The Inefficient Merchant Lending Market Theory

March 5, 2013
Article by:

There are 4 major factors used to determine approvals in the merchant lending market:
• FICO Score / Credit Report history of owners
• Monthly Gross Revenue
• Time in Business
• Average Daily Bank Balance

Only 1 of these factors considers the applicant’s reputation, and that’s credit reports. Credit reports reveal past payment history with other creditors. They show lawsuits, unpaid taxes, and bankruptcies. Knowing whether an applicant pays on time or not is valuable to lenders but it fails to reveal an even more important metric, the business’s ability to generate future profits. If you’re shaking your head and saying “credit reports aren’t for that purpose,” I would respond by asking which of the 4 factors then is?

The amount of money deposited in someone’s bank account in the past reveals how much they took in, but it doesn’t indicate what will happen in the future. Similarly, a substantial daily ending bank balance may show responsibility to maintain a cash cushion, but it says nothing about how likely customers are to buy from that business in the future.

Could time in business then tell us? Is it safe to assume that a business that has been operational for a year, two years, or five years will be there for many more years to come? The local auto mechanic that’s been around for 5 years may only have lasted because no one else has gotten around to opening up a rival auto shop. Would it be safe to give the most hated mechanic in town a three year loan when their success is simply the result of being the only auto mechanic in the community? There may be somewhat of a correlation between time in business and customer satisfaction but it is by no means strong enough to predict future success.

In effect, the major metrics used to judge small businesses for financing today take no consideration of the number one thing that matters to a business for survival, customers. Without customers, the amount deposited historically means nothing. Without customers, a 700 FICO score cannot produce sales, profits, or money to repay a loan. Without customers, a 50 year old restaurant can’t continue to stay open just because it’s been there for 50 years. And without customers you better hope that $1 million in sales last year made you really rich, since without customers, you’re going to need to start a new business… preferably one WITH customers.

This doesn’t mean that these 4 factors are irrelevant, they’re not. But I believe these factors combined are but a tiny sliver of data to predict how well a business will do in the future and at the same time repay a loan. Relying on weak indicators forces lenders to charge higher rates since they must compensate for the risk of unknowns. It also decreases the length of time that lenders can trust their borrowers to hold their money for.

It is no surprise then that loan terms in the merchant lending industry only range from 3 to 12 months. None of the lenders are able to predict how their borrowers are going to do far into the future, so they bank on the odds that sales and deposits in the next few months will mimic sales and deposits in the last few months. That’s also the reason why there are a lot of test/starter/trial funding rounds that are short to witness how a merchant “does” before funding additional capital on a longer term. Underwriters are flying blind. They have to see how you do because they have no data to suggest what will happen.

reputationThe big firms do have SOME data by now, but they’re broad statistics that say a certain industry in a certain region is likely to perform X with a Y margin of error. Or FICO scores below 600 are likely to have a Z rate of default. Yet this data also ignores a business’s reputation and relationship with its customers. It applies a blanket assumption of performance over the period of 3 to 12 months. These statistics are highly important to a lender because they can use them to predict defaults and delinquencies as a whole and enable them to set rates that will cover all of it and then some.

The owner of an ISO once asked me, “Wouldn’t it be great if we got to the point where we were funding every business in America?” My answer was “No.” If 10, 20, or 30% of those businesses failed to repay or eventually went out of business (and they would if you funded everyone) and the lender STILL made money, then the ones in good standing had to of gotten charged way too much. It would also mean that there had to be a portion of performing loans that were actually distressing the borrower, causing the capital they obtained to work against them, rather than for them. The goal shouldn’t be to fund EVERYONE, but rather to fund the few that could truly benefit.

A great example of doing it wrong is Wonga, a UK based lender that accepted a 41% rate of bad debt in 2011 while still managing to reap £62.4 million in profit. If Wonga had a few hundred bucks, a few thousand bucks, or heck only a million, they’d probably be very careful about who they approved and why they approved them. But venture capital changes the game and not always in a positive way. Putting a few hundred million dollars in the hands of Wonga has caused them to become incredibly inefficient.

Why should they only fund 5,000 people through a highly comprehensive underwriting process when they can fund 30,000 people with a one-size fits all rate, ask no questions, and accept that they will burn a lot of their customers along the way? This is the question they must have asked themselves years ago. (You can read the founder’s interview HERE)

At some point when they were developing their business model they had to admit that they really didn’t care what the outcome would be for their borrowers, so long as the business made money. And so they created an algorithm that would statistically predict the rate of default based on weak indicators like demographics, how they answered a few questions, and credit score and the resulting delinquencies were just necessary casualties to make the system work. In essence, Wonga knows they will devastate a portion of their customers and accepts this. They’re like a restaurant that only sells sugar frosted donut cheese ice cream to obese people and accepts that 41% of their revenues will be lost due to their customers dying. Can a lender truly be helping a community or economy where it intentionally hurts a percentage of borrowers because it’s still profitable at the end of the day? Do their contests, soccer sponsorships, and positive messaging on social media make up for their disruption to the economy?

Wonga’s mission is to grab market share, a strategy to make holy their blanket performance statistics and the rate that has to be charged to make money. Every single individual in the country becomes a candidate for their loans even though the lender will never know anything about the individual borrowers, their long term prospects, or what they can afford. The math says it doesn’t matter because an acceptable amount of the loans will perform and applicants can either accept the high rate or get nothing.

How I portray Wonga is not what I think of the merchant lending market in the US but rather I believe they’re a good example of the trap that merchant lenders COULD fall into if they come into too much money. When I first began to hear lenders fresh off a capital raise saying they wanted to fund the sh*t out of small business and would do anything in their power to fund as many deals as possible, I fear they could end up disrupting communities more than they could help them.

yelpYou know that thing called the Internet?
So I’ve talked a lot about what lenders don’t know but nothing about what they can learn. There is an unbelievable amount of free data available on the web that can collectively be used as a strong indicator of future business performance. You know those all important customers I spoke about earlier? The ones that make a business a business? Well lucky for us, they seem to go online and offer feedback about their experiences. Yelp, Zagat, and Facebook come to mind.

How is a business REALLY doing? Reviews will tell you a lot so long as there are enough of them, and not just the star meter, but the actual written reviews. I assure you that it will help a lender if they see that the last 10 reviews say that the owner is a no good lying crook that stopped paying his employees and punched a customer just the other night. A business’s whole reputation can’t be assessed from paperwork and credit scores, but it can be by hearing from people in the local community. That community is online.

That brings me to another point here. If a small business isn’t online, then no faith should be put in that small business in 2013. I don’t know why there are still so many small businesses out there that don’t use e-mail, don’t have a website, and don’t participate on social networks. Unless their shtick is that they are an Amish style operation striving for authenticity, then not being online should be an indicator that they do not care much about their long-term success. I would go so far as to say that any business that does not have at least a website, business fan page on Facebook, twitter account, or a reasonable substitute should be automatically declined for financing. Yeah, I said it!

In 2013, ignoring the Internet is like opening a store with no sign, boarding up the windows, and surrounding the front door with barbed wire. Sure, the locals might know you’re there and be smart enough to come in the back door, and maybe they’re enough to keep your business stable but no one else will find you and the ones that do, will see that you have no interest in being something more. You don’t have to be on every social network but if you’re not on any, you’re doing something wrong. Ideally, you should be somewhat active with your customers online too. This doesn’t mean sending each person that dined at a restaurant a Thank-You e-mail, but it does mean addressing complaints if there are any, posting announcements so customers can see them, and taking steps to improve your reputation.

There are many, many trust and reputation signals online. At the most recent TED Conference, Rachel Botsman talked about collaborative consumption, trust, and reputation. She believes that trust is the most vital currency in our economy, not the money in your bank account, but trust. I highly recommend you watch it below. You should definitely take notice of what may eventually become a reality, an individual’s reputation scorecard, a report that aggregates reviews from everyone you’ve ever had an exchange with, and one that has the ability to evaluate the transactions which have the most meaning. My stellar e-bay seller record going back to 1999 might be on there (72 rave reviews baby!) but they won’t be as important if you’re looking to determine how credible I am as a business lending analyst. Still, in the grand scheme of reputation, they could have their place if someone wanted to gauge how trustworthy I am to deliver on something I agreed to.

Image above is from the video below

Release the darn data
You want to know who is holding out on making the merchant lending industry and American economy a better place? The North American Merchant Advance Association (NAMAA) is. NAMAA possesses a database of every merchant that has defaulted or gone delinquent with a funding member in the last 4 years. There’s thousands of names in it. Not a member of NAMAA? You won’t get to know if a merchant has tried some funny stuff with another funder or gone out of business while having an advance.

bad reputationBut you want to know who this private bank of data hurts most? It hurts every business and wholesaler these merchants work with in the future. A month after a retail store fraudulently skips out on a $100,000 advance, that same retailer could apply for 60 day terms with a supplier and sign a 5 year lease for a new business location. Don’t that supplier and landlord deserve to know that their “awesome” new client has a reputation for committing theft and fraud as recent as 30 days ago? I think it’s our duty to let them know. NAMAA is withholding information that could prevent a lot of unreputable people from doing further harm in local economies. Make this data public and we’ll allow suppliers, landlords, and other lenders to make more informed decisions.

I’ve heard the argument that privacy can be a big selling point to borrowers. They don’t necessarily want outsiders to know that they borrowed money or to suffer the shame if they don’t pay it back. I can understand the benefits of privacy from a competitive standpoint for a borrower but it defies all logic and reason for a lender to keep a default under tight wraps. Public record of a default discourages borrowers from defaulting in the first place and is helpful to everyone that may interact with that borrower in some way in the future. How many merchants would reconsider signing on the dotted line for $50,000 if they knew a default meant the lender would personally message all of their fans on Facebook to tell them about it? Is this wrong? Is this any of the customers business? What if their customers were paying for services 12 weeks in advance? Would their customers have the same confidence that their service would be rendered knowing this new information? It is likely that some customers would view a default as a sign that the business cannot deliver on their promises and reconsider using them. By not letting them know, you are putting them all at risk of paying for services they might not get.

Even though everyone hates me, I project 300% growth!
Show an underwriter a chart of sales projections for the next two years and they’ll have no idea if it’s just wishful thinking. All the demographic research in the world won’t convince the bank that people will trust your product. Show an underwriter that 50, 100, or a thousand people are saying positive things about their experience with you online, and they might believe you’re on to something. Time in business, cash flow, profitability, and positive credit history show what someone did and what they have, but reputation and trust reveal what someone’s success in the future will be like.

It’s not just what they say about you
Your reputation goes beyond just what people are saying about you. At some point, you’ll talk back and what you say can clue lenders into who you are and what you are doing. I’ve caught a few business announcements on Facebook that went something like “To our loyal customers, we are making a last ditch effort to get a merchant cash advance to pay off our landlord by Friday and keep the business open. If it does not happen, then we want to thank you all for your support over the years as we will close for good.” Yeah, it’s interesting to see things like this after you just had a 15 minute conversation with that same person that claimed the funds would be used for a marketing campaign.

With hundreds of millions of dollars burning a hole in their pocket, a lender may be tempted to take the Wonga approach. I guarantee Wonga would say I wasted my time by examining a business owner’s social interactions. They’d say there were statistics and data that show they should fund that business anyway because the FICO score and sales volume are within their parameters, that defaults were acceptable and built into the numbers, and that funding as many businesses as fast as you can above a certain interest rate, is better than funding fewer businesses with more appropriate terms.

This is the premise of my inefficient merchant lending hypothesis for lenders that get real sloppy when they have too much money. Would you rather be a lender that charges more, funds more, and knows less about your borrowers or would you rather charge less, fund more intelligently, and know more about who you’re funding? The first road accepts that you will outright devastate a percentage of your customers, disrupt local economies, and leave a bad taste in the mouth of a handful of people. It might be profitable, but could you really claim to be a helper of small business?

marketsWhen you fund EVERYONE, businesses with bad reputations can knock out competitors with good reputations, the cost of debt can harm more than it helps, or lenders can get skinned alive by defaults they never saw coming. We need to be aware that there are consequences to backing a business with a bad reputation because it can allow them to squeeze out the guys that would’ve actually had the most positive impact on a community. The counter argument may be the theory by the philosopher Adam Smith, a gentleman famous for promoting economic principles such that the pursuit of self-interest promotes the good of society. By this standard, if it’s good for the lender, then ultimately it must be good for the economy. However, allowing yourself to devastate a percentage of your customers isn’t good for the lender’s reputation even if it’s profitable. In a sense, pursuing immediate profit doesn’t mean pursuing ones self-interest. It may be months or years before enough unsatisfied borrowers begin to affect your reputation as a whole. Eventually, public opinion will sway. It’s happening to Wonga right now. If a lender’s business practices today could force them out of business in 5 years, then they are not pursuing their self-interest.

Real predictions, not just hoping tomorrow’s financial standing will be the same as it was yesterday
I look forward to the day when a merchant lender announces a 3, 5, or 7 year program. Their underwriting analysis would have to be incredibly well thought out, but that’s not a bad thing. Borrowers shouldn’t be forced to choose between an 8 month loan and a 9 month loan because so few lenders are willing to make real long-term projections. A business might make good use of short term financing to pay for an aggressive marketing campaign, but the likelihood that they could “open a 2nd store” and pay back all of the money with interest in 4 months isn’t very good.

My advice to the merchant lenders that are flexing their hundred million dollar muscles right now? Don’t carpet bomb the entire country with loans and hope that a one-size fits all rate and term will have a positive impact on the economy. It won’t. Writing off a portion of your customers today as collateral damage will hurt your reputation in the long run. Some businesses shouldn’t be getting funded even if they have money in the bank and a history of revenue. Others can’t sustain such short term repayments. These things should matter not just in the context of how much it will impact profits, but how much it will impact communities.

financial crisisIncorporating factors like trust and reputation don’t have to slow the application process down. There are technologies to help aggregate, sort, and make sense of these signals online. Automation and speed are good but the day that lenders stop caring about who they’re funding and why they’re funding them is the day that lending becomes inefficient. When it becomes purely a numbers game, we’ll be in bubble territory. Can you think of any other industries where lenders stopped considering whether or not the loans were good for their borrowers and played the numbers? I’m sure you can 😉

Lend efficiently, be a good citizen, and don’t be afraid to place a value on what customers are saying about your applicants.

– Merchant Processing Resource on iPhone, iPad, and Android

Letters from the Frontline

February 12, 2013
Article by:

crazed chefI’ve worked in the alternative business lending industry for quite a while and I’ve noticed something off about many of the marketing campaigns. Some lenders have gotten so caught up in the funding that they’re losing sight of what it’s like to run a small business. Admit it, we’re all a little rusty even if we were once small business owners ourselves.

I started working as a deli clerk when I was 15 years old and continued to do it part time until my senior year of college when I began waiting tables at a restaurant instead. I could definitely tell you a few things about the daily grind and the epic drama that happens in the back of the house on a Friday night, but it’s been a while since I lived it.

But don’t you own a small business now? Yes, I do. I’ve been a part of two successful Merchant Cash Advance start-ups and I went off on my own full-time near the end of 2011. These days I have vendors, invoices, customers, contractors, accountants, and lawyers to deal with. I have monthly financials to reconcile, servers to monitor, and office rent to pay. But let’s be honest, my experience doesn’t really translate if I’m on the phone with a merchant that just had a waitress quit, a 12-top walk out on the bill, and an oven break, all while a health inspector is doing an unannounced review. Yeah, something about THAT is a little different than my day-to-day routine.

Sometimes we need to take a step back and stop trying to find the algorithm that best calculates FICO scores and monthly cash flow figures and start analyzing small businesses for what they really are. That led us to an interesting idea; Why not have actual merchants spell it out for us? What better way for us to connect with the retailers and service people of the U.S. than to have a two way dialogue right here on MPR?

Starting today, we’re announcing our experimental Small Business Corner, aka The Frontline. A small group of actual retail store owners or managers are going to contribute regularly with stories, tips, and advice about what it’s like for them. I think it will be insightful for us, as well as for the other small business owners that visit our site.

As the alternative business lending industry gets more saturated, shouting from the rooftops that you have “cash available with fast approvals!” isn’t a way to connect with the actual businesses that may benefit from a cash infusion. I’m guessing we’ll learn what does. These contributors are free to write what they want, so there’s no telling what’s in store. We hope you enjoy it.

Visit the Frontline

– Merchant Processing Resource on iPhone, iPad, and Android

Competitive Advantage: Keeping What’s Yours

February 6, 2013
Article by:

NDAThe most effective competitive advantages are the ones you’re able to keep. And one of the most important of your competitive advantages can be your team. When a close partner, associate, consultant, or key employee leaves your organization there can be a really good chance of losing more than the individual qualities, skills, or experience that made that particular person such an asset. In fact, they just might take off ready, willing, and able to share with your competition what it is that makes your company, products, and/or services unique.

It’s clear that making sure the only thing an employee leaves with when they empty their desk is a few free office supplies is certainly in the best interests of your small business. This is definitely a case where an ounce of prevention is worth a pound of cure. There are three common means small business owners can put into place to help protect themselves:

  • An NDA, or Non-Disclosure Agreement
  • A Non-Compete Agreement
  • A Non-Solicitation Agreement

Each one of these legal documents shares the goal of protecting the competitive advantages of your small business, but they are different from each other. For instance, a Non-Disclosure Agreement is commonly used when bringing in a consultant. A Non-Compete Agreement is commonly used when a major goal is to prohibit a former employee from working for a competitor within a specific geographical area for a specific period of time. A Non-Solicitation Agreement keeps a former partner or employee from leaving one business and then soliciting other employees to come and work for them.

I’m Just a Small Business – Is this REALLY Something I Need to Concern Myself With?

Certainly not all small business owners need to be concerned about NDA’s, Non-Competes, or Non-Solicitation agreements. However, although you might think of yourself as “just another small business” your business may actually require some of the protections these documents offer. It can be helpful to conduct a “confidentiality audit” to help you determine whether or not to make an appointment with an attorney. For example, here are a few things that warrant protection:

  • Trade secrets such as inventions, formulas, or scientific discoveries
  • Specialized methods or processes
  • Specific Data
  • Client and/or Customer Information

Again, you may not think of your business as needing protection. However, it is common for small businesses to fit into categories that may indeed fall prey to damage inflicted by former employees absconding with sensitive and/or valuable information.

Most small businesses are going to have employees who come into regular, consistent contact with clients and customers. What may not be obvious is that, in the course of that contact, those employees develop valuable relationships with those clients. Should such an employee leave your small business, unless you are protected, there is nothing keeping that employee from taking those customers and/or clients (and their business) with them. Your customer base should be protected as it is essentially your most valuable asset.

Advances in technology have also created situations where small business owners will want to protect themselves. Certainly if your small business conducts research and/or develops products it only makes sense to legally protect proprietary and intellectual property. For example, you will want to be sure that you retain the rights to new designs (including the right to obtain a patent) created by an employee. However, proprietary and intellectual property may not be limited to “new” products. For instance, your small business may develop an innovative application for existing technology.

If you are still on the fence regarding whether or not you should contact an expert for advice as to whether or not you might need a Non-Compete, Non-Solicitation, and/or Non-Disclosure Agreement take a moment to answer a couple simple questions:

  • Do my partners, associates, consultants, or employees have on-going contact and/or access to sensitive client information and lists that would be of benefit to a competitor?
  • Do my partners, associates, consultants, or employees have access to anything that is best kept “secret” from my competitors or that would place my business at risk if the information was made public? (We’re not talking about illegal activity, more along the lines of a “secret recipe” or special way of doing things.)

If you answered yes (or even “maybe”) to one or both of these questions it is better to be “safe than sorry” and make an appointment to receive expert advice from an attorney or other subject matter expert.

– Merchant Processing Resource on iPhone, iPad, and Android

Social Media for Small Business: Food for Thought

January 29, 2013
Article by:

Here’s an interesting trend: blog posts on the subject of the “decline” of social media. Within 90 seconds you can locate three such articles on

  • 3 Reasons You Should Quit Social Media In 2013
  • Facebook, Twitter? Can The Decline of Social Media Come Fast Enough?
  • Why I Dumped My Smartphone – 2 Months Into Building My Personal Innovation Lifestyle

OK, so three articles can’t be considered a “trend” – but they definitely provide some food for thought.

Should You Quit Social Media in 2013?

The very notion that people are suggesting there might be value in at least “taking a break” from social media should get our attention. Take the three reasons J. Maureen Henderson gives in her article for doing so:

  • It harms your self-esteem
  • Your blood pressure will thank you
  • Online is no substitute for offline

Henderson is speaking to personal self-esteem and gives the example that there are those of us who might feel better about ourselves if we weren’t constantly exposed to technology that forced us to compare ourselves to and compete with over-achieving peers. Yes, it can be personally humbling to discover the jerk you sat next to in biology graduated from Harvard when you barely made it out of State. Small business owners overdosing on social media just might have a similar problem trying to duplicate the social media activities of large competitors whose marketing budget is a big as their small businesses’ net worth – which can be very discouraging and demotivating.

Personal social media activity definitely can get pretty ugly. Name calling, ostracizing, bullying and just generally disrespectful communications can certainly cause your blood pressure to rise. Small business owners can have a similar reaction to preserving and protecting their online brand reputation. While it’s great to be able to communicate directly with customers and clients, the flip side is small business owners don’t have total control over the conversation any longer. Even if you’re monitoring your own platforms (for example comments on your business Facebook page), there’s always the opportunity that you could be missing some “flaming” commentary about your business online somewhere out there on the Internet.

Henderson notes a study stating that one-quarter of those surveyed feel they haven’t fully experienced real-life events due to activities necessary to place those real events on virtual social media platforms. She also points out that most people looking for a job do so online even though 70% of jobs are never posted online and are instead filled via in-person networking. Here is a lesson small business owners might want to take to heart – the impact, effectiveness, and value of getting in front of your customers and clients “in-person.” Real customer experiences are as important as virtual customer experiences.

Are People Dumping Their Smartphones?

We could give you a ton of statistics, but the short answer is a definite NO. As a matter-of-fact, the trend now is major increases in consumers using mobile devices to stay connected online. Some people may be becoming less enamored with “traditional” social media – but we’re definitely going to see an increase (at least for the foreseeable future) in the use of these devices according to a wide variety of studies by reliable resources such as Mashable.

The point is small business owners need to be aware that social media is constantly evolving (and most likely always will be evolving.) And that fact is both a blessing and a curse for small business owners. Certainly having new ways to effectively engage consumers along the “pathway to purchase” is a valuable opportunity. The threat can be not only keeping up with new technologies, but also the ways those technologies impact consumer behavior.

Even “expert advice” can be both confusing and in conflict. For example, here are two predictions in an article you can find at

Joey Sargent, Principal, BrandSprout Advisors: In 2013, we’ll see more social maturity in both B2C and B2B applications. Business will get “social smarts” and more fully integrate social media into their day-to-day operations across the organization. This means less social for social’s sake, and more focus on social media as a legitimate business tool to facilitate communication, engagement and loyalty.

Jayme Pretzloff, Online Marketing Director for Wixon Jewelers: Going into 2013 social media will impact sales more than any other metric because of the continued integration as a marketing platform and the acceptance of users to be marketed to. In 2011, almost 70% of users said that no social media platform influenced their buying decision and in 2012, that was cut in half to 35%. In 2013, this number will be decreased significantly again because these sites have become an integral way to gain access to information on companies, promotions and products.

Bill Corbett, Jr., President of Corbett Public Relations: The hype proliferated by “marketing” people about the tremendous business generating benefits of social media for small business will wind down.

Beverly Solomon, Creative Director at musee-solomon: People are over saturated with social media. They will gradually remove themselves from all but a few networks, blogs, etc. So many ads come in everyday that they have lost their impact. Most people just delete them before reading them. Social media will function more to alert friends of rip-offs than to encourage sales. Only the most clever sales campaigns will have any impact. More and more advertisers will be leaving social media and returning to snail mail, print and other traditional ads. Social media will continue to be a dating hook up, gossip fest and avenue for “gurus” to sell seminars. But real businesses will use social media less and less.

Who’s Right?

With such conflicting advice from subject matter experts – how is a small business owner to know who to listen to? Fortunately this question is easy to answer: Listen to your customers and clients because they – and only they – know how they prefer to be contacted as well as what the content of those communications must be in order to be of value and meaningful to them. This means small business owners need to find out where their target market “hangs out.” Are they already online and using social media? If so, how and where? If not, why not and what other ways would they like to hear from you?

The one constant advantage of social media is the ability to communicate with your market. But it is certainly not the only channel. As for our position on the matter? We’re making social media a bigger priority. We’ve just gotten more involved on Google+, a social network that just passed twitter and youtube to be the 2nd most used platform in the world.

It might be time for the everyday small business owner to take a peek at the big G, especially if they feel like Facebook isn’t delivering.

Guest Authored
– Merchant Processing Resource on iPhone, iPad, and Android

Coming In From the Cold: Connecting With Prospects

January 29, 2013
Article by:

ice cold callA small business owner posted a great question on the LinkedIn group “Small Business Networks for Startups and Entrepreneurs” board:

Are cold calls effective? Or is it old school? For a small company, what is the best way to promote the business? Any advice will be greatly appreciated.”

The small business owner who posted this question got more than her fair share of advice and opinions regarding the practice of cold calling. And, while most every single comment had a jewel of truth and wisdom when it comes to cold calling – the comments also conflicted with each other. For example:

Not only is it old school but its intrusive and offensive.”

Cold calling is old school indeed but it is still one of the most effective ways to reach prospects.”

So – which is it? Offensive or Effective?

Fortunately for the small business owner uncertain whether to pick up the phone there was one comment that simply rocked. Sandra Hoedemaker owner of an online business coaching service specializing in providing services to personal chefs, posted a completely different perspective and approach to cold calling – something she calls “Connect Calling.”

Connecting is Warm – Cold is…well, Cold

Those commenters who identified cold calling as intrusive and offensive make a good point. Today’s consumer not only isn’t interested in hearing uninvited sales pitches, they can (and quite often do) find unscheduled sales calls as a definite intrusion into an already too busy day.

Sandra notes that she does, in fact, “cold call” and also indicates that these calls are always most successful when she is able to connect with the decision maker. So far her comment sounds like your run-of-the-mill cold calling advice. However, Sandra definitely breaks rank because she goes on to say that she “doesn’t sell on the phone.”

OK, if she’s cold calling, but not selling – what exactly IS Sandra doing when she makes those calls?

Sandra knows prospects aren’t interested in “being sold” – but they are interested in learning real ways to solve their problems and get their needs met. Sandra knows that the best way to do that is to establish her credibility as an expert who knows how to solve common problems and meet the special needs of her niche. How does she do that? She offers to provide them with carefully selected free services. This allows her to:

  • Build her email list and then connect with prospects freely because they have invited Sandra to contact them.
  • Stay connected to her prospects via blogging, teleclasses, and other virtual events (she’s also in the process of putting video presentations in place.)

Outside of the above, connecting with prospects versus cold calling prospects has resulted in Sandra receiving referrals and she’s also garnered invitations to speak as well. Sandra has successfully used Connect Calling as a tactic to connect with prospects in meaningful ways. She’s taken an “old school, annoying” tactic and turned it into a powerful tool to build a community of prospective buyers.

What is most impressive about her approach is the opportunity to begin to establish trust with prospects via Connect Calling. Offering useful, applicable free services and information allows prospects to begin to build a relationship where Sandra becomes a Trusted Advisor who’s got their back versus someone trying to make a sale. Sounds more like networking than cold calling doesn’t it?

And when those prospects pick up a phone to make a call when they find themselves in need of services Sandra charges for, Sandra’s much more likely to be the one who hears it ring.

Sandra’s business serves a unique niche – but Connect Calling can be a valid, productive, and profitable tactic to market your small business no matter what market you serve.

Guest Authored
– Merchant Processing Resource on iPhone, iPad, and Android


Getting Permission

January 21, 2013
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opt-in marketingNumbers don’t lie.

77% of online consumers surveyed said they want to receive permission-based marketing messages via email. Sounds impressive – but even more impressive when you learn that direct mail came in a distant second with only 9% looking forward to opening their mail box. Interestingly, only 5% preferred text messages. (Source: ExactTarget 2012 Channel Preference Survey)

That’s the good news. After all, email is perhaps the most inexpensive means for small business owners to communicate with consumers. The bad news is – before you can communicate with consumers via email – you’ve got to get their permission (along with their email address.)

Permission-based marketing simply means that you have your customer’s permission to contact them. However, if you’re a small business owner just getting their feet wet it’s likely that 77% of your list isn’t exactly a large number.

Collecting email addresses from customers and clients who have given you permission to contact them is the “Catch 22” and “between a rock and a hard place” of small business email marketing. Obviously purchasing lists of email addresses of consumers who fit the demographic of your customer doesn’t cut it. Emailing someone without their permission to ask for permission to email them just doesn’t make sense – not to mention today’s consumer tends to be totally turned off by businesses that make the attempt. Not too many fans of spam out there.

So, if you don’t have a list – how do you create one?

The Usual Suspects

It would be hard to find anyone with even a smidgen of experience searching the Internet who hasn’t encountered an “opt-in” when visiting a website. An opt-in is nothing more than a form that serves to ask permission to contact the consumer as well as collect their information. Visitors to your businesses’ website can opt-in to receive a variety of marketing messages from you – for example a newsletter, blog posts, or special announcements (such as a sale.) It makes sense to have opt-in opportunities on every page of your website.

Sounds great but, once again, if you’ve got very little traffic on your website, that translates into very little opportunity to build a Mondo email list. If the obvious tactic of including opt-in opportunities on your small business website doesn’t help that much when it comes to building your list – what other tactics can you employ?

Plenty – here are a few:

If you’re a retailer, make it a practice to ask for (and collect) every customer’s opt-in at the point of purchase. The same goes for B2B small business owners. For example, train your receptionist to ask for opt-in when taking calls.

Display an “opt-in sign up” book where customers and visitors to your office will easily find it. Be sure to include information that motivates people to provide you with their permission (i.e. a description of your newsletter, let them know you routinely email discount offers, etc.)

Do it the old fashioned way. It’s likely you’ve got the phone number of most of your customers and clients. Pick up the phone and call to ask for their permission to be contacted via email.

Contact customers and clients who’ve already subscribed. Let them know you’re running a “forwarding contest” and tell them they will be entered into a raffle for each person they forward your email to. Include a link that says something like “Forward to a Friend” (there are email marketing services that can identify which subscribers actually forwarded their email.)

Ask in-person. We are so “virtually” oriented that the obvious can escape us: ask people to opt-in when you meet them in person. This can be at professional and business networking events – even with that person you struck up a conversation with in line at the grocery store.

Partner with a related, non-compete business. Are you a web designer? Partner with a public relations firm and send out each other’s messages.

Include an invitation to opt-in on all printed marketing material. This includes everything from promotional brochures, stationary, and your business card. It also includes printed advertising.

Last, but definitely not least (and perhaps the most obvious) include a link to an opt-in underneath your email signature.

– Guest Authored
Merchant Processing Resource on iPhone, iPad, and Android

Deja vu? Merchant Cash Advance in Wall Street Journal

August 10, 2011
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wall street journalHave you ever had a deja vu moment where you feel like something has happened already even though it hasn’t? And then all of the sudden it happens? Yeah, we just got a little of that. Or maybe we’re just psychic.

It was just a couple months ago that we published a scathing editorial on the failure of the Merchant Cash Advance (MCA) industry to reach mainstream acceptance. (See: The Colossal Marketing Failure of the Merchant Cash Advance Product – June 28th, 2011). Most of our readers acknowledged the shortcomings but were at a loss for suggestions to overcome them. ISO&Agent Magazine quickly added their two cents by claiming that MCA was waiting for its big moment (See: Cash Advances: Negotiating a Maturing Market – July 26th, 2011) but completely missed the mark when they identified cost as the obstacle holding it back. It’s not cost, it’s communication.

How often is MCA cited in mainstream news publications? Wall Street Journal? New York Times?
-direct quote from our piece on June 28th

Today we can say that Merchant Cash Advance got its mention in the Wall Street Journal. :::Applause::: Though it’s only in their blog section, most people today get their news online anyway. The article features AdvanceMe, the largest and oldest player of the bunch. So how does the glorification of one company carry over to the industry as a whole? There were a bunch of good messages in there that describe the product itself: The article title implies it’s becoming more popular: “Cash-Advance Demand Rising” A description of how it works: “Merchant cash advances, which first appeared about a decade ago, provide capital in exchange for a share of future debit or credit-card sales. As such, they tend to be used by retailers, restaurants and other small businesses where a large number of customers pay with cards.”The common uses for it: “Business owners use the cash to buy new equipment, restock inventory or pay off debt” Yes, Yes, and Yes. Good for AdvanceMe and good for the MCA industry but this is only the beginning.

Every business owner should be aware of MCA, not just the ones that read the Journal today. It is Un-American (Yeah, that’s right) to withhold information from business owners that may enable them to capitalize on opportunities. With no bank loans available, most projects in this country are on hold. It’s simply not fair. We badly want to take the credit for today’s Journal mention, especially since we delivered our two previous articles on this topic to their editors in July. But the real hero here is AdvanceMe. Their press release the day before clearly caught the attention of the mainstream media. Great job guys. And we’d be remiss if we didn’t point out they forecasted an increase in funding by $1 billion in the next 2 years. That’s about equal to the industry’s entire volume combined. Is Merchant Cash Advance about to hit its growth spurt? AdvanceMe seems to think so. If they’re about to have their ‘moment‘, they’ll likely pull everyone else along with them.

– deBanked