Josh Richards "jrichard"

I have mixed feelings about Kiva's recent experiments with lending to U.S. based entrepreneurs. I'm going to let that concept roll around in my head and read more about Kiva's own reasoning for the foray before making up my own mind (Prosper.com, Lending Club, Pertuity Direct, and others already seemed to cover that space... and do so as commercial businesses).

However, something else immediately intrigues me: Of the $34,576,235 of loans with completed loan terms to folks in third-world countries, the default rate is 1.6%. Pretty good. While it's not apples to apples (for one, Kiva individuals don't have credit score categories to map into for comparison; secondly, Prosper and Lending Club lend don't loan solely to entrepreneurs), that's actually better than the across-the-board peer-to-peer lending statistics at both Prosper.com (stats) and Lending Club (stats).

What interests me most is how the statistics will look several years: will the U.S. based borrowers have as good a record as the ones from impoverished third world countries?

Another interesting tidbit, which I realize can be partially explained by cost-of-living differences, is that the U.S. based borrowers have far larger loan requests in nearly all cases. Usually $5,000 to $10,000 (though there are some outliers that are $1,000-ish).

The only loans this large from non-U.S. borrowers (which are most of the sample base so this is a pretty accurate set of statistics) are actually from large groups of entrepreneurs who are only borrowing $200-$300 individually in most cases (this group lending is common practice in micro-lending in these types of communities -- it reduces lending risk since peer pressure combined with the other members covering when someone comes up short ensures repayment).

It may be an unpopular, uncomfortable viewpoint, or simply cynical but my gut tells me that a higher percentage of the U.S. based loans will default over several years. Not because they don't mean well but because even the poor in the U.S. take a lot of things for granted. Lots of low-income folks pay for cable television, overpriced hyped cell phones like the iPhone, manage to go to Starbucks everyday, etc.

Don't get me wrong -- I support micro-lending, even domestically. I'll be curious to see the data though. While third-world countries may suffer from the risk of political instability and lack of resource availability, developed nations suffer from taking things for granted and curious personal money management practices. Even our worst off citizens have it better than much of the world's population. That doesn't make either okay but it does provide some context and, I believe, a catalyst for different mindsets when it comes to money management, suffering, and learning from our mistakes.

Micro-lending continues to fascinate me in any case. Especially when it can be done with less overhead using smart software and the Internet. Too much overhead (background checks, interviewing borrowers, checking in regularly to encourage prompt repayment, following up on late payments, etc) relative to the loan amounts has traditionally been one of its main hurdles. One which Kiva.org has tried to break through and commercial peer-to-peer lenders have tried to make viable on-line.

-jr

1. Those that give up. There's nothing dishonorable about this. Owning a business isn't for everyone at all times. Perhaps these folks will try again later. Perhaps they won't ever come back but they'll feel better that they gave it a shot.
2. Those that survive. They hunker down and manage to get by. They don't thrive but they survive. When rosy prevailing economic conditions come back they are not much worse of then they were before.
3. Those that thrive. They use the downturn as a motivator to tackle the elements they knew (or at least sensed) were missing previously. When business was just falling into their lap it was easier to put off things like establishing predictable and systematic business attraction mechanisms. While putting in the extra work now they will also be building a much stronger foundation for all economic climates. Their businesses will thrive and be far more durable. They will enjoy greater long-term profits, less frustration and uncertainty, and probably greater fulfillment as business owners.

Those businesses that focus on thriving and not just surviving are the counter-intuitive twist to all economic downturns: the output of the downward cycle consists of stronger, better and more focused and profitable businesses... and business owners.

Which camp do you intend to be in?
What small step can you take today to get moving in that direction?

-jr

The single greatest opportunity for your business to prosper (yes, even now) awaits... are you blowing it?

Dramatic changes in economic sentiment and wholesale rewrites of entire industry structures leave a lot of chaos in their wake. That chaos is, for most of us, uncomfortable. For some it is very negative, dramatically changing the course of their lives, while for others it only leaves them confused and uncertain but otherwise relatively unscathed (when viewed objectively).

The gravest mistake I see, in businesses which are otherwise perfectly reasonable ones to be in still, is too much of an inward focus. Businesses do not exist to and will never prosper when they focus on themselves. Your business exists to create value for your customers. In both good times and bad there are customers for all manner of products and services.

You may need to tweak your present offerings. Or reach out to your customers in ways that you have not had to in the past. You may need to connect with them in ways that are relevant to the conversations they are already having in their minds.

In some cases, depending on what your value add to the world is, that may mean reminding them about what's going on while giving them a different perspective on the situation. In other cases your job may actually be to save them from all the doom and gloom.... by helping them escape from it even if it is just for a brief bit of time. Only your own capabilities intersecting with your chosen customers can determine where on the spectrum your positioning should fall.

The single greatest corollary of the above also presents business owners with a tremendous opportunity. It is one of the most ubiquitous yet largely untapped opportunities to be seen in a long time. It spans across industries, has nothing to do with technology, and hits at the core of what successful businesses should already - and always - be doing anyhow: connecting with and adding value to their customers lives.

This is always a goal, of any business. Yet, especially in so-called "good times", it is easy to get complacent and simply focus on what is in front of you, what is handed to you -- on the customers that just seem to fall into your lap.

But there are always more customers out there. In good times you are leaving a lot on the table but just don't realize it. And in bad times you want a larger share of what is normally left behind.

The key is to get your marketing, relationship building, product, service, and offer development efforts, and other keys to value adding aligned. By doing this in good times as well as bad times, natural business cycles flatten out more and even under very poor economic conditions things are bearable.

The point being that those who are able to not be paralyzed by recent economic turmoil and use it as an opportunity to build a stronger foundation for their businesses will also be more profitable in good times. Survival is important and prospering remains possible with the right foundation.

The world has not ended. It has simply changed albeit dramatically (at least on the short time spans most of us view things under).

Get moving. But hurry... you're running out of time to capitalize on this opportunity!

-jr

The Pacific Crossing trans-Pacific undersea fiber network (PC-1) connects Asia and the U.S. It lands here (where I'm based) in Grover Beach, California. It was originally part of the Global Crossing network but was sold off during GBLX's restructuring several years back.

Today NTT (Japan's largest telco & a major international carrier in its own right) acquired it:

Official Press Release
Official NTT News Release
PC-1 web site

-jr

A great example of just how different efficiency and effectiveness really are. In business (and in life in general) it's very easy to fall into the efficiency trap while missing the bigger picture. If you're looking for a bump in effectiveness, look here.

This is also a rare example of an insurance company finding a way to align itself with its customers in a win-win all around.

(this particular situation also happens to be a good example of the nuances that can be picked up in one-on-one conversation that cannot be picked up in a form or even, at times, a a letter or an e-mail. Good food for thought when you're looking to overcome a disagreement, build trust, or tackle a perplexing situation).

When Leslie McMillan was hired as a director at Quebec-based Industrial Alliance in January 2004, the company processed disability claims rationally and efficiently. People seeking disability pay would submit their claims to the company, analysts would read them to make sure they were properly filed and then pass them along to independent medical experts to determine if the requests were valid. With the medical analysis complete, the company would then approve or deny the claim. It was a process designed to avoid errors and maximize efficiency. It took about eight weeks from start to finish. And it worked.

In spite of the success of the existing system, McMillan decided to change things. Based on her experience at another firm, she believed that Industrial Alliance could become better by inserting a little empathy into the system. She instructed the ten claims analysts in her division to call the people seeking disability benefits and interview them for a half-hour to learn more about them.

Within a year, the results were astounding. Across the disability division, the institution of policies that put people, not paper, at the center of claims analysis transformed the division. McMillan reports that spending on independent medical evaluations dropped by 80%. The typical time required to settle a claim fell from eight weeks to four. As analysts developed better interviewing and decision-making skills, the company was able to boost revenue by marketing higher-value disability management products instead of just offering claims evaluations. Employee satisfaction shot up as their powers increased. And lawsuits, a major expense for any insurer, dropped off precipitously as well. She estimated that whereas 12% of all claims had previously ended up in litigation, that figure had dropped to just 7%.

These are major improvements. How did this happen?

Read the rest of the story here:

http://www.businessweek.com/innovate/content/apr2009/id20090427_553433.htm

Alan Weiss, a very successful consultant, has said this many times:

"If you improve by 1% a day, in 70 days you’re twice as good."

Today I ran across a follow-on insight he had late last year that he appended to the end of the prior statement:

"But if you don’t learn carefully and instead become confused, the opposite can actually occur. People can get dumber."

I gotta say, that I know that to be true because I experience it again & again... with myself. I am so addicted to acquiring new knowledge that I constantly read books, newsletters, web sites, blogs, etc. When I'm doing it connected to a particular topic or concern (as opposed to more serendipitous research) I often find myself learning WITHOUT doing. Eventually I have to convince myself to bite the bullet, take what I've acquired thus far, and take action on it.

It's tough deciding, especially when you don't have a concrete deadline, to stop researching and pondering... and to simply take action. But, until you do, it's all theory and, well, generally not very useful.

-jr

Brian Cuban, who happens to be the brother of Mark Cuban (the owner of the Dallas Mavericks but which is irrelevant to the topic...mostly), has a good thought piece in Worth magazine entitled Celebrity Cash Crunch - We may secretly enjoy it when celebrities go belly-up—but would we do any different in their shoes?

Indeed... Heck -- with far less money to throw away -- most folks make the exact same financial mistakes. I suggest you read it here.

-jr