Half Empty or Half Full? Who Cares!

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I constantly see the sayings “Is your cup half empty” or “Is your cup half full”. There are many variations to these, all with the purpose of determining whether you are optimistic or pessimistic. While I think that, as a leader, it is important to know how you naturally perceive things, it is just as important to take the next step and ask the question “Why isn’t the cup full and what are we going to do to fill it back up?”

Why perception is important?

As a leader, you need to understand how you and each of your team members perceive things. If you are naturally pessimistic and you surround yourself with like-minded individuals, you are probably going to see your environment in a less-than-positive manner. The same if you are naturally optimistic. I want to stress that I firmly believe you should embrace who you are. If you are naturally pessimistic or optimistic, understand that and work with it. Create a team that balances your natural perception.

You’ve observed, now act!

How many times does your organization encounter a difficult situation and then nothing happens? I see situations like this frequently and too many times there is a lack of action because the team is too focused on why they are in the situation. They spend a lot of time working through the cup half empty / cup half full debate. While it is important to understand the situation, once you have defined it you need to create your strategy. Then act!

It’s overflowing!

The next time you encounter a difficult situation, I encourage you to not spend too much time defining the situation and spend more time on planning how to move forward and fill the glass back up. Rally your team around creating a strategy to not only fill up your cup, but make it overflow – then you will need a bigger cup! Then you can have a heated debate with your team on whether your new cup is half empty or half full!

Getting stuck in these situations is a very common problem for businesses of all sizes. Sometimes, a new perspective helps get things started. Please contact me if you would like a confidential, no obligation conversation about your cup.

Contact Mike

 

 

Leadership – Is Magic Your Strategy?

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I saw this cartoon and chuckled to myself. I instantly thought of multiple situations where this brand of leadership occurred. A group of leaders sitting around their conference table trying to fix a difficult situation or turn the company around without any solid solutions on how to fix it. I often wondered if anyone actually thought or wished that something would just magically happen to fix their problem. Is hoping for magic to happen the same as hoping that time will allow a difficult situation to resolve itself? Is that what the ostrich is thinking as it sticks its head deeper and deeper into the dirt? I guess if things happen to create a difficult situation, is it so unreasonable to sit back and let things “unhappen”? Yes, it is unreasonable.

Employees Count On You

No matter how big or small your company is, if you have one or more employees, you have a duty to do what is best for the future of the company. Employees generally take a leap of faith when they join your team. More than likely, they are looking for something beyond just a paycheck – especially the newer generations. They are looking to be part of something growing or moving in a positive direction. If their leadership team is sitting around the table hoping for something magical to happen, how committed do you think employees are to that team? On top of that, employees have expectations that their leadership team will have the capacity to work out solutions for these difficult situations or connect with outside experts that do have the expertise. Here’s a little insight – employees don’t mind if solutions don’t work every time. They mind when there are no solutions.

Customers Count On You

Your customers use your services and/or products because they provide value. They want to keep a relationship with you as long as you are providing positive value. As a customer, it is much easier to keep going to the same company than finding a new company. If customers gets a sense that your company is not capable of solving problems or adapting to difficult changes, they will quickly translate that to thinking your company is not innovative and will not keep up with the trends. They may not jump ship immediately, but be assured they are looking to do so.

Competition Loves This

How do you think a competitor reacts when they hear a leadership team in their industry is hoping for magic? Some may celebrate; knowing that they soon may get more customers coming their way. Others may focus on how they can be opportunistic and take advantage of this situation. How many competitors, do you think, will reach out to the struggling company and offer some free assistance?

Unfortunately, unless you are a professional magician, magic is not going to solve your problems. If you are in a leadership role at an organization, there are times when you are going to need to make some extremely difficult decisions to handle extremely difficult situations. Hoping things work out all by themselves is actually a decision – usually a bad one.

If your group is having a hard time finding a workable solution you have three options: change the makeup of the group, expand the group, or bring in some outside expertise to help facilitate the group. All three of these are better options than hoping for magic.

Contact Magic Mike

 

Buying A Business – Part Three

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In my prior posts about buying a business I went over the major steps leading up to closing a deal. There is a lot of hard work and many moving parts to manage in the buying process. You may encounter unexpected hurdles, last-minute surprises, and possibly a couple of sleepless nights while you approach the official closing date. This is absolutely normal. There are too many pieces to this complicated puzzle for it not to cause you to scratch your head a few times or ask “Did I forget to do this?” My best advice is to go into this expecting there are going to be some rough spots, but remember that your ultimate goal is to buy a business that is going to make you incredibly happy. Let’s assume the big day has arrived, you’ve signed all the paperwork, and you now have the keys to your new kingdom. What’s next?

Bust A Move!

You just accomplished something that only a small percentage of the population has done. All the hard work during your search and closing has culminated in this amazing opportunity that you created for yourself. This is a huge deal and you should celebrate! During your lifetime you will have a handful of milestones that you will remember. I guarantee that this will be one of them. Celebrate with your loved ones, friends, and anyone else you want. Toast your hard work and your future successes. If you have a personal happy dance, this is a great time to do it! It’s probably a good time to thank all your trusted partners who helped you get to this point. Relish in this moment and remember it. You will have opportunities in the future to look back and use this memory to help you out. Now it’s time to get to work!

Make A Plan

This is probably a little misleading when I state at this point to make a plan. Actually, prior to your closing date, you should have sat down a created a plan on how you are going to approach this business as a new owner. You should definitely have a detailed plan on what you are going to accomplish your first day, week, and month. These will definitely be fluid plans, but they need to be in place to ensure you start off on the right foot and keep your positive momentum. Some of the key things you could consider doing the first day or week are:

  • spend quality time with each employee – learn what they do, get to know them, and let them get to know you
  • begin learning all aspects of the business – roll your sleeves up and get to it
  • communicate your short-term plans to the organization – this will reduce anxiety surrounding a new owner
  • reach out to all your key customers and vendors to introduce yourself – let them know it’s business as usual or what is going to be different
  • work on your cash flow and expenses – making that first payroll cycle can be a little stressful

Having a plan before you walk in the door the first day will help alleviate all of your stress and convey to your team that you are on top of things. Of course, there will be many issues that come up during the first days or weeks that you did not consider. Take them on one at a time and know that you will get through them in short order and a routine will emerge.

Why Did I Do This?

When things get a little hectic, you may let a little negative thinking sneak in. A little buyer’s remorse is perfectly normal and probably expected. What you just spent, both in time and money, was very significant. When those doubts creep in I want you to think about how you felt during your celebration. Maybe picture your happy dance, especially if it looked ridiculous. Owning a business is an incredible experience and it is also a lot of responsibility. Unlike being an employee for someone else, at the end of the day you are still the person in charge and accountable. The fulfillment you will receive when your business succeeds is incredible and worth all the hard work and sacrifice.

Finding, buying and owning a business can be one of the most incredible experiences you may encounter, but it can also be a little overwhelming. If you are thinking of taking the plunge, but are unsure of how to start or if it is the right move for you, I would be happy to share my experiences with you. I’m here to help you.

Contact Mike

 

Buying A Business – Part Two

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In Buying A Business – Part One, I gave an overview on identifying the type of business you want to buy, searching for available businesses, and then a not-so-subtle tip that it will take time and hard work to actually close on the business you are pursuing. There are a few more areas in the process that I’ll cover in this post. As a reminder, these posts are not meant to be an all-inclusive primer on buying a business, but a high-level overview on some of my learnings as I’ve gone through the process multiple times.

Circle The Wagons

As soon as you start the process of buying a business, you should begin to identify your trusted advisers and vendors. Here is a short list of some of the most important connections for you to make. Each transaction is different, so you will want to evaluate your situation and identify any others you may need.

Accountant   An accountant is a great person to review your opportunities. They have seen many successful and unsuccessful business over the years and are well-equipped to give you advice on the financial health of the business. Also, you should decide if you are you going to do your own bookkeeping? If not, you will need to identify who is going to do it. If you are, it’s still a great idea to have a trusted financial adviser in your corner to help review your efforts and possibly prepare your necessary tax submissions. This is a critical area for the long-term success of your venture and is not an area to take shortcuts or try to save a few dollars.

Attorney   A strong deal lawyer is worth their weight in gold, especially if you can find one that will protect your interests without flooding your deal in paperwork. One of your decisions could be whether you want to go with a big or small firm. The benefits of a large firm are they can throw a lot of resources at a deal and make things happen quickly, which you will pay for. The benefits of a small firm is possibly a lower bill and personalized service. There are pros and cons to both options and I’ve seen success using both. The best advice I can give you is to get referrals from trusted advisers and go with the lawyer you connect with and understands what you are trying to achieve.

Financing   How are you financing your deal? Are you considering an SBA loan, a conventional loan, or other alternatives for your deal? There are many options for deal financing. Some will make more sense than others, depending on your financial situation, deal size, and type of business you are acquiring. Like other areas, the more homework you do ahead of time, the better. The worst time to start looking for financing is after you have made an offer. I highly encourage you to do a lot of homework in this area as soon as you start looking for a business. Until you know what financing you have available you will not know what price range to look at or what to offer. The other thing to keep in mind is that financing should not be a cookie cutter approach – financing a deal can be an art and use a lot of imagination and creativity.

These are just a few of the important connections you should make when you start your search. Depending on the type of business you buy you may need other resources like Information Technology, Marketing, Banking, etc. These will be valuable resources even after you close on your business.

Bow To Your Partner

You’ve found the business that meets all the parameters you previously established and you want to move forward. Now comes what I call “The Dance”. Depending on your personality, this could be the part of the process that really gets your adrenaline pumping or elevates your stress level. Usually you will be given the opportunity to meet with the Seller and ask them questions about the business. This is a great opportunity to learn about that specific business, but an even better opportunity to learn more about the Seller. Why are they selling? What type of deal structure do they prefer? What does their ideal Buyer look like? If there are multiple offers, what will they base their decision on? Don’t be afraid to ask specific questions about a deal. If it’s a question they don’t want to answer, they or their Broker will say so. If you are polite and genuinely interested, a lot of times they will give you some critical information. The key objective of this meeting is to give you enough information to decide whether you want to continue to pursue the opportunity or not. The secondary objective is to give you key information that will help you draft an offer that gives you a higher chance of acceptance, if you want to go down that road. Like other aspects of buying an acquisition, there is a little bit of an art to these meetings. If you do your homework and prepare quality questions for the meeting, you will do great.

Once you have decided to pursue the opportunity, you will need to submit a formal offer to the Seller. You will need to determine what price you want to offer and the broad terms of the deal. Depending on the Seller, the size of the deal, and a few other factors, you will probably present the Seller with a Letter of Intent or something similar. Each opportunity is different and your approach may need to be different for each one. If you are responding to a business that has been listed by an Aggregator or Broker, you will probably be competing with a few qualified buyers. You may go back and forth a few times or you may, but hopefully you will come to an initial agreement that allows you to move forward towards the actual purchase.

The Homestretch

The Seller accepted your offer. Now it’s just a matter of picking a closing date and getting the keys, right? No. You’ve still got a lot of work ahead of you. There are major things to do beyond just picking a closing date. Here are a few of the major things you will need to do to get to the closing date.

Due Diligence   You will need to perform some due diligence on the Seller’s business prior to closing. Depending on your financing, they may require some proof of this. At a minimum, you will want to do this for your own benefit. You will want to verify the validity or existence of key items that the Seller represented to you. This could include reviewing the Seller’s prior years’ tax returns to verify revenue and expenses. It could also include reviewing existing customer contracts to verify that they can be transferred or assigned to your new entity. A thorough due diligence process is vital to closing the deal and assuring you the business you are buying is worth the amount you are paying.

Finalize Financing   Your financing partner should be working closely with you at this point to make sure you are gathering the right information they need to approve your funds and make sure everything is proceeding in a timely fashion. I highly recommend communicating often with your financing partner to make sure everyone is on the same page during this whole process. You don’t want any last-minute surprises or delays that could derail your deal. Generally, these partners have a lot of these transactions under the belt and will be a huge asset to you completing the deal.

Closing Documents   While you are doing due diligence and working on your financing, you should also be working on all of the closing legal documents. In addition the the sales agreement, you may also need consulting, non-compete, and lease agreements. Whether the Seller’s attorney or your attorney is drafting these documents, you will want to thoroughly review them to make sure they encompass everything you want and need to transition the business.  If the Seller’s attorney is preparing them, you will want your own attorney to give them a thorough review. Don’t be afraid to ask for changes if you need them. This is another area that may cost some money, but you should not try to cut corners.

The process of buying a business takes a lot of flexibility, patience, and endurance.  You will be juggling a lot of different balls at the same time, but it can be one of the most gratifying and exhilarating things you go through. In my next post I will cover the important things that should happen after you take possession of your new business. That’s right – there is more work to do! In the meantime, if you have any questions or want more details about my experiences buying businesses, don’t hesitate to contact me.

Contact Mike

 

Buying A Business – Part One

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Over the last few years I have had the pleasure of going through two different searches to find and purchase a business. I’m not sure which was more exciting to me – the hunt or closing on the deal. I learned a lot from both searches and wanted to share my experiences, in case you are considering something similar.

What Do You Want To Be When You Grow Up?

For me, one of the hardest things about buying a business was trying to identify which type of business I wanted. Since I grew up in service-oriented companies, I naturally gravitated towards them. Beyond that, I wasn’t sure what I wanted. I went through the SIC directory to see if any specific type caught my eye, but it really didn’t help much, except to identify some industries that I wanted to stay away from. After a lot of time and headaches, I decided that not knowing exactly what I wanted was not a bad thing. Actually, for me, being open-minded helped me buy two of my businesses.

Release The Hounds

Finding the right business to buy is a combination of skill, persistence, and sometimes luck. Once you have narrowed down what you are (or are not) looking for, the really hard work begins. The first thing you should understand about “the search” is that you will probably have a lot of competition. Depending on the market you are searching, many times there are more buyers and sellers. It’s important for you to understand this dynamic in your market. If there are a lot of pursuers for a business, many times you will have to pay a premium for the business or be creative with your offer. If you know people who have recently bought a business in your market, ask them how the process went and what the competition was like. The more informed you are about your market, the better your chances. Here are a few options on how to find available businesses.

List Aggregators

An example of a list aggregator is BizBuySell. They provide lists of companies available for sale that you can filter by location, type, etc. If you register, you can also get updates emailed to you. I would sign up for these lists whether you are seriously looking or just thinking about starting a search. You should definitely understand that this is a volume game and that you and a gazillion others will be looking at the same information. However, there is a plethora of great information on these websites. Once you find an industry you are interested in, you can look at different locations outside your market and see how they are priced. This is helpful insight for you when you are contemplating offers.

Brokers

If you are serious about buying a business, you should absolutely reach out to the brokers in your market. Before you send your first email or make your first call, reach out to your network and find out who the best brokers are in town. You might also find out who you should shy away from. Once you have your short list, reach out to each of them and take the time to introduce yourself and begin developing a relationship. I highly recommend you meet them in person. I’ve always believed that you can build a relationship stronger and faster if you meet in person. Each brokerage will have a slightly different approach to working with clients. Some may offer to help you perform your search – for a fee. While I have not gone with this approach, I know others who have had great success with it. This is a decision you will need to make based on what you are looking for, how fast you want to find your business, and your budget.

Networking

If you are in a position to share the news that you are searching for a business, by all means do so. Leverage the network you have built over the years to help you find the business of your dreams. You may be surprised and find the business of your dreams through your network. I would leverage your connections and even look at groups on LinkedIn to identify opportunities. Think of searching for a business like fishing. The bigger the net, the more fish you will catch, and hopefully find one that is a keeper.

Law Of Large Numbers

I hate to be the one to tell you this, but it may take longer than a few days to find the business of your dreams. I’m also sorry to tell you that you may bid on the business of your dreams and lose – multiple times. I will tell you that if you are persistent, you will find more than one of these golden opportunities. I don’t know how many dream businesses I lost or even walked away from (actually, I do), but I picked myself up and kept working hard. Eventually, it paid off.

In my next post I will discuss what happens once your offer is accepted. The fun of due diligence and contract negotiations begins. You also will need to start developing key relationships with your trusted advisers. These are the critical people that will help you finalize your transaction and get you started on the right foot.

If you are thinking about starting the exciting adventure of buying a business, or in the middle of a search and would like to get some valuable feedback on the process, don’t hesitate to contact me. I would be happy to share my successes and failures with you.

Contact Mike

 

Power Of The Group

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I have been a member of a peer group for over seven years and I can say that making the decision to join was one of the best decisions I have ever made. The benefits I have received from the groups I have belonged to have been instrumental in my personal growth and success. I know this sounds like it may be an overly dramatic statement, but I firmly believe that I would not be where I am today without these experiences and my groups pushing me.

Peer groups or mastermind groups, as they are also called, have been around for a long time. I’m going to describe my group, but it is important to understand there are many different variations that are equally successful. I would define our group as being medium in size with eight members. You can go a little smaller, but if you get too small (4-5 members) you may have issues with having enough members show up to have a quality meeting. You can count on having 1-2 people having a conflict and not being able to attend. I believe you need at least 4 members in attendance to have a quality meeting. There are some groups that are much larger (16-18 members), which can work effectively, but you need to weigh size of the group against the amount of time you are meeting and what you are trying to accomplish. If you have too many members, some may not have time to participate and that is one of the critical parts of the group – everyone participates. We meet monthly for three hours, which is just about the perfect frequency and amount of time for our size.

Our monthly meetings are broken up into three sections:

  • Social – we take a little time to have open discussions about current events or other general topics
  • Updates – each member gives a very brief update on how things are going in their business and personal lives
  • Process Issues – members can bring up a pressing issue that they need help with

You may have perked up when you saw that we talk about our personal lives. We absolutely do this. We recognized early that our business and personal lives are intertwined and one affects the other. I should mention that we each signed a non-disclosure agreement and what is said in the group, stays in the group. While there is a great amount of trust built up over time, this agreement helps new members in the group feel comfortable sharing information. My favorite part of our meetings is when we process issues. This is where you see the power of a peer group happening. The member gives you an overview of their situation, what the issue is, and what they are looking for in a solution. The rest of the group gets to ask clarifying questions to make sure they fully understand the situation. Then, each of the members give a possible solution to resolve the issue or at least move it in the right direction. Think about this for a second. If you had the opportunity to present one of your most difficult challenges to a group and get multiple solutions to consider, how would that improve your chances to succeed? When you see it in action it is incredibly powerful.

There are other important aspects of our group that I think are critical to its success. I mentioned earlier that everyone participates. Whether you have an issue to present or you are giving solutions to a member’s issue, each member is expected to be completely engaged.  It is not uncommon to walk out of a 3-hour meeting feeling exhilarated and drained at the same time. We challenge each other. We create an atmosphere of trust, which allows us to confront each other when we think a member may be taking “the easy way out”. We hold each other accountable. If you bring up an issue and you receive multiple solutions or action steps from the other members, we are going to expect that you do something and we are going to ask you about it at the next meeting. If you know you are going to have to report on your progress, the chances of something happening are much higher.

As you can tell, peer groups are something I am very passionate about. I would not trade the bonds and relationships I have created with my group’s members. I firmly believe that by being involved in a well-constructed peer group you will greatly enhance your level of success.  And if you are stuck in your current situation, a peer group is one of the best ways to get movement. If you want to hear more about my experiences with peer groups or would like to create or join an existing group, please contact me. I am here to help you.

“The whole is greater than the sum of its parts.” Aristotle

Contact Mike

Want to Improve Your Listening Skills? Leave the country!

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Mexico Trip - Listening SkillsI recently went on a vacation to the Riviera Maya with my wonderful wife for a much-needed vacation. We stayed at the El Dorado Casitas Royale and would highly recommend it, especially if you enjoy great service, delicious food, and a relaxing atmosphere. We love to go to Mexico because it is usually pretty easy for us to fly there and the prices are very reasonable. My wife and I both took Spanish in high school and I even took a little in college, but that was so long ago we struggle to keep up with some of the conversations.  Luckily, almost all of the employees are fluent in English.  Every now and then we would attempt to have a conversation in Spanish, but would quickly retreat. I’m glad everyone was patient with us as we tripped over their native language. Also, even though they were proficient with English, accents sometimes made understanding a little difficult. I realized that this was a great opportunity to work on my listening skills, whether I wanted to or not! Here are a few of the things that I focused on during my trip to improve my listening skills.

  • Be an active listener.  Due to the accents and a lot of background noise from the ocean, swimming pool, and other vacationers, I really had to concentrate on what the speaker was saying. This included watching their body language and anything they may be referencing with their eyes or hands. I didn’t want to miss out on any verbal or visual clues.
  • Be a patient listener. I could not start talking before the speaker was finished. I had to wait until the last word was spoken and their side of the conversation was over.  Otherwise, I may miss something critical in their message or rudely interrupt them.
  • Ask clarifying questions. There were times when I didn’t totally understand the message. Instead of making assumptions that may be wrong, I asked a question or two to get more information or simply let the speaker know I didn’t quite understand what they were saying.

While I realize that not everyone can just pick up and go to a foreign country to improve some of their listening skills, I found it to be a great refresher course for things I’ve learned over the years, but have become lax at doing. I have challenged myself to keep focusing on these three areas of listening and make them part of my every day habits – hopefully this time it sticks.

The reality is you don’t need to travel outside the U.S. to work on communication skills – you just need to decide to do it.

Contact Mike

 

 

Business Mobility – How Do I Start?

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Recently I noticed, while talking strategy with business owners, most are trying to figure out what they need to do to prepare for the future. These conversations can generally be divided into three groups. The first group of owners know they need to do something to make their business better, but don’t know what their first step should be. The second group kind of knows what they need to do, but are so overwhelmed by the amount of change required, they just don’t know how to take that first step. There is one other group, we’ll call them the “lucky” group, that thinks things are fine the way they currently are and don’t need to make any changes. We’ll wish the “lucky” group continued success and focus on the first two groups.

If you know you need to make changes, but are having problems with that first step, what do you do?

The first thing you need to do is be aware that you are not alone.  This is a common problem almost all successful business owners encounter.  It’s part of growing a sustainable, adaptable business in the midst of a quickly evolving market.

There are five steps to achieving what I am going to call Business Mobility. My simple definition of Business Mobility is: moving your business from its current position to another. A simple definition and concept, but sometimes hard to achieve. If you have read any of my previous blogs, you will notice that I tend to repeat these next steps. I believe they are the foundation for positive change in an organization.

Clarify your existing situation

Take time and do a thorough review of all aspects of your business. Understand your company, customers, competition, and the current operating environment. I highly encourage you to do this exercise in a collaborative fashion. Include others in the process so you can incorporate their ideas and opinions. Many times, knowing your current situation better will give you clarity on what your next steps should be. In situations like these, completing a SWOTT analysis is very helpful.

Define where you want to go

Now that you have a better understanding of your current situation, what do you want to achieve? What is your vision for your company? It’s reasonable at this point to be a little fuzzy in your vision. This is another tripping point for some. Many like to have everything well-defined before they proceed. You may find that if you wait to get that much detail before you start, you will have given a head start to your competitors. One thing that may help with this process is a gap analysis to determine how far off you are from where you need to be. This type of analysis could be useful to prioritize what areas should be approached first.

Identify action steps

Now that you fully understand your current situation and have a concept of where you want to go, it is time to create the steps needed to get there. This is a difficult area where some people and, subsequently, companies become paralyzed. In these situations I find the quote “When eating an elephant take one bite at a time.”, by Creighton Abrams enlightening. The best way to handle a large project is to break it up into small, manageable pieces.  Even better, share these pieces with others. Like all other steps, it is important to collaborate during this step.  This keeps your action items realistic and it gets buy-in from your team.  If you are stuck trying to figure out what your next step is, ask your team this question, “What can we do in the next one-two weeks to make progress on this?”

Create a timeline

Once you have identified your first couple of action steps, define when you want these steps completed. These will be important milestones for you to gauge your progress and to understand if you are on the right track. I encourage you to keep the time between milestones pretty short.  Somewhere between one to four weeks is generally reasonable.  If you go out longer than a month before you check your progress, you are entering risky territory.  At the same time, you need to give your team enough time to actually make progress.  There is an art to this because the reality is you will probably have multiple action steps going on at the same time with different due dates. I encourage you to establish scheduled, structured progress meetings.  I would have these at least monthly, and potentially even weekly.  They don’t have to be long and shouldn’t be too long – quality is more important than quantity.

Be Accountable

One of the best ways to ensure your success is to have a partner that will hold you accountable for progress and give you feedback.  Leaders frequently provide guidance to their team and hold them to a set of standards. They do this because it creates a better team, but who is doing this for the leader? Who does the leader go to for feedback, guidance or explore new ideas? How effective is it when the leader is only accountable to themselves? There are multiple options to address this.  As the leader you can:

  •             Work with a peer in your organization, if one is available,
  •             Find a mentor that is able to work with you, or
  •             Engage a qualified business coach

Each person is different and every option might not be the best or even possible for everyone. The goal is to find someone you trust and respect that will provide value to you and your organization. This is someone who will be candid and willing to have difficult conversations with you. Their ultimate goal should be the same as yours – do what is best for you and your organization.  Remember, best does not equal easiest. By adding accountability to the action steps equation, you greatly improve the chances of success.

Unless you are a member of the “lucky” group, preparing for the future and constantly adapting your business will be an ongoing necessity.  Those that accept this and take the necessary steps to become proficient at handling it will have the highest probability of continued success. Your first step is right in front of you – take it!

If you would like to discuss these steps 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

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