Wheeler Business Consulting:
Building Value: Quality over Quantity
Over the last few years, participants in the commercial equipment leasing and finance industry have been in a race to the top. Companies have been working to gain market share, become "players," and exceed production expectations. However, bigger is not necessarily better. The real goal should be to build value; to have the capacity, ability, and resources to generate and fund high-quality assets which will perform over time.
I would like to share some personal notes:
1. A top producing originator could not understand why his management team was not rewarding him with greater recognition and commissions. Over the past eighteen months, he funded nearly twice as much volume as the next two originators behind him. It needed to be pointed out that his transactions had less margins, required more company resources, and historically had greater risk. He consistently sold in the bottom tiered industries and higher risk clients within the guidelines of the company. (Every transaction pushed the envelope.) He took the route of least resistance and picked the lowest hanging opportunities. His personal portfolio was starting to have rising delinquencies. For months the company had suggested that he move his efforts into higher quality transactions. The company was being forced to move away from his traditional business resulting in the diminishment of his book of business. The originator's lack of quality business had caught up with him and his commissions (personal income) were being negatively affected. Quality over Quantity matters.
2. An organization's portfolio has significantly grown over the past eighteen to twenty-four months. The company's investors wanted rapid growth at all cost. The management team was only able to meet expectations by reducing margins and reducing its credit requirements. This company was forced to move from a long-term, respected value-added participant to a commodity player based solely on price and least common denominators to win enough transactions to meet expectations. The rapid growth has hidden many of the increases in delinquencies, but the management team is well aware that growth alone cannot correct bad policies and unwise decisions for long. The company is building a house of cards which typically does not end well.
3. A strong player in the market has consistently added value for its clients. The Company offers more services, more industry specific knowledge, and more equipment expertise than most all of its competitors. This company has built its portfolio while increasing its credit requirements and increasing its margins. This company is by no means the least expensive in the market, but it is one of the best. It sells value over price on every transaction and strong clients are willing to pay more, because of the added value the company and its employees offer. Every originator is recruited, trained, and retained on the premise that quality is the primary goal; and that the best professionals gain long-term sustainability and greater production by being better than the competition, not lower (in pricing or credit requirements). The company and every employee seek growth through quality assets. The company invests in their employees to ensure that they understand every aspect of the business from origination to portfolio management. Their originators have credit knowledge and invest their time into transactions which can be won, approved, and funded. Their credit team works closely with the originators to close more transactions. This company and its employees understand the importance of teamwork.
There are many of these quality companies in the industry and they are leading the industry into the future with confidence, determination, and strategies based upon creating value.
If you were an investor where would you invest your money?
Wheeler Business Consulting works with management teams to further develop their human capital, to identify and strengthen weak links within the organization, and to improve overall efficiencies.
Wheeler Business Consulting works with banks, independents, captives, origination companies, and investors in the equipment leasing and finance arena. We provide training, strategic planning, and acquisition services. Scott Wheeler is available to discuss your long-term strategy, to assist your staff to maximize outcomes, and to better position your organization in the market.
Comments and suggestions are always welcome.
Scott A. Wheeler CLFP
Wheeler Business Consulting LLC