Getting You to Point B

Thoughts from Biz Stone's head

Commentary by Keith Kirkland

I was at a financial industry conference not too long ago, and I had my first opportunity to hear from Biz Stone, the co-founder of Twitter.  It's not often that we financial types bring in those creative and technology types to offer us some message of wisdom.  That was part of the lure, I think, for me, because I like the not-so-well-known "creative-financial-type" category. What can this young guy tell a roomful of lenders that will inspire us beyond...well...beyond the breakfast that we were eating during his speech?

He offered us some assumptions and statements...things that permeate the culture at Twitter. Things that all of his co-workers should assume to be true as they go about their daily tasks.  I was inspired by these. Not because each one can be specifically applied to the financial industry, or to lenders and other financial types.  I was inspired by these because regardless of what we do in our day-to-day business, we still run a business.  We still strive to build cultures of our own, and motivate employees of our own.  

The following were my favorites:

• There are more smart people outside of our company than inside of our company.  He wasn't saying that we don't have smart people in our companies.  We do.  But based on numbers alone...with hundreds of millions of people in just the US...there are bound to be more smart people out there than in here. It's easy to focus only on our internal knowledge, so don't forget to reach outside your world to those smart people and take advantage of what you can learn from them.

• Creativity is a renewable resource.  You may run out of creative ideas on a particular subject at any given time.  But you never run out of the ability to be creative.  I liked that one a lot, and it ties in with the next one.

• There is a creative answer to every problem.  We tend to solve problems with the same logic and thought processes we've used for ages.  Many times, that works.  But don't you love it when you come up with new ways to solve problems? 

• Opportunity can be manufactured.  Create the environment that generates the opportunity, then take the opportunity.  This one takes some thought, but isn't this exactly what he did with Twitter? Who knew that there was an opportunity to change the world of communication with blasts of 140 character or less?  The underlying message was that we don't have to wait for opportunity to come knocking.  We can create the opportunity ourselves.

Fun stuff to think about while we run our businesses.

No One Can See Their Own Backswing

Commentary by Keith Kirkland 

The idea of having a mentor and the value of tapping into the experience and insight a mentor brings is not a unique concept.  But this may be the most uniquely descriptive way I have seen it presented. 

If you have ever played golf, you know that your backswing is the foundational component of all that happens after it.  It will determine the direction your ball travels, and at what speed.  It determines whether you end up in the intended location.  It can also be the reason you strike the ball perfectly, or miss the ball completely.  And haven’t we all whiffed at least once? 

Yes, the backswing is crucial to success, but no one can see their own backswing.  So how do you fix it when you can’t see it and you don’t know what you are doing wrong?  That is where the mentor comes in.  He is the one that has whiffed before…maybe many times.  But he learned how to fix it, and master it.  The time it takes for you to correct and master it on your own can be significantly reduced and improved by listening to the mentor.   

Recently, I was fortunate to hear a presentation by Rob Slee, Managing Director of Robertson & Foley, a middle market investment banking firm.  His presentation was intriguing and led me to purchase one of his books, Midas Managers: How Every Business They Touch Turns to Gold, which is where I first read the quote “no one can see their own backswing”. 

In this blog, we sometimes discuss books we are reading and publish a few nuggets that are worthy of passing along.  One of the underlying themes in this book by Mr. Slee is the idea of creating business wealth, which is distinctly different from running a business that provides a decent, or even above-average, source of income for the business owner.  

Take note of this following quote from the book: 

Privately owned businesses generate more than 50 percent of America’s gross domestic product and account for 80 percent of new jobs.  On their own, U.S. private capital markets would rank as perhaps the world’s largest economy.  But we should be alarmed: Currently about 75% of owners of private businesses are not increasing the value of their firms.  If the private business sector fails, America fails. ¹ 

Among the many interesting discussions in this book by Mr. Slee is the chapter entitled “The Midas Mentor”, in which he describes the differences between a consultant and a Midas Mentor.  Here are a few examples: 

            Consultants exist to solve problems.  Midas Mentors exist to create wealth.
            A consultant’s business experience is narrow.  A Midas Mentor’s is broad.
            A consultant’s expertise is tactical.  A Midas Mentor’s expertise is strategic.² 

Because of what we do at Presidential Financial, these two sections of the book stuck with me.  Our clients are privately owned businesses.  They are the ones that are creating the new jobs in America.  They are the ones that will help America to prosper and succeed.  It’s our job as their financial partner to mentor them on their backswing, because what we do is foundational to their business.   It’s our job to help them create business wealth. 

That ideal location where they want the ball to land?  We call that “Point B”, and it’s our job to get them there.  We help them to focus on speed, direction and that ultimate place of success.  And because we have thirty years of experience with all types of commercial and healthcare companies all across America, we have the broad business experience, and we have that strategic expertise.  And every day, we help our clients by “getting them to Point B”.   No whiffs allowed. 

 

¹  Midas Managers, preface, page 1 

²  Midas Managers, page 126

 

Bill Gates, The Beatles and The 10,000 Hour Rule

Commentary by Keith Kirkland

Ten thousand hours.  Have you ever done one thing for ten thousand hours?  If you did this one thing for twenty-four hours a day, it would take you more than four hundred and sixteen days, or about fourteen months.  Over an eight-hour day, it would take you five years.  However you look at it, it is a very long time.  But ten thousand hours is described as “the magic number of greatness”. ¹ 

If you’ve read Malcolm Gladwell’s book, Outliers, you are already familiar with The 10,000 Hour Rule.  (If you have not read this book, I highly recommend it.)  

It is difficult to condense even this one chapter from Gladwell’s book, but the general question discussed is this:  “Is there such a thing as innate talent?  The obvious answer is yes.”  Achievement is defined as talent plus preparation, but “the closer psychologists look at the careers of the gifted, the smaller the role innate talent seems to play and the bigger the role preparation seems to play.” ² 

A look at musicians showed that “once a musician has enough ability to get into a top music school, the thing that distinguishes one performer from another is how hard he or she works.  That’s it.  And what’s more, the people at the very top don’t just work harder, or even much harder than everyone else.  They work much, much harder.” ³  “The students who would end up best in their class began to practice more than everyone else: six hours a week by age nine, eight hours a week by age twelve, sixteen hours a week by age fourteen, and up and up, until by the age of twenty they were practicing – that is, purposefully and single-mindedly playing their instruments with the intent to get better – well over thirty hours a week.  In fact, by the age of twenty, the elite performers had each totaled ten thousand hours of practice.” ⁴ 

Consider Bill Gates, one of the founders of Microsoft and one of the world’s richest men.  We know he dropped out of college and started a computer company with his friends.  But what you don’t hear much about is that he had access to a computer terminal, through his middle school’s Mother’s Club, when he was sixteen…in 1968.  At that time, most colleges didn’t have access to computers.  Throughout his high school years and early college years, Gates would seek out access to computers and spend hours and hours learning how to program them, many times staying up all night in order to use a computer terminal that was free during the night hours.  “By the time Gates dropped out of Harvard after his sophomore year to try his hand at his own software company, he’d been programming practically nonstop for seven consecutive years.  He was way past ten thousand hours.” ⁵ 

Consider the Beatles, one of the most famous rock bands ever.  In 1964, the band came to the United States and “put out a string of hit records that transformed the face of popular music”. ⁶  But by  1964, the band had already been together for seven years, and it’s what happened when they were just a struggling high school rock band that is the really interesting thing. 

The band was invited to play in a strip club in Hamburg, Germany.  The job didn’t pay well, and the audiences weren’t great.  But over time, the band was playing on stage seven nights a week for hours at a time.  Over five trips to Hamburg between 1960 and 1962, “they performed 270 nights in just over a year and a half.  By the time they had their first burst of success in 1964, they had performed live an estimated twelve hundred times.  Do you know how extraordinary that is?  Most bands today don’t perform twelve hundred times in their entire careers.  Philip Norman, author of the Beatles biography Shout! said, “They were no good on stage when they went there…but when they came back, they sounded like no one else.  It was the making of them.” ⁷ 

The best of the best have great talent, but they also put in the time.  Days, months, and years of practice and experience define the best of the best.  

In 2011, Presidential Financial celebrates its 30^th anniversary.  I’ve been thinking about what that would be in hours.  Eight hours a day, five days a week, fifty-two weeks a year…for thirty years.  We have put in the time, and it comes to over sixty thousand hours.  Come and see what time and experience has made of us.  We feel that we are the best of the best. 

Oh…and we have great talent, too.

______________________________________________________________

All quotes are from the book Outliers, by Malcolm Gladwell

¹ page 41; ² page 38; ³ page 39; ⁴ pages 38-39; ⁵ page 55; ⁶ page 47; ⁷ page 50

 

Nothing Fits the Box

Asset-Based Lending in 2011 and Beyond

As published in The Secured Lender (Jan/Feb 2011 issue)
http://www.thesecuredlender-digital.com/thesecuredlender/20110102# 

Remember the good old days (i.e. two years ago) when you judged deals by how well they fit into your credit box?  And for the tougher deals, we as lenders would get creative and think ‘outside the box’.  Well, after two years of economic chaos, nothing fits the box anymore.  Everything seems outside the box, and maybe the reality is that there is no box anymore.  It appears that we have also said goodbye to our friends ‘the wheelhouse’, ‘the standard’, and ‘the norm’. 

For the last two years, businesses have had to face the reality of declining revenues and profits.  And for those businesses that were slow to react and sluggish in cutting expenses, big losses created upside down balance sheets resulting in a deterioration of the company’s net worth. 

Specialty lenders everywhere have seen increased financing opportunities.  But the ever-increasing number of opportunities has been tempered by decreasing credit quality.  What do you do with a deal that does not fit the standard advance rate box, or when traditional metrics do not provide the usual level of comfort?  Simply thinking outside the credit box is not a solution anymore.  Today, the metrics are different.  Each deal has its own story, its own drama, and its own challenges. 

Successful asset-based lenders now have to look beyond the traditional metrics and standard structures, which requires more sophistication and greater expertise.  It means that we have to “get under the covers” and look at the intangible metrics, such as the quality of the management team, the expertise that they bring to the table, and their ability to execute a strategic plan. 

Therefore, lenders have to approach transactions in a number of different ways.  At Presidential, traditional collateral and financial review is only the beginning.  We also include the following measures: 

• Request and review cash flow projections:  When collateral ruled the day, projections were not a critical component of the financial package.  Today, it is a crucial measurement of the company’s ability to plan, manage and succeed.
  
  
• Understand the strategic plan, and strategic vision, of the borrower:  What does the management team hope to accomplish?  What is their measure of success?  Are they hoping only to survive, or do they have a strategic vision of what the company’s success looks like?  Do they have the expertise and capacity to accomplish the plan? 
  
  
• Strength and capacity of the capital partner:  Whether a company is owned by a single shareholder, multiple shareholders, or supported by private equity, it is important to understand the ability of the company to obtain additional capital or sub-debt, should it be required by future circumstances.
  
  
• Relationship:  We view our relationship with the client as a partnership, and we seek clients that value the partnership aspect of what we do.  When this is done well, it facilitates proactive communication, which leads to new opportunities as well as helping to avoid stressful situations.  Our interaction with the management team, and the emphasis placed on their knowledge and expertise, is a deciding factor in determining which deals we pursue. 

These are the foundation blocks to structuring a successful transaction.  Confidence in management, built upon a strong relationship, creates an environment where strategy and structure can be successfully defined.  Without these, it is difficult to overcome the various components that define an outside the box transaction.  

All of this is done with an eye toward the future, because the closing is just the beginning of success.  Money out the door may make for a successful transaction, but the execution of a partnership, in spite of the drama and challenges, is what will make us all successful lenders.

 

Forget about the Money

A commentary by Keith Kirkland
 

Forget about the money?  That’s not a phrase you hear in financial circles very often.  But I don’t mean it in the way you think I mean it…but I know you will like it just the same. 

One of our long-standing clients came to visit us the other day.  For over twenty years, we have been financing this emergency medical services company, helping them to navigate the successes, challenges and growth that they have experienced. 

Our client manages a fleet of emergency responder vehicles, as well as the team of medical professionals who save lives every day.  Over this twenty-year period, the financing that Presidential provides has helped this company to achieve a level of success that has allowed it to expand its vehicle fleet to include high-tech ambulances, and even a plane that is used for “life-flights”.   As the president of this company sat down with our CEO, Tom Matthesen, he shared an amazing story. 

The story is this:  Our client received a phone call from an Atlanta hospital, sharing the news that a young child in Florida had been traumatically injured in an accident.  The local hospital did not have the capability to treat the severe injuries, so they needed to transport the patient to Atlanta.  Our client received the call, requesting a life-flight from Florida to the medical center in Atlanta in an effort to save this child’s life.  Within minutes, our client had their specially equipped plane in the air and on its way to Florida.  Within a couple of hours, the child was in the Atlanta medical center receiving the treatment needed to survive. 

The president of this company sat in Tom’s office, and said, “We’ve had a lot of conversations over the years, and most of them have been about money and lines of credit and things of that nature.   But for right now, Tom, forget about the money.  We saved a kid’s life today.” 

That, my friends, is why we do what we do. 

Each one of our clients does something different.  But every one of them has a “forget the money” moment.  It’s that moment when they accomplish something that maybe they’ve only dreamed of, or when they achieve a level of success that always seemed out of reach.   Sometimes those moments are few and far between…but they happen. 

And being a part of that?  Well, that is the ‘forget the money’ moment for us.

Thank you, Captain Obvious

"Thank you, Captain Obvious!"  I heard that phrase years ago from a comedian, making fun of comments made by sportscasters as they provided commentary on football games (read - "You know, John, in order for this team to win the game, they have to get that ball over the goal line more times than their opponent."  Thank you, Captain Obvious!)

The June 4th issue of USA Today included this headline:  "Bernanke says small businesses need loans".  Bernanke himself was quoted as saying, "Getting loans flowing more normally to creditworthy small businesses will help the economic recovery."

Thank you, Captain Obvious.

It's no secret that small and mid-sized businesses employ 65% of the American people.  It's no secret that these same businesses will drive the economic recovery. And based on the endless repetition of basically the same news stories for the last year, it's no secret that these businesses are not getting the support that they need.

Here are some obvious, but apparently not so obvious to everyone, solutions:

• Our government should stop with stating the obvious problems and realize that their own policies and regulations are a large part of creating and extending the problem.

• Some regulation is good, especially if it helps steer lenders away from making bad loans, and keeps them from putting 90% of their eggs in one basket (read - real estate loan concentrations).  But excessive regulatory oversight is keeping these same lenders from doing what Bernanke says they should do. Get out of the way and let our banks get back to lending.

• Get the SBA back on track.  A recent report said that although SBA lending has increased in the last year, only 4% of outstanding small business loans are guaranteed through the SBA's flagship lending program (WSJ 5/14/10 "Bailout Missed Main Street, New Report Says").

But until those things happen, support the specialty lenders that are getting the job done.  You don't read many stories about the asset-based lenders and specialty finance companies that are supporting small and mid-sized businesses all across America.  You can read about Sam's Club, which is now stepping up to provide loans to small businesses, but you don't hear much about the rest of us.

We've done some cool stuff these last few months.  For example, a popular brand of gelato and ice cream sits in your favorite store because we are helping them grow their business.  Who else are we helping to succeed?  A popular ladies' apparel designer; a manufacturer of pre-baked cookies that you'll find in your grocery store.  And other companies that you won't see.  Like the company that sells surveillance systems, or the company that provides behavioral health services, or the company that provides on-site medical case management services.

We are here to support our banking friends and other lenders during these interesting days.  We do well throughout all swings in the economy, but we are especially busy now as we have a greater number of opportunities available to us.  If we can help you or one of your clients, please don't hesitate to contact us.

Get out of the way, Captain Obvious.  We're actually doing something here.

Business Advice From Van Halen

Commentary by Keith Kirkland

I recently read a very good article by Dan Heath and Chip Heath, published at www.fastcompany.com [see the full article here].  And to give credit where credit is due, I also used the title of their article as the title for this posting.  The entire article is worth reading and I encourage you to read it.  But let me give you the highlights here.

If you grew up during the 80's, you probably heard of the notorious "Van Halen M&Ms story".  Let me quote from the article:

    --------------------------------------------------------------

"In its 1980s heyday, the band became notorious for a clause in its touring contract that demanded a bowl of M&Ms backstage, but with all the brown ones removed. The story is true - confirmed by former lead singer David Lee Roth himself - and it became the perfect, appalling symbol of rock-star-diva behavior.

Get ready to reverse your perception.  Van Halen did dozens of shows every year, and at each venue, the band would show up with nine 18-wheelers full of gear.  Because of the technical complexity, the band's standard contract with venues was thick and convoluted.  Roth, in his inimitable way, said in his autobiography that it read "like a version of the Chinese Yellow Pages."  A typical "article" in the contract might say, "There will be 15 amperage voltage sockets at 20-foot spaces, evenly, providing 19 amperes."

Van Halen buried a special clause in the middle of the contract.  It was called Article 126.  It read, "There will be no brown M&Ms in the backstage area, upon pain of forfeiture of the show, with full compensation."  So when Roth would arrive at a new venue, he'd walk backstage and glance at the M&M bowl.  If he saw a brown M&M, he'd demand a line check of the entire production.  "Guaranteed you're going to arrive at a technical error," he wrote.  "They didn't read the contract.  Sometimes it would threaten to just destroy the whole show."

In other words, Roth was no diva.  He was an operations expert.  He couldn't spend hours every night checking the amperage of each socket.  He needed a way to assess quickly whether the stagehands at each venue were paying attention -- whether they had read every word of the contract and taken it seriously.  In Roth's world, a brown M&M was the canary in the coal mine*.

Like Roth, none of us has the time and energy to dig into every aspect of our businesses.  But, if we're smart, we won't need to.  What if we could rig up a system where problems would announce themselves before they arrived?  That may sound like wishful thinking, but notice that's exactly what Roth achieved.  Surely, you won't be outwitted by the guy who sang "Hot for Teacher."

Where's the brown M&M in your business?"

    --------------------------------------------------------------

Besides learning that this story is true, I loved learning the real meaning behind the story.  And I learned a few other lessons as well:

• Good business advice can come from unlikely sources.  Keep an open mind.
• Sometimes, rumors and stories are true...but not for the reasons you think.  Look for the truth behind the story.
• Don't dismiss the indicators that warn you of potential problems.  They are usually right.
• And go back and listen to some 80's rock every once in a while.  It was good then, and a lot of it is still good now.

*And if you are wondering what it means to be a "canary in a coal mine", here is another lesson for you:

Early coal mines did not feature ventilation systems, so miners would routinely bring a caged canary into new coal seams.  Canaries are especially sensitive to methane and carbon monoxide, which made them ideal for detecting any dangerous gas build-ups.  As long as the canary in the coal mine kept singing, the miners knew their air supply was safe.  A dead canary in a coal mine signaled an immediate evacuation.  [info taken from www.wisegeek.com]

Newt Gingrich...on understanding the healthcare system

[Live remarks from Newt Gingrich at an event at The Atlanta Press Club, sponsored by Presidential Financial and Presidential Healthcare Credit.  February 24, 2010]

[Regarding the efforts toward healthcare reform and the proposed bills]..."We don’t know enough right now.  And most of what we do know is wrong. 

Because what’s happened is, you have a 1980 or 1970 bureaucratic model of centralized healthcare growing out of the Great Society in the 1960’s.  All in a world which has changed rapidly.  It would be like my rushing in here with a 1985 model car radio phone, and saying we have this great new device that we’re going to mandate for the whole country.  And having all of you pull out your cell phones, and your Blackberrys and your iPhones, and saying ‘why would you want that?’  That’s where we are right now in terms of this whole debate. 

They system is evolving faster than the politicians are able to understand it.  The politicians want to do what they learned as kids, so Henry Waxman who’s been there 37 years is desperately trying to write the bill he believed in...in 1972.  It’s just utterly irrational."

Newt Gingrich...on the challenges facing healthcare

[Live remarks from Newt Gingrich at an event at The Atlanta Press Club, sponsored by Presidential Financial and Presidential Healthcare Credit.  February 24, 2010]

"I look at the challenges facing healthcare as a triangle.  One of the sides of the triangle is competition with China and India, and this is a challenge that will last for the rest of our lives. 

The second [side of the triangle] is the increase in Science and Technology.  The effects of this increase are unknown.  One of the problems, is that we’re trying to come up with a solution based on the healthcare system of the 1970’s. 

The third [side of the triangle] is that government is the fourth bubble.  If information technology was the first bubble, and housing was the second bubble, and Wall Street was the third bubble…government is the fourth bubble.  Most western countries have adapted a level of government that they cannot afford.  Atlanta has adapted a level of government that it cannot afford.  The state of GA has adapted a level of government that it cannot afford.  California has a government that it cannot afford.  The United States as a nation has a government that it cannot afford. 

Going through the excruciating process, which every private business does every recession, of coming to grips with the fact that we’re going to have to fundamentally re-think, and in many cases, replace – not reform – failing systems, is going to be one of the great challenges of the next 15 to 20 years."  

Newt Gingrich...on comparing delivery of care

[Live remarks from Newt Gingrich at an event at The Atlanta Press Club, sponsored by Presidential Financial and Presidential Healthcare Credit.  February 24, 2010]

"If you look at the gap between the best care delivery in America and the worst care delivery in America, it’s breathtaking.  If you look at the difference in cost, it is stunning.  The best places are cheaper.  Consistently.  They focus more, they have fewer infections, they have fewer medical mistakes, they have fewer medication errors, they work harder at getting people healthy and out of the hospital, or not ever getting into the hospital.  

And so you really want to figure out [the migration].  You can’t get into it by some bureaucratic order.  This is a continuous process, because this year’s best is not going to be next year’s best.  And so there is a continuous evolutionary process underway, and I really think that health innovation may replace health reform as the battle cry of the next decade."