by Chris Walker on Thursday, January 15, 2009
By now we’ve all experienced “business culture” hundreds of times, often through well known businesses such as Nordstrom, Disney or the small business that delivered the personal service that you seldom find today. These organizations have made a conscious decision about the type of company they would be to their customers—their customer would be their most important asset and they go to great lengths to protect that asset. The result is a delightful experience when visiting the store or the theme park. Do you pay more? Without a doubt! Is it worth it? Their customers are saying “yes!”
According to Merriam-Webster, CULTURE can be defined as “a :the integrated pattern of human behavior that includes thought, speech, action, and artifacts and depends upon the human capacity for learning and transmitting knowledge to succeeding generations b : the customary beliefs, social forms, and material traits of a racial, religious, or social group”. Interesting, but what does this have to do with leasing in general and leasing brokers specifically? It comes to mind because of several recent conversations I’ve had with customers and prospects who are growing their business and as entrepreneurs experiencing the challenge of defining what they want to be. The “be” is their culture.
I have several broker customers who are making the transition from a lessee direct model to a vendor model. Easy enough, right? Every lessee-originated deal has at least one vendor, and there is no better time to talk with a vendor than when you are delivering a check. In theory, you will develop enough vendors over time that volume production will be more predictable and origination costs will go down as farming vendor relationships replaces hunting for lessees. Our broker customers tell us it is not easy.
I believe there is a hidden challenge in developing and cultivating long-term vendor relationships. It is the transition of attitude from "we own the lessee" to "the lessee belongs to the vendor and we are servicing them on behalf of the vendor." In a lessee-direct model, the emphasis is on maximizing the value of the lessee relationship—get as much volume at the highest feasible yield to create the most gross margin. In a vendor-based model, the emphasis is not solely on helping the vendor close today’s sale but on creating a long-term relationship. Lessors and brokers will often accept lower margin in exchange for a vendor relationship that will generate future leases. If you treat the customer well, they will come back again and again. Vendor relationship deals tend to have a lower margin because they are so competitive. When sales people are compensated on gross margin there is little incentive to cultivate vendor business or hand the vendor lead to someone else. A vendor approach requires a different culture.
My experience has been that most vendors don’t care about leasing, that’s why the first question they ask is about rate. The lower your rate, the higher their margin. If you respond with a competitive rate you’ll get a deal that has been sitting in the lower left hand drawer for six months. “If you can do this one, they’ll send you the next two.” Sound familiar? Most of your competitors have not invested the time to find out what the vendor needs because the value they bring to the table is buying the deepest at the lowest rate. This may be viable strategy but it doesn’t represent a vendor culture. In fact the vendor you land using this approach will leave for the next broker/lessor with a lower rate and deeper credit appetite.
What does a vendor culture look like? I’ve had a tough time distilling this down to a paragraph or two, so perhaps these bullet points will suffice to make my point.
Companies with a vendor culture:
- Ask about the vendor’s objectives
- Look for unique ways to help their vendors meet their goals
- Seem to care more about the vendor’s margin than their own and are willing to structure unique programs to help them meet margin goals
- Are willing to invest in educating vendor’s sales people
- Learn about the vendor’s industry and speak the jargon
- Avoid any practice that would disrupt the vendor-customer relationship (e.g. interim rent, forced placed insurance, evergreen renewal payments, high residuals)
- Choose funding partners with compatible values
- Don’t focus exclusively on leasing or financing (e.g. bundled payment structures, pass through billing, cost per click)
Napoleon Hill* is credited with saying "you can succeed the quickest by helping someone else succeed" and I believe this statement best encapsulates a successful vendor strategy. Imagine the value in a partner that improves your sales, your margins and makes it virtually impossible for their competitors to take their customers. How important would rate be in this discussion?
If you’re willing to invest your entrepreneurial energy you too can certainly create a company that has a culture vendors are looking for.
*Napoleon Hill (1883-1970) Author of Think and Grow Rich