Tuesday, December 7, 2010

Don't Let a Reason Become an Excuse


The other day my colleague Jeff said something very simple that really resonated with me – “We can’t let a reason become an excuse.” He said it in relation to how our business at The Members Group continues to work on improving our processes and how other projects often get in the way. In some cases, we have let a reason (time constraints) become an excuse (I can’t work on that project because I have so much to do). I have spent a great deal of time thinking about the differences between a reason and when it becomes an excuse, and how that influences our own ability to act.

There are always reasons why things happen that derail us from our plan for today, or our vision for a product or business. Resource constraints. Time constraints. Changing priorities. Competitors that change their tactics in the market. Our bosses, co-workers, spouse, children all make demands that can throw us off our game. They are all reasons – valid ones at that.

But when they become excuses, we lose something else – our ability to feel as if we control our own destiny. I would have (fill in the blank – served that customer better, gotten that project done on time, made the sale) if it weren’t for (fill in again – my boss, not having enough resources, competitor X giving the product away). That simple statement moves us from what may very well be a valid reason that we need to address into a demoralizing excuse that gives us the justification to accept the bad hand that we have been dealt. Rather than stubbornly moving past the obstacle we give into the circumstances. It moves us from being a leader conquering circumstances to being a victim to the situation.

So why do we turn reasons into excuses?

There are some reasons that we really feel powerless to control. The overall economy has become the latest and greatest excuse. “When the economy turns around…” is my favorite excuse. As if one day, Ben Bernanke will stand up and say, “The good times are back and we now return you to your regular programming.” We all know that this is unlikely to happen, certainly not in those terms (maybe we’ll get, “the core rate of inflation is rising slightly causing the jobless claims to decrease at a corresponding rate, leading the Federal Open Markets Committee to begin reducing the quantitative easing in the economy.” Who knows…). But more importantly, if we let the “economy” become our excuse, we are helpless to move ourselves and our organizations forward until some external party tells us that it has improved.

I drove by a billboard awhile back that said, “Microsoft was started in a recession.” An odd billboard for sure, but a reminder that some of the most successful ventures were started in not-so-good times. In fact many Fortune 500 companies today were started in what could be considered a recession. So why didn’t Bill Gates just say, “You know what, maybe I’ll just finish up here at Harvard and roll out that new operating system as soon as interest rates come back down and people are more interested in investing capital in personal computers?” After all, the early 1980s were a clear recession accompanied by high unemployment and high interest rates. He had a reasonable path to graduating at a premier university. The recessionary economy was a valid reason for delay, no doubt. But his vision was to revolutionize the world and ride the wave of this new-fangled personal computer. The economy was secondary to changing the world and the time was right then. What the external environment looked like was less important than the vision of a new way of living.

You could easily be saying, “Yeah, but I’m a project manager eight layers down from the CEO in a business of 1,000 employees. I don’t have that type of control. I come to work every day and people tell me what I am going to do next.” So maybe you’re right about your environment, but is that a reason or an excuse? (Maybe more importantly, should you spend at least 1/3 of your life at a place where you don't feel like you have any control, but we’ll save that for another day).

The facts are the facts, how we choose to deal with them is our decision. I work with another guy who has been battling cancer for more than a year. He has a family, is dealing with the normal cancer treatments and had been trying to work as well. He had a reason to walk around with a chip on his shoulder. However, in interactions with him, you’d never know from his outward disposition that he was the one with cancer. In various meetings, others would come in with gloom and doom, complaining about various factors (resources, time constraints, etc.). Yet, he always seems positive. I know he is probably not always like this – cancer is a devastating disease that can eat away at the soul as well as the body. But he has intentionally chosen not to let this reason (cancer) become an excuse to not live life in a positive way, at least as a sign to the rest of the world. He has become an inspiration to me – after all if he can remain positive through all of this, what is my worst problem? I mean, really.

I guess the moral for me is that we all have the challenges of our personal and professional lives. Some are harder than others – they are real reasons for things that are happening. The economy isn’t terribly great right now; resource and time constraints do cause us to have to modify our plans for completing projects. When we let the circumstances take control and move into victimhood then we have let those reasons become excuses to not take action. To truly be successful and adapt to the changing world, what I call here a Plan B mindset, we can’t let the external environment control our internal motivation. It’s not always easy, but we have to understand the reasons, react accordingly and remain consistent to our intention. Keep adapting, keep changing the game and know that there are reasons why things happen – if we can treat them only as reasons and not as excuses, we put ourselves in a much better position to accomplish what we set out to do.

Wednesday, November 10, 2010

How to see a Crisis – Opportunity or Danger?

Here we are, two-plus years from the epicenter of the financial crisis. September 2008 AIG and Lehman Brothers melted down within a few weeks. It began a run on the financial system that lasted for easily a year and a half, and is still felt today.

I was thinking about that week when Lehman Brothers went bankrupt in September 2008. TMG Financial Services was just starting to gain critical mass towards our business plan of acquiring portfolios from credit unions. We had thoughts on permanent funding for the portfolios and had put in place some temporary funding, but nothing substantive had come together. With the financial crisis, we realized our sources of funding weren’t coming from the usual suspects. On that Tuesday, we met as a management team to figure out what to do. Looking back, it really wasn’t a pleasant meeting. It was mostly dark humor and grim comments about what had happened to the financial industry and where we, as a start-up among giants, would end up. I imagine more than one person in the room wondered whether they would have a job down the road.

But as they say, necessity is the mother of invention. From that meeting came the idea for our Collateralized Advance Program (CAP) – the primary funding source for our portfolio today and an innovative lending syndicate that matches credit unions who have excess liquidity (money) with our need to purchase a portfolio from another credit union. To my knowledge, there is no wide spread program like this today. We have more than 60 financial institution partners that have brought more than $120 million together to fund the portfolio. The rate of return is at or above what they could have received in the market and is truly an example of a collaborative model.

So how did it happen?

This was, in fact, our third funding model. The first model, while brilliant (my perspective!) ran into regulatory constraints – it wasn’t prohibited, but it wasn’t allowed, so therefore it couldn’t move forward. Our second model was to approach large, wholesale financial institutions to fund the portfolio with collateral-backed debt (a traditional model). That approach went out the window with the financial crisis. That left us to move to Plan B (or really Plan C).

We had a few core principles on what we wanted from a funding perspective. First, we wanted credit unions that sold their portfolio to be able to invest in a risk-adjusted credit card portfolio. That is, if they were from Salt Lake City, they could fund a portfolio with a national distribution to lower the risk. Second, with the constraint that the credit union regulations would not allow them to invest in 100 percent of their portfolio value, we needed other funding partners. With that, we wanted them to be able to fund the portfolio in a risk-adjusted way – not by owning Joe or Jane’s credit card account that could go bad, but own a part of a pool of assets that we could back by taking the credit and fraud losses as a traditional credit card lender. From there, we just worked on the CAP model from our funding partners’ perspective. Why would we want to lend money through this syndicate? How could we make it attractive for them to participate? How could we be transparent in our processes so they could be assured that their money was secure? It was a few basic principles that we went to the market with.

That being said, we didn’t just open up the door and have money flowing in (ask my wife about more than a few sleepless nights). We had a few assets that made it work. We have a number of strong, long-term trusted partners who believed in us and the business model and stepped forward first. If they hadn’t, I’m not sure where we would have ended up – they saw the opportunity in the model, rather than focus on the danger that credit cards presented. We did have some potential funding partners that backed away given the perceived risk of credit cards – from my point of view they were focused on the danger rather than the opportunity. Other funding partners liked our model and yet saw ways to enhance the security and transparency (thus, the overall attractiveness) of the program. We continued to modify the program, and continue today as we add partners on a regular basis.

So what does this have to do with the financial crisis?

We have clearly been in a crisis. The old saying is that the Chinese character for crisis is a combination of danger and opportunity (Note: Apparently that saying is actually not correct, but it makes for a much better story if we suspend that small fact for the moment). In this current crisis, many people have focused on the danger. They have hunkered down, laid off staff, cut inventory, pulled back marketing and sales and hoped to ride out the storm. Certainly there was a market correction, but some decided this was the time to focus only on the danger. The danger was clear – unemployment rising, consumers pulling back, the stock market plummeting, the government bailing out banks, auto companies and the specter of “nationalization” being bantered about. The most self-righteous among us said, “I told you so.”

So where was the opportunity? I love the billboard that “Bill Gates started Microsoft in a recession.” By the way, Facebook saw its growth during that time. Apple has grown to nearly the leader in market capitalization since 2008. Why do those businesses see opportunity when others see danger?

The future and the ability to be successful is a matter of perspective and perseverance (ok, timing helps a bit, but it doesn’t start with P). The perspective is to see the opportunity, while not being blind to the danger. That might mean changing the business model, looking for new markets or figuring out how to do that thing that you always were going to work on that would change the game. The perseverance is the stick-to-itiveness to stay with that perspective even in the face of a playing field that seems to be stacked against you or with the rules changing every 23 minutes.

The environment doesn’t seem like it is going to change for awhile. So, the choice is yours – we have been and may still be in a crisis situation. Will you see opportunity or danger? I vote for looking at opportunity.

Thursday, October 21, 2010

The Scramble Drill

In my day job, I am the CEO of TMG Financial Services, a credit card issuer that works with community financial institutions. As I was thinking about what a Plan B mindset really is, I began to reflect on our business and I thought about the world we live in. We began the business in 2007 to provide credit unions and other community financial institutions an option to provide a competitive credit card offering to their cardholders. We purchase the assets, enhance the program and brand it as if it came directly from the financial institution. We build partnerships that intend to be invisible to their members and customers but can create a competitive offering that stands up to the largest issuers in the country.

Most people in our business would tell you that 2007 was not the best time to start a new credit card company or be in the financial services industry. The capital funding to buy portfolios evaporated as the credit markets collapsed. The economy began tanking and unemployment began to rise. The small to medium-sized financial institutions we work with were beginning to feel the impact of the housing and jobs crisis. And we were taking over an unsecured loan. Then add in Congress and the CARD Act of 2009 which sought to ban a number of despicable practices that were inflicted on consumers by a number of bad actors in our business (never us) but also came with the “Law of Unintended Consequences” that made it harder to serve our cardmembers and make money. Add to that the consumers that are walking away from their homes (and at the same time their credit cards) via bankruptcy, and it makes for a lot of surprises from our neat and tidy business plan written in early 2007.

But I think it was exactly the right time to be in our business. Our vision of providing a fair and competitive credit card product to American consumers was just what was needed as the largest banks cut more than $1 trillion of credit lines from cardholders in 2009 alone. Our vision of creating a true partnership with our financial institution portfolio partners was exactly the right model for what they needed to continue to offer a product to their customers and manage the increasing complexity of regulation and the marketplace. And our vision of funding this program through our partners and other smaller financial institutions was both the right answer for the marketplace and those funding partners as they needed places to put the excess deposits that were flowing in the door as consumers fled the large national banks. Today we have 40 partners and more than $115 million in assets. We are in no way out of the woods from a sustainability standpoint (for the record, neither are issuers 100x our size), but we have built a way of moving when the marketplace needs us to move while remaining consistent to who we are.

But it hasn’t been easy. Along the way, we have met a great deal of challenges and have many more to meet. The world continues to change. Through this experience I have reflected on the number of times our team has said, “I guess we need to go to Plan B.” This made me think of my uncle who has said, “Well, let’s go to Plan B,” often when working on various building projects with me (mostly when I need an outside expert). When I first asked him what Plan B was he said, “I don’t know, I guess we should figure that out.”

That is at the heart of a Plan B mindset – stay relentlessly true to the vision of value that you deliver to your customers, but be willing to be flexible and inventive in how you get there. When you are working on a change effort, whether it is a new business, a new product, a new process or a new market, Plan A rarely works. There is almost always new news and other stuff that gets in the way of the perfect plan. Plan B is what counts for success. How you develop the capacity to change tactics and execute Plan B is the difference between success and failure.

How does this play out in the real world? The vision must be so clear that the tactics can unemotionally adapt to the changing reality. You must realize that the “world as you know it” is changing, but then be willing to throw out the perfect piece of prose that was your strategy, business plan or statement of direction.

There are many examples outside the business world. I’m a football fan, so I think about football as an example. When the offense comes to the line of scrimmage, there is only one goal – score a touchdown. There might be interim goals, such as picking up the first down, but the team is focused on one goal. When the coach calls a running play, each player knows what their role is – what the snap count is, where to block, where the hole will be for the running back. But what often happens when the ball is actually snapped? The play breaks down, the defense does something unexpectedly and sometimes an offensive player doesn’t follow an assignment. It is rare that anyone remembers the dive up the middle for a two-yard touchdown. However, the plays that result from adapting are the memorable ones. For NFL fans of a certain age, it is easy to remember Marcus Allen’s reverse field run in Super Bowl XVIII against the Washington Redskins. In fact, true fans are seeing it in their mind right now (or have clicked to the YouTube video and left this wonderful analogy!). Allen, a former Heisman Trophy winner, started out to his left. The defense pursued well and plugged the hole to the left. At this point, Allen could have lowered his shoulder, gotten back to the line of scrimmage and moved on to the next play. That’s what most running backs would have done. Live to play another day. That is not what Allen did. He quickly reversed field and began running right. The line kept their blocks and there was a hole up the middle. Allen cut, accelerated and burst up the field. But he was chased by the defense. At that point he could have given up and marveled over how well he had done in a bad situation. But that wasn’t the goal. Forty yards down the field wide receiver Cliff Branch blocked the remaining defender and Allen scored what was then the longest touchdown in Super Bowl history. I didn’t remember Cliff Branch until I saw the video clip again – but he was one of the keys to this memorable play. He never gave up, even though that downfield block “wasn’t his job.”

This type of a play isn’t that unusual in football – it’s called a broken play or scramble drill. Most of the good professional players can execute when the play called in the huddle creates a strategic advantage against the defense. The great ones – especially quarterbacks like John Elway, Joe Montana, Steve Young and Brett Farve – make something happen when the call wasn’t perfect or someone missed an assignment.

Whether your game is football, business or just life, being able to adapt to Plan B is crucial for long-term success. The key is will you hang in there long enough to have the opportunity to score when the situation presents itself.

Friday, October 15, 2010

Introduction to the Plan B Philosophy

I live in a Craftsman bungalow built in 1919. The family we bought the house from about 10 years ago had lived there since the early 1940s. Needless to say it needed a bit of work. It turns out that I enjoy doing this type of remodeling, although I had never tackled a challenge like this.

My first project was the bathroom – I had remodeled a bathroom before, so I felt confident that it was within my skill set. Lisa and I picked out the tile, the fixtures and determined the floor plan. Then I tore into the walls. That was surprise number one – in addition to the plaster that I expected, the exterior wall was pure brick, the ceiling was layers of particle board and after my demolition I had a huge pile of rubble on the ground. And I was distraught. This was not what I bargained for. We had a vision of a beautiful bathroom that would begin our restoration of this great house. What I now had was a pile in the middle of the room.

What happened next is illustrative of many activities in our lives – even though most of them do not involve crow bars, hammers and power tools. I called my wife and said, “What do I do now? I don’t think I can put this back together.” Her answer was simple – “What’s the next thing you need to do to put it back together?” In business speak, how can we take the next step forward towards our vision – a beautiful bathroom – even though we encountered circumstances that we had not anticipated originally?

To a large extent, managing and growing a business in today’s world is a lot like my bathroom project. I had the personal skills and competencies to tackle this project. I had demonstrated success in a similar project – a previous bathroom remodel project. Yet that wasn’t enough – I found myself in a place that I hadn’t encountered before and couldn’t figure out the next step. There are surprises around every corner. Some of them are hidden beneath other surprises. Sometimes it feels like you have ripped down the walls and are now sitting with a pile of rubble in the middle of the room. What you do next as a leader is the most important thing. Some people call it adaptability or flexibility. Although these are components of success in today’s world, I think there are more than just those traits. I think it takes an entire way of thinking – something I have started to call the Plan B Philosophy.

The level of uncertainty today is greater today than in any other time during most of our lives. Change continues to move at a breakneck pace. In my business, financial services, we continue to get battered by the economy, regulation, new and revitalized competitors, in addition to the normal factors such as leadership, strategy and operational execution. The world is the same for all of our competitors as well – they face the same set of challenges, many of them that are a complete surprise. The question then becomes how do you react to this?

The Plan B Philosophy Blog will begin to propose a set of principles that leaders can use to adapt to changing circumstances. Some of these principles are ones that I have learned through more than a few scars. Some are ideas that my colleagues, associates and friends have demonstrated through their actions – both in the personal and professional world. My hope is that this way of thinking is infectious. There is an old saying that the Chinese character for crisis is made up of the characters for “danger” and the character for “opportunity.” We are clear about the danger in today’s economic environment. My hope for all of us is that we can stay true to our vision and focus on the opportunity.

I intend to post a couple of times per month with my thoughts on the changing business landscape. I welcome your questions, comments and even expressions of hostility. Feel free to pass this on to a colleague if you feel the urge - we could all use more adaptability, regardless of our role, industry or business.