sales
The Myth of the Exclusive Lead
May 14, 2015
The Small Business financing space is getting crowded. There’s no disputing that. With new ISOs and Direct Funders appearing each day, this space is getting tighter and tighter. With a finite number of small businesses that are receptive to a certain type of loan instrument, competition can be fierce. Both existing and new funders are looking for ways to gain new business to ensure a stream of income. Many turn to lead providers like myself, but many ask the same question “Do you do exclusive leads?”
When theLendster was first starting out and getting its sea legs, a meeting was held with the management team and the idea of selling exclusivity to our clients was raised. This idea was warmly received all around the table. After all, the price would be higher. However, this became more troublesome than it was worth as we soon found out exclusivity was a myth and made us look not forthcoming with our clients.
The number of small businesses is finite but measurable. There are 319 million people in the United States today. Broadly speaking, small businesses are about 10% of this number. Therefore, we are looking at more or less 32 million businesses across the nation. Now, how many are looking for what we’re offering? 10%? 25%? 50%? Using these percentages, the “goldilocks” businesses (not able to get a bank loan but at the same time able to pay back an MCA or small business loan) number anywhere from 3 million to 16 million.
While this is a wide margin, it demonstrates something regardless: the number isn’t that large. So when adding in lead generators and funders/ISOs who do their own direct marketing, the competition to get a lead’s attention is fierce. The problem is everyone is reaching out to the same businesses. These prospective customers are being bombarded from all angles: telemarketing, email and direct mail. Each of these all sound like there could be some exclusivity and while a salesperson may have a small window of opportunity to grab the attention of the decision maker, it doesn’t last forever.
So when a business is identified, the whole industry zeroes in on them. Let’s give a hypothetical example: A salesperson is connected directly to the business’s decision maker via a live transfer telemarketing campaign and is able to talk to them about the product. This can lead to an application sent out. However the second the business owner hangs up the phone, they’ll go to their mailbox and get a letter from another funder or ISO. Now their attention is shifted to the letter. Then while reading the letter, in between serving customers, the phone rings again. It’s another funder. They listen and perhaps send an application. And then, When going to read their email, they are part of drip marketing campaigns from still other funders or lead generators. So right then and there, the attention that the original salesperson was fortunate enough to grasp has quickly faded away.
So how can a lead generator guarantee exclusivity? The answer is this: beyond promising not to sell the lead multiple times, there’s not much they can do. Going back to when theLendster was in the middle the exclusivity experiment, our clients would come back day after day saying that we were misleading them. Business owners would answer their phone and say, “I’ve been contacted by you dozens of times.” While this was true, it wasn’t an entirely accurate statement though. The leads that were sent were only delivered to one client. However, anything that was occurring outside the confines of theLendster was beyond our control. So clients believed that multiple competitors were contacting the leads from theLendster’s list, which was not the case.
In the end, theLendster decided to move to a shared lead model to ensure that clients who signed on were aware that not only would they be competing against others for the lead that was delivered, but also against others who reached that lead through other lead generators or marketing initiatives. Since then, clients have been satisfied and were able to adjust their sales tactics to make sure that they have a fighting chance on closing the business. In fact, many of the clients we have expressed that they are more successful using this approach.
But why are funders drawn to the exclusive lead? It’s simple. They believe that they are the only ones that will touch this potential customer. This gives their sales team a competitive edge. However, with the funding space as crowded as ever, it would be a success if the day the lead comes in that it was only touched by 3 or 4 other companies. This is why the exclusive lead is a myth. With hundreds of marketers dipping their hand in this well, nothing like exclusivity can be guaranteed.
All is not lost though, as leads themselves provide an invaluable service to ISOs and Direct Funders. Without this necessary marketing tool in the hands of sales teams, there would be no selling. Simply put: leads are the lifeblood of this industry. It’s what powers the sales engine and connects funder and funded.
From a funder and ISO viewpoint, exclusive leads should not, and from now on cannot be viewed as a siloed item. Business owners are not sitting by the phone, the mailbox, or the computer waiting for a funding opportunity to arise. They are out there running their businesses and trying to make their living. However, in between the day-to-day running of their business, they are being exposed to multiple solicitations from a wide range of funders. These prospective customers live in a world where they are constantly being exposed to your competition. Exclusivity is not the “golden gun” that can change a funder’s narrative. Because it was never existed in the first place.
Why Your Deal Got Stolen
September 16, 2014
Back in April, I presented the idea of trigger leads coming to the alternative lending industry. In subsequent discussions about that blog post, many folks particularly in merchant cash advance questioned whether such a concept could possibly exist or would even be legal.
For those not familiar, this is the methodology behind trigger leads using a hypothetical scenario:
- OnDeck runs the personal credit of a merchant using Experian.
- Experian sells the contact information of that merchant to OnDeck’s competitors immediately after credit is pulled.
- Competitors solicit that merchant and convince them to go with them instead.
Again, the reaction I get to the above scenario by most people is, “yeah, right. I don’t believe that could happen.” But if you look at the raw amount of ISOs complaining their deals got stolen, it’s evident that perhaps there is something else brewing than just the usual assortment of rogue underwriters and shady funders.
Most ISOs are convinced that if their client is working with them and only them, that a shady business dealing has taken place if that client is randomly called out of the blue with the knowledge that they’re pursuing funding. To them, the only conclusion is that their deal got backdoored.
And while backdooring does seem to happen out there from time to time, another culprit may very well be trigger leads. Credit bureaus and big data aggregators are selling credit pull data in real time. UCC-1 leads are leads after the funding has taken place. Trigger leads are leads before the funding has taken place. But do they really exist?
Elsewhere in alternative lending, trigger leads are the backbone for how companies tailor their direct mail campaigns. If a consumer’s credit was pulled today by a mortgage lender, companies like Lending Club and Prosper will make sure that consumer receives a mail ad for a home improvement loan tomorrow.
Today at the Apex Lending Exchange conference in New York City, Ron Suber, the president of Prosper, referred to this trigger methodology as “getting to the right borrowers at the right cost.” In their sector, trigger leads are marketing 101. In merchant cash advance, it’s perceived as a pipe dream. Odds are that whoever is taking advantage of trigger leads in this industry would want to keep all the other players in the dark about it.
As much as you might hate to believe it, all of the backdooring paranoia that’s been rampant lately might actually be caused by the credit bureaus, not the funders. The lesson here is that as soon as your merchant’s credit is pulled, the clock is ticking until your competitors find out even if that merchant talks to nobody else.
I know ISOs want to believe that their merchant is only theirs, but in the age of advanced technology and big data, your merchant belongs to the cloud. As soon as your relationship with the merchant interacts with technology, somebody else will find out about it. And that’s why your deal got stolen.
Merchant Cash Advance Hits Shark Tank
October 26, 2013
If you missed Friday night’s episode of Shark Tank, you absolutely must catch a rerun of it. Jason Reddish and Val Pinkhasov came on the show to pitch their merchant cash advance company, Total Merchant Resources. It was one of the best few minutes in merchant cash advance history for several reasons:
- Mark Cuban, the 213th richest man in the U.S. feared the growing popularity of expensive short term financing would invite tough government regulation.
- Kevin O’Leary understood that there were no barriers to entry and thus anyone with money can get into the industry.
- Robert Herjavec thought the capital was too expensive for small businesses.
- Kevin O’Leary said that non-bank alternative lenders like Total Merchant Resources were necessary to keep businesses afloat.
- Jason Reddish went at the Sharks like a Shark himself.
TMR walked away with a rather small 400k valuation through the deal they made with Kevin O’Leary that gave them 200k for 50% equity. It was O’Leary’s claim that his connections and capital would blow the lid off their business that was too good to pass up.
O’Leary had a compelling argument for why his terms were non-negotiable. Anyone can be in this business. The valuation itself was moot because two guys with a relatively small operation just became partners with a famous venture capitalist worth $300 million. Had I been in their circumstances, I would’ve taken the deal as well.
O’Leary’s name in the space makes TMR relevant and a company to watch out for, but they are by no means guaranteed success. They are up against much deeper pockets. Dan Gilbert, the 126th richest man in the U.S. owns RapidAdvance (through Rockbridge Growth Equity), a firm that got an enterprise valuation of over $100 million. Google and Peter Thiel have their hand in On Deck Capital. Google also has a stake in Lending Club, a peer-to-peer lender worth $1.55 billion that threatens to disrupt the alternative business loan market with their new loan product come early 2014. Capital Access Network funds nearly three quarters of a billion dollars a year. Every day another power player swoops in and raises the stakes, putting O’Leary in a position he’s probably not used to being in himself, in the shark tank.
At the end of the day, there are a lot of profitable ISOs and small funders. Pinkhasov and Reddish did what no one else to date has done, gone on TV and pitched Mark Cuban on merchant cash advance. And for that, they will go down in history. We’ll follow their story as it develops and I invite them to e-mail me if they’d like to comment.
You can follow the thread about their appearance on the show and find the link to the video on DailyFunder.
Don’t Throw That Deal Away, Factor It
September 3, 2013
As we start off our first blog post in Merchant Processing Resource, I’d like to talk about a deal that we just got a factoring line for:
A landscaping company came to SFS because his business was starting really to take off and was beginning to get large contracts to provide masonry and landscaping work. The merchant was approved for a cash advance but it was not enough to cover the funds he needed. He applied to SFS+ for an Accounts Receivable factoring line and was approved for $500,000. The line allowed the merchant to sell SFS+ outstanding invoices for work that was already completed for a large office complex and shopping center. Between the factoring line and the Cash advance line the merchant received $650k in working capital!
He went to his local bank and while the bank said they love the depositing relationship, they have no interest in lending him money. Next stop: his accountant — the accountant said they would have to have a balance sheet for the bank. Well his business did not have 12 months to build his balance sheet he needs to address the opportunity (not a problem) today!
He found us though an SFS ISO and realized that we were a one stop solution for ALL of his cash flow needs.
SFS and SFS+ provided his business with a cash advance and factoring line. So, not only did they address his current opportunity they also enabled him to expand his business as much as he wants, and when his balance sheet is stronger he can go back to the bank.
So how do you know when factoring is a good option??
Ask them: “does your business have receivables?” if they say yes, ask them to submit your cash advance application and their business’ accounts receivable aging reports, we can then give you a quick response on how we can move forward.
When Merchant Cash Advance isn’t the Right Fit
August 12, 2013
“I know you do a million in gross sales monthly but since you process only $5,000 in credit cards, we can only approve you for $7,000.”
Before ACH repayment became mainstream, the MCA industry was incredibly restrained in its ability to help businesses. A merchant seeking a half million dollars with the cash flow and size to back that request up was being told that the absolute best they could get would be maybe $10,000, and that’s with a 100% holdback in place instead of the industry standard max of 30-35%. It was an awkward sale for both parties.
To pitch a business owner generating $12 million a year in sales a paltry $10,000 is like telling your boss that the only thing you did at work this month is forward a single e-mail. To the business owner, they’re probably left wondering if lending really has dried up that much or perhaps they’re wondering if they’re just talking to the wrong people. Some of these mismatched situations actually turn into closed deals. I can personally remember one where a semi-serious request for $2 million became a $6,000 signed contract. I think they waited only 24 hours before applying for a renewal. The majority of these sales calls go nowhere though because what’s being offered is not a fit for what is needed.
It’s okay to have mismatches in life. As a salesman, your product is not the right solution for EVERY problem, no matter what your rebuttal script says. If a man is wheeled into an emergency room with 7 deep stab wounds, Johnson & Johnson is going to have to pass up the opportunity to offer him Band-Aids as the answer. A million Band-Aids might work, but they’re not the right solution.
In 2013, I am hearing a wider call to diversify product offerings to stay competitive. Yes, offering a fixed daily repayment loan based off of gross sales is a nice way to compliment the purchase of future credit card sales, but that’s not really diversity anymore, that’s a necessity to stay alive. By really diversifying, I’m talking about financial products beyond daily repayment loans and advances. Almost everyone agrees that being able to service more deals is a good thing but when it comes right down to it, they may see it as a distraction from their main focus.
We’ve all seen a friend or two bite off more than they can chew by trying to broker an SBA loan or commercial real estate deal. There’s no shortage of financial companies sitting on the periphery of the MCA industry waving a flag that says “if a deal isn’t compatible for you, then send it our way.” They don’t really speak the MCA language though and they expect you to do a lot of the closing and negotiating on your own. Some of these deals take months to process and if the lender believes the deal is only a one-time thing, they might not even pay you for it. Ugh! Looking at it from this perspective, perhaps it’s better to just stick with MCA and let every other type of deal fall by the wayside, that is until you look at your marketing expenses again and wonder…
An inbound lead is one that you’ve already paid for, so if they’re not a candidate for a daily repayment loan or advance, then what is the most efficient way to monetize and service them? Who can you really depend on to make servicing it a reality and how long will it take? How easy will it be? I searched beyond the industry for answers but began to find them inward. It seems New York City based Strategic Funding Source has recognized the need for product diversification and is eager to assist account reps in servicing more clients and closing more deals. Your marketing dollars are already spent, so now it’s time to monetize what they’re bringing in. There is a universe beyond daily repayment deals and if you hope to stay ahead of the curve, I recommend you become intimately familiar with programs like invoice factoring and accounts receivable factoring. You can and should be doing deals of this nature every month, not once in a blue moon.
While I like to consider myself knowledgeable on a wide range of financial topics, Lenny Leff, who heads Strategic Plus, a new division of Strategic Funding Source, has offered to write his own regular column on Merchant Processing Resource.
I spoke to David Sederholt, Strategic Funding Source’s COO, about this first in regards to Lenny’s role at the company:
“Through this new division of Strategic Funding Source, led by Lenny, we can say ‘yes’ to more businesses seeking capital to grow and are not limited to cash advance and loan products. We take a human approach to financing and know that the needs of small business owners are as diverse as the businesses themselves. With more product offerings, we are able to continue to be true partners to the small businesses we finance.”
– David Sederholt, Strategic Funding Source COO
Lenny’s posts will provide guidance and information about opportunities outside of MCA. After a few in-person meetings, I think he is uniquely positioned to discuss this topic, especially considering his prior experience in the MCA industry. I asked if Lenny would introduce himself in this post and he added the following:
“I am happy to be joining Strategic and look forward to sharing my 15+ years experience in factoring and asset based lending. The blog will give business owners and ISOs the opportunity to learn more about the different solutions and alternatives available when they go to someone offering a one-stop shop; Purchase Order Financing, Invoice Factoring, Equipment Leasing, Healthcare Lending to Business Loans and MCA. Our goal is to expand the knowledge within our community and help our partners find customized financing for their clients. We are thrilled and excited to share our insights with Sean and the Merchant Processing Resource site.”
– Lenny Leff, Strategic Plus
When the deal doesn’t fit, will you try to sell it anyway? Will you throw it out? Or will you try to monetize the lead you’ve already paid for? I don’t like the first two options… and I’m sure many of you don’t either.
Learn more about Strategic Plus at http://www.sfscapital.com/news/view/3596
Contributors
David Sederholt
Lenny Leff
Discuss factoring on DailyFunder
http://dailyfunder.com/showthread.php/353-PO-Financing-Factoring/page2
The Alternative Business Lending Worker Shortage
July 1, 2013“You open 40 accounts, you start working for yourself. Sky’s the limit.“
Is the dream getting harder to sell? The alternative business lending industry is booming and so much so that many job openings are going unfilled. I am asked on almost a daily basis if I know any experienced sales people that are looking for work. There really aren’t that many people out there with a strong merchant cash advance background and I think it’s impacting how fast this industry can grow. On the one hand, the industry is a lot less sophisticated than it used to be. Hold on for a second and allow me to explain myself. There was a good chunk of time in this business where saying the word, loan could get you fired. Loan?! Are you kidding? We buy future receivables at a discount!
Anyone could sell a prospect on working capital but only a select group of people could explain the purchase of future sales properly all while justifying the relatively high cost. And an even smaller group of people could take the deal to the next step and discuss the merchant’s current 3 tiered or interchange based rates, pick out the junk costs, and sell them on a better deal with a new payment processor. And an even smaller group of people could sell the merchant on the idea of using a new terminal due to PCI compliance issues or acquirer compatibility. And an even smaller group of people could sell or lease the merchant a new terminal instead of swapping out their current one or lending one for free with a multi-year contract. And still an even smaller group of people could convince the underwriter to approve their file in order for the 5 closed sales to even go through. Merchant cash advance in the traditional manner was and is a highly complicated multi-layered sale. The men and women that churn(ed) these deals out month after month on a consistent basis are nothing short of pros. Let’s not forget that payment processors have underwriters too so even after 6 closes, the payment processor could decline the approval of a merchant account, nuking the entire deal from start to finish.
Do you have any idea how comical it was when the mortgage brokers invaded the industry as the housing market neared collapse? They had no idea what they were doing and some of them barely lasted for 90 days before saying “I give up, this makes no sense.”
In today’s market, there’s a faster learning curve. I’d estimate that 55-60% of all new deals being funded with daily repayment in this country are using direct debit ACH to collect. Some funders and brokers lean towards this model so much so that they report funding more than 90% of their deals on ACH. That’s good news for new account reps because there isn’t much to learn about the product. There’s the amount being funded, the cost, and a daily debit to pay it back. Pretty simple stuff. This isn’t to say it’s not a tough sell or that it’s not competitive, because it is both of those things. Companies that swear by the ACH product have a hiring advantage because they don’t necessarily need salespeople with MCA specific experience. Almost any financial sales background will work or even no experience at all.
The smaller part of the industry is a mishmash of the old school sophisticated reps and the newbies that rely on the old schoolers to help them out with anything technical. When companies post ads saying they are looking for MCA sales reps with experience, they’re implying that they want people that can handle the multi-layer sale. A good craigslist ad should say:
Are you hungry?!
Must be able to do the following in a single phone call while driving at least 65 MPH on the Brooklyn Queens Expressway regardless of whether or not traffic is backed up:
- Convert a Micros POS system
- Lease an additional wireless terminal for off-premise sales
- Shave 12 basis points off the non-qualified tier (but make it back up by adding a $15 monthly statement fee)
- Close a 150k deal on a 1.40 (but know that the reduced factor rate is coming out of YOUR end)
- Write in a 6% closing fee
- Cut off 47 cars in traffic without hitting them
- Eat a slice of greasy pizza with your left hand without getting a single drop on your lap
Oh and below it will be a note that says “THIS POSITION IS COMMISSION BASED ONLY, NO DRAW, SELF-STARTERS WANTED, HOURS ARE 7-7 Mon-Sat“. Don’t laugh. This was the MCA industry for a time and a lot of people did very well in it. If you wanted to make money, you had to be able to do it all. For some of you, it’s still this way.
And let’s face it, the split-funding market may shrink but it will never die. Split-funding’s advantage is the ability to finance businesses that have poor cash flow. The risk of a bounced check is removed when payments are diverted to the funder by the payment processor. You hear that kids? You should be brushing up on your payment processing-ology.
Even as the ACH market boom continues, there are whispers of woe as funders deal with ACH rejects and closed bank accounts. It’s no surprise then that some companies are looking for pros, not just bodies to put on the telephone. It seems as the product has become less sophisticated, merchants have become more sophisticated. In 2007, I’d be willing to bet that more than 90% of small businesses had never even heard of a merchant cash advance and that was basically the only alternative available. In 2012 I actually did a presentation to a large room of business owners about merchant cash advance and none of them had ever heard of it until I taught them about it. That’s astounding!
Now I don’t think that many more people know about the purchase of future credit card sales in 2013 specifically, but I am inclined to believe that 90% of merchants are at least aware that alternatives to bank loans exist. And when they encounter somebody offering an alternative, they do their homework and check these companies out online. They get 2nd opinions and question why they have to switch processing when four other account reps said they don’t have to. They ask for better deals, longer programs, and they look you up on facebook to see who you really are. This is a different sales environment than what there used to be. The lowest price, the fastest process, or the most charming personality won’t guarantee you’ll win anything. Seeing that you’re backed by Wells Fargo or learning that Peter Thiel is on your company’s board of directors might be the hook, line and sinker for a business with a full plate of options at their disposal. Yes, it’s a different world, a different sale, and even a different product.
Funders and brokers need human resources to keep up with the fast pace of growth and there’s not too many of the old school guys looking for work. Not to mention that fewer people are willing to work on a 100% commission only basis these days. During and after the financial crisis, the herd of out-of-work financial service people flocked to whatever opportunity the could find. It was like you could throw a fishing net in front of the Lehman Brothers entrance and use it to scoop up 50 brokers as they all ran out the door for the last time. Newly minted graduates wanted to build their resumés instead of remaining unemployed. Some people were willing to work all 31 days of a month just for the opportunity even if they walked away with zero dollars at the end of it. Although the economy hasn’t recovered much, that hunger has relaxed and job seekers are being a bit more selective of the opportunities they choose. They want a base salary (even if small), benefits, and vacation time. Somewhere out there in another universe, Ben Affleck’s younger self is crying at the thought of this. “Vacation time?”
So when you put up an ad on LinkedIn or Craigslist and say you’re looking for 10 guys with MCA experience, just know that breed is in short supply and high demand. If you’re heavy on ACH, you can train new guys quick but they’re not going be equipped to take on the multi-layered sale if the tide turns back towards split-funding. There are tons of job openings out there for sales reps but those spots aren’t as easy to fill as they used to be.
“You become an employee of this firm, you will make your first million within three years. I’m gonna repeat that – you will make a million dollars.”
Happy hiring.
– Merchant Processing Resource.com
https://debanked.com
MPR.mobi on iPhone, iPad, and Android
Don’t Get Banned by Your Target Market
March 19, 2013
I’ve watched this happen a lot over the last several weeks, particularly on Google Plus. Businesses both large and small join a community, start posting links to their blog and then they get banned. Some are posting crap and others are posting genuinely good content, but the good content is being pushed on people and nobody likes that.
Communities and forums exist for discussion, not for marketers to disseminate their blog posts with titles like 10 ways for small businesses to maximize profits. Now there are a few instances where it makes sense to post a link to your website, but only if it truly results in a healthy engaging debate and shares. If that doesn’t happen, then you’re probably in trouble.
I have actually had to watch a few people I know in financial services get the boot in communities, and there was nothing I could do to help them. Their brands have literally been BANNED from talking amongst their peers and potential customers and that’s probably the worst thing that can happen. I’ve all seen hundreds of small businesses make the same mistake, younger businesses that have finally decided to give social media a shot, only to be shown the door 10 minutes after they jump in. It’s disheartening. Many communities don’t offer a warning, so the best chance to let sometime know the basics of human interaction, is to do it before they join anything. If you were thinking of joining a community or have been banned by one, particularly on Google Plus, I’ve written up a little road map titled: Banned from a Google Plus Community?
– Merchant Processing Resource
https://debanked.com
MPR.mobi on iPhone, iPad, and Android
