Building An Alternative Lending Sales Profile
November 24, 2015
Merriam-Webster dictionary defines the word, independent, in a number of different ways, but one of the definitions provided relates this word to the concept of freedom. Most of us operate in this industry on an independent basis, which gives us a significant level of freedom that revolves around not having a boss, freedom to set our own schedules, freedom from being down-sized, freedom from office politics, but more importantly:
- freedom to craft our own business plans
- freedom to target our own market segments
- freedom to decide what we will sell
- freedom to create our own products
- freedom to negotiate our own market pricing
- … and freedom to innovate
With such high levels of freedom, you have to wonder why a lot of brokers in our industry don’t exercise such liberties? Why do we sell the same products (cash advances and alternative business loans)? Why do we use the same marketing tactics (UCCs and aged leads)? Why do we market, promote and sell to the same merchants (UCCs)? Why do we use the same “pitch”? Why do we submit to the same funders?
If we are truly independent contractors, why do we all look, act and sound the same?
As we continue The Year Of The Broker, I wanted to begin a discussion on a concept that integrates your capability of independent expression. It’s the concept of constructing an alternative financing sales profile. It allows you to display your level of true independence by pre-qualifying your prospective clients and recommending solutions that are different from the pack of brokers recommending the same “me too” solutions, seeking to submit the merchant to the same “me too” funders.
ARE YOU A “BROKER” OR NOT?
Are you paid only when you broker (fund) a deal?
If so, the generation of a financing lead or application in and of itself, doesn’t produce value as it doesn’t create revenue. Revenue is only created when you successfully broker a deal, which is to match a merchant with alternative funding needs and with a particular terms/conditions comfort range, with products funded by lenders whose pricing lines up with the particular comfort level of your prospective client.
As a broker, you are much more than a salesperson, you are more of a match-maker, an arbitrator, and an consultant. You can’t consult someone if you don’t know their current situation for one, and two, you can’t consult someone unless you have the resources to prescribe appropriate solutions.
See yourself more as a doctor than a salesperson, where as a salesperson has one or two products that he’s looking to “push” on a prospect using various tactics such as cost cutting and overcoming objections, a doctor isn’t trying to “push” anything out of the gate without firstly diagnosing the client through a series of questions. After said questions have been inquired and answers provided, the doctor creates a “profile” of said client and through his wealth of medication, he prescribes a couple of solutions to assist the client.
To help increase your chances of brokering (funding) your deals, you want to increase your level of pre-qualification and increase your level of product offerings, both of which will allow you to create firstly an alternative financing sales profile of your client, and then secondly allow you to go into your wealth of alternative financing products to prescribe an array of products.
EFFICIENT PRE-QUALIFICATION
Going forward, make sure to do serious pre-qualification to create an estimated risk profile as well as an estimated sales profile. You want to know all of the following: their credit, time in business, annual sales, cash flow situation, level of profitability, type of assets, outstanding commercial debt, any current tax or judgment liens, recent bankruptcies, and current status of commercial mortgage or commercial lease agreements.
From this information you are able to create an Alternative Financing Sales Profile along with an occupying Risk Profile for each product you will soon be recommending, to know which lender within that product category is best to serve your client.
YOUR WEALTH OF ALTERNATIVE FINANCING RESOURCES
So for example, say we have a restaurant owner that’s in need of $250k in working capital for expansion. You shoot him over the pre-qualification survey and receive the following: 700 FICO, 5 years in business, $1 million sales, zero NSFs/Overdrafts for 6 months, $10k average bank balances over the last 6 months, company has been profitable for the last 3 years, no tax liens, no judgment liens, no bankruptcies, current on commercial lease payment, outstanding debt that includes $25k on a credit card with $50k outstanding on a bank loan. The merchant’s commercial assets includes business equipment, free and clear, with appraised value of $150k.
As an alternative financing broker, you should have access to more than just merchant cash advances and alternative business loans, you should also have access to: merchant processing, equipment leasing, asset based lines of credit, inventory loans, SBA loans, business credit cards, factoring, purchase order financing, commercial mortgages and real estate hard money loans.
So based on the answers to the pre-qualification survey completed by the restaurant owner, in conjunction with his total financing needs, you might be prescribing an SBA loan, a merchant cash advance, and a sale-leaseback.
- You would seek to get him an SBA loan first and let’s just say he only gets approved for $50,000. So you guys complete the process to fund the SBA loan.
- Next, you would look at doing either a merchant cash advance for let’s say another $100,000 using split funding. You notice that his current processing rates are a little higher than market average pricing for Restaurants and show him a savings analysis with your interchange plus pricing structure with a 10BP mark-up that should be saving him $400 a year which is $1,200 over three years. So in the process of this you also convert his merchant processing over to one of your processing platforms that can handle split funding. Now you have raised $150,000 of the $250,000 funding goal that the merchant has in mind.
- Finally, you would look at doing a sale-leaseback on his pre-owned equipment that’s appraised for $150,000. With a 70% LTV, this comes to $105,000 in funding. Now you have successfully funded the merchant over $250,000 and in the process closed three different alternative funding products as well as converted over his merchant processing at the same time.
In an upcoming article, I will continue this discussion on pre-qualification by going into information on how this level of efficiency includes the creation of Risk Profiles that allow you to limit your submissions to your funders/lenders as to not clog up their underwriting pipelines with unnecessary submissions. It allows you to focus on submitting 10 applications and funding 5, instead of submitting 50 applications and funding 5.
What Makes a Good Loan Broker? Is it How Much You Fund?
November 18, 2015What Makes A Good Broker?
Through the plethora of recruiting ads by brokerages, funders and lenders, trying to draw people into the space through promises of lucrative paydays with minimal work, one has to stop and wonder, who are the actual good brokers? What do they look like, sound like, and dress like? How is their personality? How is their work ethic? How can you spot them in a crowd?
There are a number of things that make a good broker, a good broker, but for the sake of this discussion, I wanted to begin with expectations and measurements of funding volumes.
LIMITING THE MEASUREMENT
A broker can have a good month, a good quarter, and even a good year, so to truly judge the quality of a broker’s work, I believe you have to start the measurement over at least a 24 month time period. This would smooth out things that usually plague sales professionals such as down times, seasonal periods, stall periods, dry spells, artificial market boom and bust periods.
One won’t even be able to complete this measurement on most brokers entering the space, as most of them will be out of the industry within 3 – 6 months. I believe that success in our industry is mainly due to having leveraged resources that give you a competitive advantage, rather than actual superior “selling” capabilities. 20% of brokers will have these resources and 80% will not.
MEASUREMENT TIERS
From my research, these are the measuring tiers that can be utilized to gauge the quality of a broker over at least a 24 month time period. These numbers include both new and renewal funding volumes. With renewal merchants, even though you are dealing with the same client, they still require a new underwriting process with new offers being generated, thus requiring a new sales process or another “close.” As renewals are the lifeblood of our industry, many brokers have a plan in place to build a renewal portfolio and “sit back”, thus we shouldn’t only factor in new deals to this measurement.
- $300,000 plus a month in funding average: The Superstar Broker Level
- $150,000 to $250,000 a month in funding average: The Good Broker Level
- $75,000 to $125,000 a month in funding average: The Average Broker Level
- $25,000 to $50,000 a month in funding average: The Rookie Broker Level
If you have been a broker for at least 24 months, what is your current standing? If you are currently at the Rookie Agent level or the Average Agent level, what do you think you can do to get to the Good Agent level or the Superstar Agent level?
NOT ALL BROKERS ARE EQUAL IN TERMS OF OPERATIONAL STRUCTURE
These measurement tiers are only for individual brokers and not for total funding volumes completed by an entire office of brokers.
But also understand that other variables might be at play for an individual broker as well, such as the fact that he might be a sub-broker to a large brokerage house that feeds him warm leads all day, and his job is just to come in, sit down and focus only on the selling/closing part of the process. Or, he might be a part of a funder’s inside sales team and similar to the sub-broker, he gets warm leads fed to him all day to where he just needs to come in, sit down and focus only on selling/closing.
If you are currently in the sub-broker or inside sales team setup, it’s understandable if you are in The Superstar Broker level as you have more leveraged resources, less responsibilities and more time to dedicate solely to your selling/closing process.
But if you are operating as a One Man Show, like I was, then (in my opinion) it would mean a lot more to consistently perform at either The Superstar Broker level or The Good Broker level, considering all of the administrative/operational tasks that you solely have to juggle on your own.
MY ONE MAN SHOW PERFORMANCE
As my office currently goes through restructuring, during my time of selling the product from late November 2009 until September 2015 (70 months), I averaged $200,000 a month in new and renewal funding volume. This would place me at The Good Broker level.
There were surely months when I funded at The Superstar Broker level of over $300,000 with even some months getting at or near $1 million, but those were not my consistent averages throughout the 5 years and 10 months (70 months) that I sold the product. During the 70 month time period operating as a One Man Show, I had to juggle many administrative/operational aspects including but not limited to:
- Completing my own secondary and primary market research
- Designing my own business plan, ROI formulas, and completing my own trend analysis
- Coming up with innovative ways to creatively and profitably finance my office
- Building business related credit
- Setting up my funder network and keeping up on their underwriting criterion
- Setting up agreements with warm data suppliers and other vendors
- Designing and running my own website
- Setting up and managing my own direct and in-direct marketing campaigns
- Running through my daily calls to warm data (averaged about 150 a day)
- Managing and following up with my sales pipeline
- Managing and following up with my current deals in underwriting
- Managing and following up with my renewal portfolio
- Managing legal aspects such as contracts, LLC requirements, keeping up on marketing laws, etc.
- Managing accounting, insurance and tax related aspects
- Managing retirement account aspects
On the side, I built a merchant processing portfolio on track to process close to $200 million.
To top everything off, I also managed to complete four college degrees (MBA and three bachelor’s degrees) during this hectic and stressful time period as well.
YOU MIGHT HAVE BETTER OPERATIONAL LUXURIES THAN I DID
If you have the luxury of being a sub-broker or a part of an inside sales team, with having a team of people to do a good chunk of the administrative/operational tasks listed above (that I had to manage on my own), then as mentioned, you stand a great chance of getting to and staying in The Superstar Broker level of performance in terms of funding volumes.
You want to just bring to the table a solid work ethic and professional competency, always with the passion, desire and ability to learn. You also want to be very efficient in time management. I believe that time management is a “skill” that must be honed and managed. As the English brewer Charles Buxton said: “You will never find time for anything. If you want time, you must make it.”
Alternative Business Funding’s Decade Club
October 22, 2015
The working capital business is a very different animal now than it was a decade or so ago when many of today’s established players were just starting out.
“At that time, the industry was a bunch of cowboys. It was an opportunistic industry of very small players,” says Andy Reiser, chairman and chief executive of Strategic Funding Source Inc., a New York-based alternative funder that’s been in business since 2006. “The industry has gone from this cottage industry to a professionally managed industry.”
Indeed, the alternative funding industry for small businesses has grown by leaps and bounds over the past decade. To put it in perspective, more than $11 billion out of a total $150 billion in profits is at risk to leave the banking system over the next five plus years to marketplace lenders, according to a March research report by Goldman Sachs. The proliferation of non-bank funders has taken such a huge toll on traditional lenders that in his annual letter to shareholders, J.P. Morgan Chase & Co. chief executive officer Jamie Dimon warned that “Silicon Valley is coming” and that online lenders in particular “are very good at reducing the ‘pain points’ in that they can make loans in minutes, which might take banks weeks.”
The burgeoning growth of alternative providers is certainly driving banks to rethink how they do business. But increased competition is also having a profound effect on more seasoned alternative funders as well. One of the latest threats to their livelihood is from fintech companies, like Lendio and Fundera,for example, that are using technology to drive efficiency and gaining market share with small businesses in the process.
“Established lenders who want to effectively compete against the new entrants will need to automate as much decisioning as possible, diversify acquisition sources and ensure sufficient growth capital as a means to capture as much market share as possible over the next 12 to 18 months,” says Kim Anderson, chief executive of Longitude Partners, a Tampa-based strategy consulting firm for specialty finance firms.
Of course, there is truth to the adage that age breeds wisdom. Established players understand the market, have a proven track record and have years of data to back up their underwriting decisions. At the same time, however, experience isn’t the only factor that can ensure a company will continue to thrive over the long haul.
WORKING TOWARD THE FUTURE
Indeed, established players have a strong understanding of what they are up against—that they can’t afford to live in the glory of the past if they want to survive far into the future.
“With every business you have to reinvent yourself all the time. That’s what a successful business is about,” says Reiser of Strategic Funding. “You see so many businesses over the years that didn’t reinvent themselves, and that’s why they’re not around.”
Strategic Funding has gone through a number of changes since Reiser, a former investment banker, founded it with six employees. The company, which has grown to around 165 employees, now has regional offices in Virginia, Washington and Florida and has funded roughly $1 billion in loans and cash advances for small to mid-sized businesses since its inception.
One of the ways Strategic Funding has tried to distinguish itself is through its Colonial Funding Network, which was launched in early 2009. CFN is Strategic Funding’s secure servicing platform which enables other companies who provide merchant cash advances, business loans and factoring to “white label” Strategic Funding’s technology and reporting systems to operate their businesses.
“When you’re in a commodity-driven business, you have to find something to differentiate yourself,” Reiser says.
FINDING WAYS TO BE DIFFERENT
That’s exactly what Stephen Sheinbaum, founder of Bizfi (formerly Merchant Cash and Capital) in New York, has tried to do over the years. When the company was founded in 2005, it was solely a funding business. But over the years, it has grown to around 170 employees and has become multi-faceted, adding a greater amount of technology and a direct sales force. Since inception, the Bizfi family of companies has originated more than $1.2 billion in funding to about 24,000 business owners.
Earlier this year, the company launched Bizfi, a connected online marketplace designed specifically to help small businesses compare funding options from different sources of capital and get funded within days. Current lenders on the platform include Fundation, OnDeck, Funding Circle, CAN Capital, SBA lender SmartBiz, as well as financing from Bizfi itself. Financing options on the platform include short-term funding, equipment financing, A/R financing, SBA loans and medium term loans.
Sheinbaum credits newer entrants for continually coming up with new technology that’s better and faster and keeping more established funders on their toes.
“If you don’t adapt, you die,” he says. “Change is the one constant that you face as a business owner.”
David Goldin, chief executive of Capify, a New York-based funder, has a similar outlook, noting that the moment his company comes out with a new idea, it has to come up with another one. “If you’re not constantly innovating you’re in trouble,” he says. “It’s a 24/7 global job.”
Capify, which was known as AmeriMerchant until July, was founded by Goldin in 2002 as a credit card processing ISO. In 2003, the company began focusing all of its efforts on merchant cash advances. Four years later, the company made its first international foray by opening an office in Toronto. The company continued to expand its international presence by opening up offices in the United Kingdom and Australia in 2008. The company now has more than 200 employees globally and hopes to be around 300 or more in the next 12 months, Goldin says. The company has funded about $500 million in business loans and MCAs to date, adjusted for currency rates.
THE CULTURE OF CHANGE
Five or six years ago, Capify’s main competitors were other MCA companies. Now the competition primarily comes from fintech players, and to keep pace Capify has made certain changes in the way it operates. From a human resources standpoint, for instance, Capify switched from business casual attire to casual dress in the office. The company has also been doing more employee-bonding events to make sure morale remains high as new people join the ranks. “We’ve been in hyper-growth mode,” he says.
CAN Capital in New York, another player in the alternative small business finance space with many years of experience under its belt, has also grown significantly (and changed its name several times) since its inception in 1998. The company which began with a handful of employees now has about 450 and has offices in NYC, Georgia, Salt Lake City and Costa Rica. For the first 13 years, the company focused mostly on MCA. Now its business loan product accounts for a larger chunk of its origination dollars.
This year, the company reached the significant milestone of providing small businesses with access to more than $5 billion of working capital, more than any other company in the space. To date, CAN Capital has facilitated the funding of more than 160,000 small businesses in more than 540 unique industries.
Throughout its metamorphosis to what it is today, the company has put into place more formalized processes and procedures. At the same time, the company has tried very hard to maintain its entrepreneurial spirit, says Daniel DeMeo, chief executive of CAN Capital.
One of the challenges established companies face as they grow is to not become so rule-driven that they lose their ability to be flexible. After all, you still need to take calculated risk in order to realize your full potential, he explains. “It’s about accepting failure and stretching and testing enough that there are more wins than there are losses,” says DeMeo who joined the company in March 2010.
ADVICE FOR NEWCOMERS
As the industry continues to grow and new alternative funders enter the marketplace, experience provides a comfort level for many established players.
“The benefit we have that newcomers don’t have is 10 years of data and an understanding of what works and what doesn’t work,” says Reiser of Strategic Funding. With the benefit of experience, Reiser says his company is in a better position to make smarter underwriting decisions. “There are many industries we funded years back that we wouldn’t touch today for a variety of reasons,” he says.
Experienced players like to see themselves as role models for new entrants and say newcomers can learn a lot from their collective experiences, both good and bad. Noting the power of hindsight, Reiser of Strategic Funding strongly advises newcomers to look at what made others in the business successful and internalize these best practices.
One of the dangers he sees is with new companies who think their technology is the key to long-term survival. “Technology alone won’t do it because that too will become a commodity in time,” he says.
Over the years Strategic Funding has learned that as important as technology is, the human touch is also a crucial element in the underwriting process. For example, the last but critical step of the underwriting process at Strategic Funding is a recorded funding call. All of the data may point to the idea that a particular would-be borrower should be financed. But on the call, Strategic Funding’s underwriting team may get a bad vibe and therefore decide not to go forward.
“We look at the data as a tool to help us make decisions. But it’s not the absolute answer,” Reiser says. “We are a combination of human insight and technology. I think in business you need human insight.”
Seasoned alternative funding companies also say that newbies need to implement strong underwritingcontrols that will enable them to weather both up and down markets.
The vast majority of newcomers have never experienced a downturn like the 2008 Financial Crisis, which is where seasoned alternative financing companies say they have a leg up. Until you’ve lived through down cycles, you’re not as focused as protecting against the next one, notes Sheinbaum of Bizfi. “Every 10 years or 15 years or so, there seems to be a systemic crisis. It passes. You just have to be ready for it,” he says.
Goldin of Capify believes that many of today’s start-ups don’t understand underwriting and are throwing money at every business that comes their way instead of taking a more cautious approach. As a funder that has lived through a down market cycle, he’s more circumspect about long-term risk.
One of the biggest problems he sees is funders who write paper that goes two or three years out. His company is only willing to go out a maximum of 15 months for its loan product, which he believes is s a more prudent approach. He questions what will happen when the economy turns south—as it eventually will—and funders are stuck with long dated receivables. “You’re done. You’re dead. You can’t save those boats. They are too far out to sea,” Goldin says.
Having a solid capital base is also a key to long-term success, according to veteran funders. Many of the upstarts don’t have an established track record and need to raise equity capital just to stay afloat—an obstacle many long-time funders have already overcome.
Goldin of Capify believes that over time consolidation will swallow up many of the newbies who don’t have a good handle on their business. Hethinks these companies will eventually be shuttered by margin compression and defaults. “It can’t last like this forever,” he says.
In the meantime, competition for small business customers continues to be fierce, which in turn helps keep seasoned players focused on being at the top of their game. Getting too comfortable or complacent isn’t the answer, notes DeMeo of CAN Capital. Instead, established funders should seek to better understand the competition and hopefully surpass it. “Competition should make you stronger if you react to it properly,” he says.
The Importance Of A Profitable Business Model And Creative Financing For Your Broker Office
August 10, 2015
Continuing The Year Of The Broker Discussion, I wanted to touch on another aspect that isn’t discussed too often in our space (Independent Broker or Independent Agent space), and that’s the importance of creating a profitable business model and rounding up creative debt financing for our Office.
I believe it was the Roman Playwright, Plautus, that said, You must spend money to make money. This is certainly true for Independent Brokers and Agents, as we are entrepreneurs in every sense of the word, or if you operate a one man show like I do, then you would be more along the lines of a solopreneur which is new terminology floating around that refers to certain special entrepreneurs who run their business solo with full responsibility over the day-to-day operations.
However, despite the fact that one must spend money in order to make it, it begs the question as to why many new Brokers have very little networks, resources and other sources for financing?
Not only do they lack these resources, but many new Brokers also have not truly developed a scientific business model for their office based on: If I invest XYZ in data, marketing and all other aspects in association of producing 1 new closed deal, I would receive XYZ back into terms of the revenue off the initial closed deal as well as XYZ back in terms of recurring revenues on the renewals of said merchant.
Many new brokers lack both a scientific and profitable business model, along with efficient financing for said business model, which threatens their survival going forward.
Your Profitable Business Model
I argue with investors across the Investment Community all of the time in relation to which is better in terms of building the most Wealth, is it investing in Stocks or operating your own Profitable Business Model? I have always believed creating your own Profitable Business Model was the fastest way to Wealth due to the lack of control one has over the returns you can generate through the Stock Market. Commentators like James Altucher tend to agree with my mentality as he says: The best way to take advantage of a booming stock market is to invest in your own ideas. If you have an extra $50,000 don’t put it into stocks. Put it into yourself. You’ll make 10,000% on that instead of 5% per year.
I’ve always used a model of at least a 400% return within 24 months for operating my office because, not only did I have to cover business expenses and taxes, but I also had to cover my personal expenses, the funding of my emergency funds/savings, and the funding of my retirement accounts which includes SEP IRAs, Social Security, and Health Saving Accounts.
So for example, my model might have it to where if I invest $30,000 into my office, that should produce revenues of around $180,000 within 24 months, revenues include commissions from new deals, renewal deals, side processing residuals and other valued added products. This would leave a profit before taxes of $150,000 or a 500% return. Now the 500% range is just the benchmark used, in terms of actual returns, they have been at least double this amount due to my focus on maintaining clients for the long term as with recurring clients, there are no investment dollars spent on the acquisition of those additional revenues but they do continue to add to the overall “profitability” measurement of the original investment.
Utilizing this predictable model allows for the use of creative financing for leverage, cashflow management, along with the preservation of savings, and other investment portfolios. One of the tools I have been using for creative financing have been Credit Card No Interest Promotional Offers.
Using Credit Card Promotional Offers To Finance Your Office
I’m a Dave Ramsey fan like many Americans, but I’m totally against Mr. Ramsey’s consistent hammering of the use of “debt,” specifically the use of Credit Cards. Credit Cards are just like hand guns, if you put the gun in the hands of a solider, police officer, hunter, or a responsible home owner, then you protect human life, build nations and protect communities. If you put the gun in the hands of the common Chicago inner city street thug, then you get crime and homicide. If you put a Credit Card in the hands of a responsible person, the Credit Card is used to bring a variety of additional benefits to said user. But in the hands of an irresponsible person, the Credit Card just adds to their financial woes.
If you strive to keep your personal credit profile clean and with high efficiency, you should qualify for a number of Credit Cards that not just provide cashback rewards, but they provide short term financing in the form of 0% interest for 12 – 18 months, with a 1% – 3% upfront fee. This means you can receive an up to 18 month loan for only 1% – 3% in borrowing costs. These offers are not presented just when the card is opened, but they are generated usually on a monthly or quarterly basis.
So coming back to my business model, I might put that entire $30,000 on a credit card promo deal for 18 months with an upfront fee of 3%, which means the borrowing costs are $900. I would continue paying the minimum payment every month which is usually calculated as no more than 0.5% – 1% of the outstanding balance. I would invest the $30,000 into my business model and would have obtained the break-even return and profit measurement in a relatively short period of time (usually 3 – 5 months) and then be profitable on the investment. I would eventually end up paying off the outstanding balance on the Credit Card well before the promo period ends, which further increases my positive credit history allowing for larger credit limits to be requested.
Other Benefits Of Credit Cards Over Other Payment Options
Credit Cards also provide a host of other benefits including cashback rewards of anywhere from 1% – 45% depending on the reward category, these rewards and savings are not available through any other form of payment option. If you seek out cards with no monthly fees, setup fees or annual fees, you could run up balances, pay them off before the grace period ends, and obtain a stream of free income.
Credit Cards also include Chargeback Protection that can save you a significant amount of headaches down the line should you run into an unscrupulous vendor, or if you are the unfortunate victim of theft such as a robbery, identity theft, strong-arm theft, etc. For example:
- If someone steals your wallet and goes on a “card swiping spree”, once you report your Credit Card stolen then you aren’t responsible for any of those transactions. This isn’t as efficient if you carried a Debit Card, as the money would be gone from your Checking Account until the Bank recovers the funds in 30 – 90 days, which might cause you some cashflow issues. If you carried Cash, the money might never be recovered.
- If you ordered something from a vendor and didn’t receive it, you are protected with the use of Credit Cards. With a Debit Card or Check, it will again take 30 – 90 days for the dispute to complete with the Bank, however, throughout this period of time the money is still gone from your account until the dispute is over, which might cause some cashflow issues. If you used Cash for the order, the money might never be recovered in this case as even though you are likely to obtain a judgment by suing the vendor, the Courts do not assist you with collections.
To Wrap
In order to survive going forward as an Independent Broker or Agent, remember the importance of developing a profitable business model as well as having low cost sources of financing for said model. Credit Cards are one of the ways you can creatively finance your business model.
I’m on track to end the year with near or over $200,000 in total credit limit availability. This credit limit availability is spread out over a number of different accounts, but some of my favorite Credit Card Accounts include: The Double Cash Card ™ from CitiBank, The Discover IT Card ™ from Discover Bank, The BankAmericard Cash Rewards Card ™ from Bank of America, The Chase Freedom Card ™ from Chase Bank, The Upromise Mastercard ™ from Barclay’s Bank, The QuickSilver Rewards Card ™ from Capital One Bank, and The Blue Cash Everyday Card ™ from American Express.
Addressing Stress and Depression Over Declined Deals
July 29, 2015
I wanted to add to my series discussion by touching on a topic that isn’t often discussed in our space, and it pertains to dealing with depression, stress and other mental health related conditions over the loss of a deal.
Let’s Be Honest
Let’s face it, most of us (as brokers) work on a 100% commission structure, or derive a significant portion of our income from commission, this means that our compensation is based on performance. This performance is directly correlated to the amount of new/renewal business that we fund. The word fund is the keyword here, as your performance in terms of selling might be excellent with the continued production of new leads, new applicants and new interested parties to our industry’s working capital selections. However, if those new leads and applicants don’t fund, then in terms of your performance, they don’t count. An applicant can be declined for a variety of reasons and all of them are usually totally out of your control. However, your compensation is dependent upon your merchant’s approval as well as the offering of terms/conditions that they deem acceptable. This high level of stress can lead to mild bouts of depression, and that depression could lead to a variety of other issues such as overeating, not eating, over sleeping, not sleeping enough, emotional breakdowns, paranoia, personal relationship issues, along with a variety of other inefficiencies.
The Loss Of Hope
Google says that the definition of depression is related to “the feelings of severe despondency and dejection.” Despondency and dejection refers to a state of low spirits caused by the loss of hope, and hope is sometimes all we have as Brokers. All we have going for us is an internal “hope” that our sales abilities will produce the commissions needed to not just cover our business/tax expenses, but cover our personal expenses, insurance, etc., and leave some left-overs to allow us to save for retirement. If you put your soul into this (like I do), then with every funded deal you will rejoice internally, and with every deal declined or approved with terms that are unacceptable to your client, you might feel sudden emotions of panic, fear and uncertainty. As a one man show, I have funded hundreds of deals while also building up a side merchant processing portfolio that processes tens of millions in volume every year. But I have also lost a ton of potential deals on both the funding side and the merchant processing side through declines or approvals that were unacceptable to my client. If left unchecked, still to this day I feel emotions of sickness and depression over declined and lost deals, so much so that sometimes I just have to go home and lay down in the bed for a minute.
Tackling The Stress Through Other Means Of Management
So how do I handle depression and stress over declined and lost deals for the most part? Here are some tips on how I handle the stress and depression of this industry, and perhaps they too can provide some assistance for you in those critical, nerve-racking situations of receiving emails from your Funder with “Declined” or “Application Ineligible” typed out in the Subject Line:
Diversify, Diversify, Diversify
This isn’t just true in Stocks, but it’s also true in being an Independent Agent/Broker. You are a 1099 Independent Sales Office and there’s just no reason why you ought to only be selling one product. Remember as I touched on in prior AltFinanceDaily articles, as a Broker your job is to be as Jeff Thull from Prime Resource Group explains, which is to be a valued source of business advantage for your prospective and current clientele. You should have access to knowledge, resources, networks, products and platforms that your prospective and current clientele lacks access to, allowing them to see you as a “valued extension” of their organization in terms of the value of your expertise and network.
So there’s no reason that you should just be selling Merchant Cash Advances or Alternative Business Loans, you should be selling a variety of other products in various different segments such as POS Systems, Merchant Processing, Equipment Leasing, Insurance, Big Data, Marketing Programs, Cost Reduction Programs, etc., just to name a few.
Do This Because It’s Your Purpose, Not Just For The Money
Listen, I’m not here to convert anybody to any particular Religion, but I believe that if you are going to be an entrepreneur (which is what you are as a 1099 Broker/Agent) then you need to have a very strong internal spirit or soulful foundation. Your motivation, joy, peace and confidence should extend beyond your earthly circumstances. You should see this industry as something you do as a Purpose that aligns with your spirit or soulful foundation, rather than just seeing it solely as a means to make an income.
Continued Learning and Development
The Merchant Services related industry continues to evolve and you should be following all of the trends and updates. The best places to do this for the Merchant Services related industry, is to make sure to follow AltFinanceDaily as well as other sources such as The Green Sheet, Payment Source’s ISO/Agent, The ETA, The SBFA, as well as various industry trade conferences such as LendIt and The AltLend Summit.
Focus On Total Financial Management
Financial management is not just about bringing in decent income, it’s about managing the six pillars of finance which are Income, Investments, Insurance, Credit, Expenses and Taxes.
For example, you might be bringing in $100,000 a year in commissions from your Home Office, but you might be living in a high cost of living area, have horrible spending habits, have inefficient tax reduction strategies, and you have four children from four different women paying very high child support claims. This means that your expenses are too high and your financial efficiency is going to be off.
On the other hand, you might be making $50,000 a year in commissions from your Home Office, with no children, living in a low cost of living area, with efficient budgeting and tax reduction strategies, putting away let’s say $7,500 a year into your retirement accounts. If you do this for 40 years from 25 – 65 for example, with just a conservative 5% per year return, you will have over $1 million at age 65. You will have made yourself a self-made millionaire and you didn’t need a six figure annual commission compensation to do it. All you needed was Total Financial Management.
To Wrap
So in a nutshell, I manage the stress and depression of our industry through having a totally efficiently managed financial system in place, not selling just one product, always learning, and making sure that everything I do is grounded in Purpose. I believe that if you too were to adapt some of these techniques, the loss of that deal you worked so hard on, might not “sting” as bad after all.
Generating Leads and Acquiring Borrowers Not Easy in Business Lending
July 21, 2015
“Banks are almost always losing money on small business lending,” said Manish Mohnot, TD Bank’s Head of Small Business Lending, on a panel at the AltLend conference in New York City. It’s a loss leader within the small business segment, he explained, because banks want to bring in deposits.
Funding Circle’s Rana Mookherje concurred. “Banks just can’t make a loan under $500,000 profitably,” he said.
It’s a conundrum few outside banking think about. When consumers and businesses picture banks, they might think of loans, but when banks think of consumers and businesses, they think of deposits. The sentiment amongst the experts at AltLend was that traditional banks and alternative business lenders were not competing with each other for the same customers because each party was after a different objective.
And even when banks think about loans, because obviously they do, they just don’t approach them the way that alternative business lenders do. To that end, ApplePie Capital CEO Denise Thomas said, “Most community banks are looking to make loans backed by an asset. They just don’t want to underwrite [loans] one by one under a million dollars.”
Bankers are genuinely surprised by how alternative lenders subjectively or manually approach business loans, a subject covered just yesterday here on AltFinanceDaily. Charles Green, the Managing Director of the Small Business Finance Institute and moderator of the New Pioneers panel said he never saw banks use bank transaction history to make underwriting decisions in his 35 years of banking.
The factors paraded as being more important above everything else in alternative lending today have apparently been non-factors in traditional lending for years. “There is no substitute for banking information when reviewing a client for approval,” said Andrew Hernandez, a co-founder of Central Diligence Group, in Do Bank Statements Matter in Lending? Business Lenders and Consumer Lenders Disagree. These kind of statements are mind-blowing in traditional lending circles.
Nevertheless, banks watch in awe as alternative lenders not only make small commercial loans, but do it profitably. But how they source borrowers isn’t rocket science. Jim Salters, the CEO of The Business Backer pointed out that some alternative lenders are marketing on a large scale by running TV or radio commercials. But that level of investment isn’t for everyone, especially younger companies.
“Direct mail isn’t sexy, but it converts,” said Candace Klein, the Chief Strategy Officer of Dealstruck. She also said that her company is doing radio advertising.
Matt Patterson of Expansion Capital Group is well versed in digital marketing and incorporates SEO and online paid advertising such as Facebook in his strategy. There’s a difference in the conversion rate in advertising on Facebook versus something like Google, he explained. On Google, business owners are looking for something whereas on Facebook they stumble across it.
Everyone agreed that Pay-Per-Click marketing such as Google Adwords was very expensive in this competitive landscape.
Jim Salters, CEO of The Business BackerBut where can funders and lenders reliably turn to acquire deal flow cost effectively? Salters revealed the industry’s worst kept secret, brokers. The Business Backer acquires about half of its volume from brokers and the other half directly, according to Salters.
“The broker channel is one of the most cost effective channels for us,” said Klein, who would not say on the record exactly how much of Dealstruck’s total business was from brokers.
Patterson agreed with the favorable ROI of using brokers, but saw benefits to communicating with small businesses directly. “Everything about that relationship is better when you’re talking directly to that merchant,” he said. And yet, “our direct leads convert much lower than our broker leads will,” he added.
The panelists generally agreed that this was because brokers have essentially already gathered the documents and closed the deal by the time the lender or funder is finally seeing it.
But aren’t brokers and humans the antithesis of tech-based lending?
Brett Baris, the CEO of up-and-coming lender Credibility Capital said, “We were actually a little surprised by how much a human is needed.” Baris’ company acquires most of its leads through a partnership it has with Dun & Bradstreet. Most of their borrowers are prime credit quality.
“The human element is very important to get the higher quality borrowers to the finish line,” Baris noted. TD’s Mohnot was not surprised. For applicants doing $5 million to $6 million a year in revenue, they want somebody to walk them through the loan process, he opined.
“Merchants love talking to people,” Patterson said. “Some of that comes from the frustration of calling their bank and not being able to talk to people.”
But would that mean the assumptions about automation are wrong? Not quite, explained Mohnot. It’s the younger business owners who have the impulse desire to do things fast or online, he said.
And Klein said that observing merchant behavior at least at her company has shown that those all too eager to apply for a loan in an automated online fashion are typically looking for smaller amounts like $20,000 to $40,000. Meanwhile Dealstruck’s loan minimum is $50,000.
Not everyone is as fortunate as Baris, who is able to generate leads through the trust inherent in a conversation that originated with a D&B rep, but real actual bank declines are making their way to alternative lenders. They’re not the holy grail that everyone thinks they would be though.
“Conversions tend to be lower from bank leads because they’re expecting 6% and are insulted when they hear [a higher %],” said Klein. And Salters who refers to his company as a “turndown partner of choice for upstream lenders,” shared how hard it is for a bank to partner with an alternative lender in the first place. Years ago, banks were aghast by his hands-on, manual underwriting approach that he felt was his company’s core competency. The banks were afraid their regulators would freak out over something so subjective.
And yet Merchant Cash and Capital’s founder, Stephen Sheinbaum and Credit Junction’s CEO Michael Finkelstein both told an audience that they saw banks as collaborative partners.
Meanwhile, Dealstruck actually has a graduation system where merchants graduate out of their loan program and become eligible for a real bank loan. Klein explained that a small business could be referred to them by the bank and then after a couple of years of good history, they’ll refer it back to them.
The acquisition secret however seems to be in finding your strength. ApplePie is focused exclusively on franchises. Expansion Capital Group has formed relationships with several trade organizations. Credibility Capital goes hand-in-hand with D&B.
Still, there is no doubt that the broker channel is alluring, but it can be a slippery slope. Raiseworks CEO Gary Chodes cautioned that “brokers are incentivized to follow the money.” Klein also expressed concern. She knows firsthand how challenging brokers can be since she’s had to terminate some in the past for bad behavior.
“Transparency is extremely important,” Finkelstein proclaimed in regards to the customer experience. This means that lenders can’t simply work off the ROI metric alone. But that ROI is the envy of banks nationwide.
Banks want to refer their clients to alternative lenders because if they get approved, then the lender is going to deposit those funds at their bank, Mohnot alluded.
It would seem that there is not one particular methodology that works better than all the others to acquire a borrower and that’s okay. Alternative lenders struggling to maximize their ROI can take comfort in the fact that banks, with all the resources they have at their disposal, accepted a long time ago that it was impossible to even make money at all in small business lending.
If you’re at least in the black, you’re probably doing just fine…
Social Media for Small Business: Food for Thought
January 29, 2013Here’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 Forbes.com:
- 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 business2community.com:
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
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MPR.mobi on iPhone, iPad, and Android
Is Google Your Only Web Strategy?
December 31, 2012Every business wants to be found in search. To most, being found means top placement in Google’s search results for keywords or phrases that are most likely to convert into a lead, sale, or customer. That begs the question… how does one get that top placement?
While many are now accusing Google of monopolizing or manipulating the search results to promote pages and products that earn them revenue, they are still unique in the sense that one simply cannot buy top placement in organic rankings. The Google search system was originally designed to rank pages based on both how many other pages linked to a page and how important those linking pages were. It was a relational system called PageRank that theoretically gave little guys a chance of being ranked alongside or even ahead of major corporations.
When it came to being talked about or linked to from other sites (these incoming links are called backlinks), mega corporations with large sums of money had a tremendous advantage. Media outlets seemed to always be linking to them naturally and they could buy linking ads on websites that didn’t. They could even buy backlinks on irrelevant pages just to up the ante. In 2011, Overstock.com was penalized by Google after one such linking scheme was discovered. Overstock was offering discounts to students and faculty that placed a link to their website on a school web page ending with .edu. It was believed that .edu top level domains (TLDs) carried far more weight than .com, .net, and .org. Overstock tried to capitalize on that.
Where a company ranks in the result listings can mean the difference between success and failure. For the mega corporations, millions of dollars in revenue can be gained by being listed 1st as opposed to 4th. The reality is that searchers tend to click on top results more often, ultimately leading to more sales for the companies that rank well.
According to a study conducted by Slingshot SEO, the top search result is clicked 18.2% of the time, whereas the last result (#10 on the page) is selected 1% of the time. These statistics make a few things clear. If you’re not on the first page, you might as well be in outer space. Additionally, a ranking on the first page must be for a search term or phrase that is frequently searched. Sure, we’re happy to be listed 4th for the search phrase “greatest merchant cash advance company in the world,” since it links to our free directory of verified MCA providers, but since no one is using that search phrase, it really doesn’t matter.
A hypothetical business does research and determines that 100 people per month are entering this phrase into the Google search bar: “I want a merchant cash advance this minute.” It looks promising because it shows that the end user is in buying mode. One could make the case that they are more likely to apply for business financing than a user searching for “the history of merchant cash advance.” 100 searches for the initial phrase might seem like an opportunity, but you have to make an effort to achieve a listing for that keyword, at least that’s what Search Engine Optimization (SEO) gurus will tell you.
All Hail the King
Since Google is the omnipotent dictator that determines where every website falls, there is nothing that can 100% guarantee a website will be visible for the terms and phrases a webmaster wants. There is no shortage of tips, methods, and tricks to boost the odds but all of those things require time, money, or both. Neither will get the webmaster far unless the Search Engine Optimizer (SEOer) knows how to modify a website, analyze search phrases, and implement a strategy to increase rankings. If the SEOer isn’t tech savvy, stay away.
The SEOer’s strategy will likely fall into one of two categories, white hat or black hat, but it’s important to note that wearing any kind of hat is technically a violation of Google’s Terms of Use. It’s easy to label an SEOer that places thousands of irrelevant comments with a backlink on blogs all over the Internet as a black hatter. But contrast that technique with a white hatter that does nothing more than write interesting articles and get them published on other websites with a backlink.
The latter may seem innocuous, but both attempt to manipulate Google’s algorithm and can lead to serious ranking devaluation penalties. A penalty can be crippling for a business that depends on acquiring leads or customers online. Worse yet, the webmaster is not tried before a jury of his/her peers before being sentenced to page infinity for all search terms. This is the downside of the playing field Google creates. John Doe business owner can be listed alongside multi-million dollar corporations and can enjoy that visibility to grow into a million dollar business themselves. But if it is Google that brought him into this world, it is Google that can take him out.
In late April, 2012 Google announced they were cracking down on “blog networks.” This algorithm update became known as Google Penguin and hit the web like a hammer. 3.1% of all english search queries were affected. Penalized webmasters that paid to have self-written articles published on other websites to get the link juice were left wondering how the practice could be a violation. Analogies were used to explain that paying to promote oneself is standard business practice. They likened article marketing to the basic trade of journalism. They argued it was their constitutional right to promote articles without fearing the total loss of business or retribution from Google.
Google’s position though is that it is perfectly okay to link to a friend’s website or to pay to have articles placed elsewhere. They respect that those decisions are not theirs to judge in respect to the global Internet. However, if the intent (or perceived intent!) of these practices is to achieve higher ranking in Google’s search results, then they reserve the right to protect the integrity of their ranking system accordingly. Essentially, anyone can do what they want, but it might affect how things are scored within their private system. So if you don’t care about your valuation in Google, you can use all the linking schemes in the world if you so choose. The problem is that most people do care about their score in Google and many people view Google as the global Internet. Google can argue that they are simply policing their own private system but to millions of web users around the world, they are viewed as policing the Internet.
The Revolution
It’s not their fault. Google’s system was so good and their interface so simple, that millions of people started using it and never went back. They became the Internet. Search engines existed previously but had many flaws. Back then, millions of websites that provided answers to questions or sold solutions for problems went undiscovered to the vast majority of humanity. Google found them, ranked them, and then went on to check them frequently to make sure users were still likely to find what they wanted.
They made the world a better place until the laws of their kingdom began to contradict common sense. For example, it would seem practical for a video game company to buy a banner ad on a video game enthusiast web forum. They could benefit from the targeted traffic and hopefully sell some video games. But at the same time, Google might view this banner link as an attempt to manipulate their algorithm.
To resolve this dilemma, Google created a tagging system to allow their search crawlers to identify which links were paid for and then direct their algorithm to make sure the buyers did not benefit in search from them. This directive was controversial because it forced webmasters that cared about their rankings to worry about the nature of their outbound links. Could a website selling banner ads hurt both the buyer and the seller at the same time? They sure could. If buying and selling backlinks is forbidden, then both parties have something to worry about. Today, it is important to include the rel=”nofollow” attribute in html coded links that are paid for.
Since the majority of web users use Google in some way, the challenge and effort to achieve better placement has become a billion dollar industry. Prestigious advertising firms claim they can improve search placement using white hat guidelines Google itself created. The fact remains that there is no way to be safe, no matter how prestigious, knowledgeable, expensive, or innocuous the SEOer is. Having a page on a website that discusses a topic that another page on the same website already talks about can be grounds for a penalty. Interlinking your pages too much can be grounds for a penalty, discussing too many broad topics can be grounds for a penalty. Writing with imperfect english can be grounds for a penalty. Mentioning your product or service too many times in an article or throughout your website can be grounds for a penalty. Not using enough visual aids such as images or videos can be grounds for a penalty. Adding new content to the website too frequently can be grounds for a penalty.
Everybody’s Doing it
Smart webmasters approach the web like their health. Do everything in moderation. It seems like every year there is a study that proves a correlation between a daily household food item with a certain untimely death. We’ve all heard something like this before: “The study determined that people that eat less than 2 carrots a day are more likely to die before the age of 70 than people that eat 2 or more carrots per day.” It’s the kind of fear mongering that causes someone to worry obsessively about meeting the 2 carrot daily minimum only to get hit by a bus as they cross the street three decades before they turn 70. Webmasters can spend their days worried about how Google will view them and ultimately never be found by their potential customers or they can do what everyone else does and work on getting backlinks and add content to their websites.
Is a compliant website that is never found by customers better than a website that has a good run, makes a lot of money, but takes the risk of getting penalized in the end? Some believe it is better to have loved and lost than to have never loved at all. Afterall, an online business that has no web visitors is not really a business is it?
White hatters, the SEOers that wrongly believe they are immune from repercussions argue that their strategies take far longer to create results because they are in it for the long haul. Coincidentally, these long-haul strategies tend to have a high monthly price, do not guarantee results, and cannot predict what changes Google will make in the future. For example, if an SEOer says their slow and steady method will take 6-12 months, the webmaster should understand that the ranking algorithm could change in 5 months. All the work performed could be rendered obsolete in the blink of an eye or worse, devalue the ranking further from where it was originally.
In the quest for a quick fix or even as part of a long-term strategy, SEOers can’t help but notice that websites maintained by news media seem immune to all the rules. They republish countless amounts of duplicate news reports and they buy and sell exposure like its going out of style. In a way, they are a multiplied version of everything Google says not to do. But while they might get tons of traffic from search engines, they are not entirely dependent on them. Big news media has incredible brand name recognition. An individual seeking information about the Fiscal Cliff may simply type “CNN.com” in the browser address bar and bypass Google altogether.
Companies like Reuters, The Wall Street Journal, Fox, and CNN, etc. are highly authoritative and could be categorized as the holy grail of backlinks. If one of the major ranking factors is the importance of the website the link is on, then there is nothing more important than being mentioned by national mainstream news media. The media outlets know the perceived value of their links and are hungry to find new streams of revenue. Thus, an opportunity presented itself to them just as printed newspapers began going the way of the dinosaur. And so they began to peddle link juice.
The age of buying links is not dead and it is now much more difficult for Google to punish the parties involved. Webmasters can pay public relations firms to get a “company press release” published on big news media sites and get the backlink of course. This tactic has been around for years but it has become one of the last great bastions for white hat SEO. Others would argue that social media is the next frontier but for SEOers grinding it out in the trenches, traditional backlinks seem to work better above all else.
Many public relations firms have been warned by Google not to promote the backlinking aspect of their service, but all of them offer some kind of SEO package to target webmasters that are interested in using their service for the purpose of link juice. Searchengineland.com ran a great article that exposed what the press release as SEO tactic revolution has done to the news. (http://searchengineland.com/how-prweb-helps-distribute-crap-into-google-news-sites-140597)
There is now a surge in boring, irrelevant, and oftentimes non-sensical company announcements on big media sites across the Internet. It is a popular SEO method in many fields, making it difficult to find actual industry news amongst the clutter of backlink driven stories.
But if it works, then why stop? That of course implies that it works in the first place. Several days ago, Matt Cutts, the director of Webspam at Google informed inquisitive webmasters that links in these press release articles DON’T COUNT. Helpful SEOers explained to the original poster that most links in press releases have the no-follow attribute added to the links to make sure that they don’t pass juice. Upon our own examination however, we couldn’t find any news media or public relations firm that implements no-follow. It would probably hurt their bottom line if the junk releases they were peddling suddenly didn’t count for anything.
The debate rages on about whether or not the director of Webspam is to be trusted. Is the ranking algorithm as powerful as Google claims it is? Or are they spreading fear and misinformation to make up for their shortcomings? There is a lot of interesting feedback to consider in the comments section of seroundtable’s short article regarding press releases.
In the past, many webmasters have used obvious black hat techniques for favorable placement and gotten burned in the end. Many innocent websites have been caught in the crossfire. Success on the Internet is believed by many to be achieved only by being visible on Google.
The War
Individuals that have never managed a business website in their life have little idea how Google works. They know it will provide them with the answers they’re looking for and rank them in order from best to worst. To everyday users it is nothing short of magic. To an SEOer, being #1 for a search term may mean weeks, months, or years of trial, error, and patience. It requires time, money, or both. It is a tireless quest to become #1 or to die trying. It is the difference between getting 18.2% of visitors for a keyword searched 5,000,000 times a month or 1% of visitors for a keyword searched 100 times a month. It is a battle against not only Google, but against competitors in the same field that are using the same tricks to move up. It is a system that gives little guys a chance to be ranked alongside major corporations. It is way to be found in the sea of a trillion websites. But it is also a dictatorship. Google can sneak into your house in the middle of the night and banish you to page 50 with the accusation that you were buying backlinks. Google can lock the front door of your virtual store to prevent shoppers from getting in. Google can label non-native English speakers as spammmers and silence those that won’t stop writing about the same thing over and over again. This is the challenge with a single company being tasked with policing the entire Internet.
The Perks
There are alternatives out there like Bing and Yahoo, but the problem is that when people go to those sites, they tend to type Bing or Yahoo into Google just to get there. Such is the habit these days for getting anywhere on the web. In 2008, blogger Marshall Kirkpatrick wrote about this phenomenon. He argued that mainstream users of the Internet do not even know how to navigate it. While tons of responders to the article seem to agree, there are plenty of folks that make a compelling case as to why using a search engine is superior to a browser’s address bar.
It isn’t easy typing ../../ perfectly if you’re a fast typer, which might explain why a significant portion of our visitors type this url into Google instead. They want to get to the right place the first time even if they type it in wrong. They might not even be exactly sure what our website is called or how to spell it. It’s not uncommon to see incorrect urls somehow end up in our traffic reports anyway.
- Merchant Processing Esource
- Merchant Processing Source
- Merchant Processing Resources
- Merchant Proccesing Resource (2 Cs or 1s)
- Merchant Processor Resource
The list of mistakes continues, but Google points them in the right direction anyway. If this didn’t happen, we might seriously consider rebranding the site with a much shorter domain name. Unfortunately, in mid-2010 when Merchant Processing Resource started, we didn’t give much thought to the difficulty in remembering a 7-syllable name, nor the likelihood of miskeying a single character in a 34 character address (www.merchantprocessingresource.com). This shove in the right direction is a benefit that an address bar can’t offer.
Not Evil?
The user oriented focus of Google arguably ended once and for all on May 19, 2010, the day they went public. While #6 on the list of Google’s official philosophy is that “You can make money without doing evil,” shareholders may have qualms with #1. It states, “Focus on the the user and all else will follow.” This motto doesn’t scream maximum profit. Besides, being public doesn’t allow Google to focus on the user, but instead tasks them with increasing the value of their stock. Of course they can’t earn a profit if they disregard the users altogether and so they are faced with the challenge of maximizing profit without alienating their users.
Adhering to their own philosophy is tricky, not to mention that many state and national governments believe that Google is manipulating the results to promote their own products. Products? one might ask; What possible products does Google have? Oh you mean you haven’t heard of Maps/Earth, Youtube, Zagat, Google Reviews, Google Plus, Gmail, Blogger, Picasa, Google Wallet, Translate, the Droid OS, driverless cars, the Chrome web browser, or the many other products they control?
Google isn’t content with just controlling search. They want to control the entire Internet experience. Companies like Facebook threaten that monopoly and as such Google has made social networking a top priority to counter them. Not evil?
The Google universe is exhausting. Webmasters must do more than just design great websites to continue enjoying the luxury of being found. Paid links must be marked as no-follow, backlinks on bad websites must be disavowed, private pages must be marked as no-index, similar or duplicate content must be avoided, URLs must be descriptive, title tags should be relevant, HTML should be used over Flash, and moved pages should be redirected if for no other reason than to retain the page value of the original URL.
Is There Life After Dea.err…Google?
As we draw near our conclusion, we argue that Google continues to play a large role in Internet Marketing, but advise that Google is not the Internet, no matter how much you’ve come to believe otherwise. There is LinkedIn, Facebook, Twitter, web forums, blogs, email newsletters, and a zillion other places to promote oneself and be found. Too many people fail to utilize the infinite other opportunities to market themselves online simply because they believe ranking in Google is the only way or because they’ve received a penalty and give up. “Getting ranked” has become an all consuming challenge that blinds webmasters from their true goal of attracting customers. People bought products and services online before Google came around. They might make things easier for the average user that believes search results are a product of magic, but in reality they are just one of many systems to find things. They are an imperfect ecosystem that has become tainted by their motivation for profit. And let’s not forget the millions of white hatters and black hatters that are driving the algorithm wild as they seek better placement for themselves or their clients.
Do we care about Google? Certainly, but only about half of our visitors originate from the search engine. People actually see us mentioned on LinkedIn, Facebook, and actual trade publications. And guess what? Those people visit us, bookmark us, and return. There may come a day when Google decides too many incoming links from Facebook is grounds for a penalty, causing outrage among webmasters, a move that might force many to give the social network up, and even disavow it officially. White hatters could end up having to eat their white hats down the road. The whole system of the Internet will no longer seem to make any sense. Maybe a reality check is okay. Perhaps too many hours and megabytes are wasted on trying to gain favor with Google. So much junk exists out there these days that isn’t even meant to be read or followed, but rather exists for the sole purpose of gaining link juice. If a poorly designed website in China links to a good website in the U.S., should the webmaster have to spend time tracking it down, identifying it, and disavowing it just to appease the king? Does this make any sense?
The next time you spend $300-$500 on a press release with carefully crafted link text, think about whether or not Google is really going to reward you with placement for a search term. Their director of Webspam says you’re not going to score any points, yet you may believe otherwise. Consider how else that money could be spent online outside the context of Google SEO. Are you looking to attract customers or simply gain favor with a king that MIGHT lead to customers? Imagine for a minute that Google, Bing, and Yahoo have banished you from being found forever. Would you close up shop or start to think outside the box?
White hatters that read this may be mumbling to themselves that they need not think this way because they have a surefire strategy that works, something along the lines of “Content is King.” This “Content” revolution involves publishing tons of articles to ones website to give the impression to Google that a website is constantly being updated with helpful information. An SEOer will tell you that Google “wants” this. In reality though, this has created a new phenomenon, the practice of webmasters spamming their own websites. The content may be informative, well written, and on-topic but if it’s being done to please Google instead of making sales or helping visitors, then it’s really nothing more than the black hat trick of the day. “Content is King,” that is until it’s not because 100 million websites are doing the same thing, leading to a vast pile of junk in cyberspace.
People forget that the word ‘marketing’ exists in Internet Marketing. They focus their time and effort on Internet Manipulation. They either have systems to make a quick buck or they slowly march onwards towards a promise that can’t be kept. As we approach 2013, it remains true that Google can’t be ignored, but the rest of the global Internet shouldn’t be either. There are billions of people out there that are looking for what you offer and you need to learn how to reach them. Coincidentally, there are 100 million articles on the web that claim they can teach this very trade. 99 million of them exist for the purpose of getting a backlink. That means the information is questionable at best. Take a marketing course, read a marketing book, or hire a marketing consultant. Go back to the basics if you must. Plan for the day where you won’t exist in search even though your business exists in real life. If the moment comes where Google replaces the search results with only paid advertisements or you get penalized because you told all of your friends to link to your website, you can shrug it off. If you want to be in Internet Marketing for the long haul, stop thinking about search. Google can’t be your only web strategy forever.
– Merchant Processing Resource
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Find tons of great Matt Cutts memes here
A Great Thread That Discusses Business Survival Without Google
