaviors are changing – some very quickly. You need to create a plan and begin working towards your strategic solution to handle this revolution.
  • At a minimum, you should do a complete review of your entire organization. You will find opportunities to make improvements and get a better understanding of what you need to do to come out a winner.
  • There are experts that are ready to help you work through this process. You can get a fresh, unbiased perspective on your business and assist you in identifying the resources you need to succeed.

I think it is fitting to wrap this up with two quotes from Sun Tzu that are very appropriate:

“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” 

“In the midst of chaos, there is also opportunity”

I would love the opportunity to discuss this more with you and identify areas that our group can assist you. Please don’t wait to work on these four steps.

Contact Mike

How Are You Responding To THE RULES?

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It’s been almost two weeks since the CFPB released its proposed rules that will cover short-term and longer-term credit products. It’s been hard for me to have a conversation with anyone in the industry without a majority of the conversation being dominated by THE RULES. This makes sense for several reasons:  they have been anticipated for a long time, they are extremely complicated to understand, they may restrict viable financial solutions to consumers in need, and they may radically change the way the industry does business. Granted, when I use the word “may”, it’s only because THE RULES are not final, yet. In my humble opinion, the proposed rules will become effective, and no matter what modifications, if any, are made due to the small business review panel, the final rules will be dramatic and transform the industry.

There is conjecture that the effective date of THE RULES will not be until 2017, which has given some breathing room to some. While that effective date may make sense, postponing action, even if the rules are not final, may be harmful to your operation. There may be some benefits in seeing the finished version of THE RULES to create a plan, but there are definitely benefits in taking some actions now. I’m going to touch on a couple of areas that you should consider as you create your strategy for the future.

Evaluate The Proposed Rules

You should spend some time, as much as necessary, to fully understand the proposed rules. Then, examine how they will affect your existing product mix and profits in the state(s) you operate. I’ve been reviewing and analyzing the rules since they were published and one of best things I have done is to discuss the rules with others to make sure what I am interpreting is similar to what they are interpreting. I suggest having at least one or two additional sets of eyes to review the rules and then get together to discuss what you think. Not only will this lead to clarity, it might also start a productive brainstorming session. Even though THE RULES are not final, it doesn’t hurt to look at several scenarios to determine what your business may look like in 2017.

Evaluate Available Products

Are you currently offering all of the available products in your state? When was the last time you reviewed your competition to see if they have discovered something new? I’m not suggesting that you rush out and add every single product to your mix immediately, but you should have a comprehensive list of available options for you to consider. For each product that you consider, you should model the profit potential, the likelihood of your existing customer base accepting this product, and, importantly, how long it will take to implement this product and work out all of the bugs. If you add a 12-month installment loan as a new product, it is going to take more than a few months to make sure your model works. If you add a product that requires you to change your marketing approach, that may also take some time.  That 2017 time horizon isn’t that far away anymore, is it?

What should you NOT do now?

I’ve given you just a couple of things to do, but there are also some things you should not do. First of all, don’t stop providing excellent customer service. Outstanding customer service is the trademark of the industry. You provide customers a needed service that they truly appreciate. Their demand for your products and services has not diminished because of THE RULES. Next, don’t stop becoming lean and efficient in every aspect of your business. Part of this process should include a review of your systems to see if they can accommodate aspects of the proposed rules. Does your loan management system have a built-in CRM? How well does it handle installment loans? Do you have the ability to collect email addresses from your customers and then schedule email campaigns to them? Finally, don’t wait too long to start understanding and acting on the impact of THE RULES.  Granted, with a long time horizon and potentially grim prospects, it would be easier to wait and see, but as a successful business owner, is that the behavior that got you to where you are today?

The next two years are going to be challenging, there is no doubt.  This is an opportune time to establish strategic partnerships with those that can help you navigate this terrain. Whether it is a consultant with a needed expertise or a business coach to help you gain clarity on your future strategy, we are here to help you succeed.  Don’t wait to take your first step.

Contact Mike

Hey Lenders, Is Winter Coming???

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One of my favorite shows recently has been the HBO series Game of Thrones. One of the sayings from the series is “Winter is coming.” This is a dire warning to all that the current favorable conditions are ending and you need to prepare for the inevitable struggle of a long, harsh winter. During the CFSA conference last week it struck me that this saying could apply to the payday loan industry and its anticipation of new rules coming from the CFPB. While it may be a stretch to say that the landscape after the rules are implemented will be as foreboding as what is portrayed in the Game of Thrones, the sentiment shared by the operators in the industry certainly is not one of excitement and understanding.

One of the questions repeated by operators in the industry is why there are new rules being created when there are already existing laws in each state? Historically there have been comments that the numbers of complaints from consumers about payday lenders to the state agencies are very low. If consumer satisfaction is high, why the need for more rules? Maybe to help clarify this, the CFPB created a mechanism for consumers to make complaints directly to them – not only for payday lenders, but other industries (credit cards, private student loans, mortgages, bank accounts and services, credit reporting, consumer loans, money transfers, & debt collection). Based on a presentation given by the CFPB at the CFSA conference, the bureaus started collecting complaints on 11/6/2013. As of 1/31/2015 they had received 538,300 complaints covering the named industries. The payday loan industry had over 7,100 of these complaints. My rough math says that is about 1.32% of all the complaints. Out of the nine groups they are compiling data on, the payday loan group had 1.32%. One of the attendees stated, “This seems really low”.   Obviously with complaints this low there must be a problem…. just not sure it is with the operators.

As I was walking between workshops I overheard one operator tell another that she was shutting her business down due to her bank kicking her out with no notice and no past issues. Another victim of Operation Chokepoint? Apparently, she could not find a replacement bank. While recent news has been positive that this “initiative” has been halted, are the banks opening their doors back up to those they kicked out unnecessarily? I actually had a bank representative (name withheld to protect the “innocent”) contact me to try and help place their customer with another bank that would accept check cashing and payday lending. I asked the obvious question – “Do you not serve businesses in the industry?” The response was, unfortunately, not surprising, “No.” I sent him an article to enlighten him about the change in Operation Chokepoint. Never got a response. I still go back to the high customer satisfaction in the industry and the high product demand and just don’t understand the disconnect.

There was much discussion during the conference about the CFPB’s timeline for the rules to be effective. It appears that the final rules may not be effective until 2017, but that could change. At this point we still don’t know if the rules will only cover payday loans or if they will reach over into title loans, installment loans and other products. Based on the amount of time this is taking, it may be safe to assume the reach will go beyond payday loans. Not only are there going to be industry-changing rules in the future, data at the conference illustrated that customer demand has been shifting from a single-pay product to a multi-pay product. Customers are also getting more comfortable operating in an online environment for their financial products. Think about these last two items as they relate to your current operations. Do you offer a multi-pay product now? Do you offer your products in an online or mobile environment? If you said no to either of those, winter may be closer than you think!

So what should your strategy be to prepare for the upcoming “winter”? Here are a few things to consider as the landscape continues to evolve:

  • Continue to provide excellent customer service in a compliant, ethical fashion. The best way to maintain and grow your business is to still offer it at a high standard.
  • Explore options to add installment loans to your portfolio. There is a lengthy runway to implementing installment loans successfully – start now!  At the same time, you might want to start looking for extra funding – installment loans tie up cash.
  • Look at your current systems to understand what it would take to offer your products online or in a mobile environment. Will your current system handle installment loans? Do you need to change platforms?
  • Maintain good relationships with your vendors and bankers. At the same time, look for effective replacements. Don’t let yourself get caught without a way to operate.
  • Stay informed. The product and regulatory landscape are changing quickly and dramatically. Monitoring regulations and your competition are critical to gain insights to the future.

While these times are fluid and maybe a little ominous, there is also good news.  If you have the right strategy and the ability to adapt with the times, customer demand is out there.  If you don’t, there are experts out here that are able and willing to help you succeed.  Winter is coming.  Let’s get ready!

Contact Mike

Business Relationships – Build Them At CFSA!

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Next week I will be heading to Carlsbad, California to attend the Community Financial Services Association annual conference and I’m starting to get excited about making the trip.  At first, I thought it was because I will be escaping Kansas City’s winter for a few days and be able to run outside without 2 or 3 layers of clothing.  Then I started thinking it was more than just an escape.  I am excited to reconnect with some co-workers from a prior life and see some others in the industry that I haven’t seen in a while.  It’s interesting because this will be the first time I have attended as a business coach instead of an operator/customer.  Will my approach to the conference be different?  Will I have to work harder at networking?  What do I hope to gain from this year’s conference?  The more I think about it, the more I believe that events like these are the perfect opportunity to create and strengthen relationships.  As someone who is focused on helping others improve and grow their businesses, this is a perfect opportunity for me to meet others that will help me along this path.

Working with the Alternative Financial Service Providers Association and their “Ask A Pro” segment has given me the opportunity to meet hard-working business owners who need a little help in different areas.  In some instances I can offer valuable guidance and direction, but there are a few instances when I would reach out to my existing contacts for additional help.  This has made me realize the value of fostering business relationships.  Over the years, I have had the pleasure of meeting many excellent experts with different areas of expertise.  Its been valuable to me as a consultant and business coach to have access to so many experts.  I also now know that there are relationships in a few areas of expertise that I need to develop.  This will be one of my key objectives at the upcoming CFSA conference – meeting others in the industry with the expertise and desire to help others grow.

My other key objective at the conference is to gather information that will be important to business owners as they continue to grow their business in these turbulent times.  Based on my conversations with many in the industry and my personal opinions, the key areas I will be focused on will be:

  • Alternative Lending Products – are installment loans the best option to diversify a payday loan portfolio?
  • CFPB Rules – will the agency strategically publish the rules before or after the conference?
  • Banking Relationships – what banks are still partnering with businesses in the industry?
  • Omnichannel – are there any options for smaller players to provide a seamless storefront and online customer experience?
  • Data Analytics – what options are out there to improve risk management, customer performance, etc.?
  • Trends – what are the newest trends for the industry?  What does 2015 – 2016 look like?

The industry is in an interesting time with fast-moving technology improving the customer experience, while the regulatory overhang is making many hold their breath and consider their future.  I am excited to have the opportunity to attend and hopefully get some clarity on many of these issues.  If you are attending the conference and would like to compare industry notes, please contact me.  If you are unable to attend, but would like to discuss my insights and experiences from the conference, definitely reach out to me.  As always, I am here to help you grow your business!

 

Contact Mike

Management Reports – Drowning In Data?

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One of the recent new buzzwords is “Big Data” and as technology progresses, all forms of data will continue to play a bigger and bigger role in our lives, especially in business. While the ability to access data and use it to make informed decisions is exciting, it is also challenging. It is getting easier to reach data overload and the dreaded “paralysis by analysis” – the state where you have so much data you just don’t know how to make a decision. As business owners, it is our responsibility to sift through all the data and identify the key points that drive our business. This is especially true if you have a management team in place that will also be reviewing the same data. What’s important to you will be important to them.

Financial reporting is critical to every successful business and a frequent, in-depth analysis of your income statement, balance sheet, and statement of cash flows should be happening. I am assuming that this is already happening in your business and we will not cover it. I am focusing on management reporting and how we should be using it to operate our business. I am going to look at three areas from a high level and hopefully create some thought-provoking items for you.

What should be in my reports?

Maybe the better question should be, “What shouldn’t be in my reports?” As we get access to more and more data, there is a tendency to continue to create more and more reports to capture that data. More is better, right? Not always. Like other things, there is a point of diminishing returns. If you have 20 reports available to your team, each with 5-20 different data points, how often do you really think they are using it effectively to evaluate the business? I encourage you to sit down with your team and identify the Key Performance Indicators for your business and design your reports around them. My recommendation is to keep your KPIs around 8 to 10 or fewer. More than that and my concern would be that some of the important data is not being seen. If your business has multiple divisions, you would probably have a unique set of KPIs for each division. Remember, your KPIs are the measurements that illustrate how your business is doing and the direction it is going.

Who Should Look At Reports?

I’m a fan of sharing data, so I would be in favor of everyone in the organization having access to management reports. What a great way to make sure everyone is focused on the same goals. This may not be comfortable for all business owners. I would suggest that, at a minimum, you provide relevant reports all the way up to the team members that are providing the service. It’s important for them to get feedback on their hard work. The other benefit of sharing reports with everyone is that it helps create a team environment. Also, take the extra step and have a training session with your team to make sure everyone understands what the reports say and how you can use reports to help the business. Don’t assume everyone understands the reports the way you do.

We’ve looked at the reports – now what?

Once you have reviewed your management reports, what do you normally do? Do you identify areas to focus on? Do some data points prompt you to look deeper? If you see a negative trend do you create a refresher training session? When you see a positive result, how often do you send out an email high-five to the team? Many times we are looking at data for negatives, when it could be used as a powerful motivator when results are good. It’s important to remember that data is just that – data. It’s your interpretation of the data that prompts action. How many times have you looked at results and come to one conclusion and then, after talking with your team, come to a different conclusion? Before taking any actions based on report data, you should ask yourself and your team if you have all the information needed to make the best possible decision. Only then should you consider making a change.

Next Steps

I encourage you to take a hard look at what reports you are currently using and talk to your team. Do your existing reports cover your KPIs correctly? Do you have reports that no one is looking at? Does your team understand what the reports are saying? This is a great opportunity to take a hard look at how you are measuring your progress and successes. It’s an even better time to align your entire team and make sure you all are focused on the same items. Management reports should encourage analysis, communication, and action. The other step I would encourage you to take is to start learning more about data analytics and how it can help your business. This is an evolving area of business that, if implemented correctly, will give some businesses a competitive advantage. Don’t get left behind.

If you would like a fresh set of eyes and perspective to help you and your team review your management reports or identify your KPIs, don’t hesitate to contact us. We are here to help you.

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“My success, part of it certainly, is that I have focused in on a few things.” — Bill Gates

 

2015 – Build On Your Success!

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As 2015 begins, it is important to take a reflective look on the prior year and how your organization performed. I hope that you had a highly successful year and that 2015 will bring you more of the same. Like all successful businesses, there are probably areas of your business that performed better than others. Another way to think about this is to ask the question “What would I like to be different in 2015?” To prepare for a successful 2015, I have created a short list of topics an owner can review to identify opportunities for improvement.

Location

Whether you have one branch or hundreds, how they function is critical to your ongoing success. While they have many moving parts, I am only going to touch on one.

  • How would you characterize the appearance of your branch?
    • Is the exterior and interior clean?
    • Are signs and light fixtures fully operational?
    • Do customers see an organized, neat environment?
    • Are all posters and interior signage in good shape?
      • Do you have all legally required postings up and visible?
      • Should you replace some marketing posters to create visible noise?

Team

Everyone knows that even if you have an A+ location, if your employees are a C, your business will suffer and possibly fail. Having the right people on your team is critical for long-term success. These are a few areas to consider when reviewing your team.

  • Do all employees know all of the products offered?
    • Can they present them to new customers? Do they?
  • Do employees know and follow company policies?
  • How is their customer service when you aren’t watching?
  • Do you provide feedback to your team on their performance?
  • How would you characterize the customer service offered?
    • Are all employees friendly and courteous? Even when you aren’t there?
    • Do they actively inform customers of all products offered?
    • Do employees properly open and close transactions to your standards?

Products

Whether it is due to frequent regulatory updates or demand from our customer base, we are constantly modifying our products. It is necessary to understand the wants and needs of the consumers we support, as well as be aware of what our competition is offering. You do not want to be late in product offerings.

  • Do you have the right product mix for your trade area?
    • Do you have products that are currently not performing?
      • Should the product be modified?
      • Is your team’s performance affecting the product?
    • What new products should you introduce?
      • How long does it take to successfully introduce a new product?
      • How will your current POS system handle a new product(s)?
    • Do you get your customer’s feedback on your products?

Competition

Closely tied to your product mix is a review of your competition. This is an area of business that many unfortunately choose to ignore. There is valuable information you can get from monitoring your competition. If your competition is doing their job correctly, they are certainly watching you.

  • Are you tracking the products your competition is offering?
    • How do they differ than your product mix?
    • Are you losing customers to them?
  • Do they have more competitive store hours than you?
  • How is their team compared to yours? Did you see a potential recruit?

Environment

We continue to operate in a challenging environment, both from an economic and regulatory perspective. While the economic picture is becoming clearer, the regulatory outlook continues to be worrisome. We face challenges from the local level all the way to the federal government. While we do not know what changes will take place or when they will become effective, we do know they are coming. Understanding these possibilities, along with the other external forces affecting our business, will better prepare you to handle upcoming changes.

  • What are the trends in the industry for 2015 and beyond?
  • What will the regulatory changes be in 2015 and 2016?
    • What would a restriction on usage do to your business?
    • Do you have a customer acquisition strategy?
  • As consumers turn more to a mobile/online environment, how will that affect your business?
  • How is your relationship with your existing bank? Should you start finding alternative options?
  • How are your relationships with other key service providers?

These are just a small portion of the areas to be considered as you think about how to build on your 2014 successes. In addition, you could also look at your marketing plan, personnel development, product channels, audit, and so on. If there is an area that you would like to discuss in greater detail or would like some insight on how to improve upon your successes, please don’t hesitate to contact me at mike@incitebusiness.com. I look forward to talking with you!