Upswing and Innovation

First of all, I would like to thank everybody for wishing me luck while I was taking my insurance exam. The well wishing worked, and I passed my exam with 74% ( which I hear is pretty good for somebody taking the test the first time).

In addition to passing the test, I have also seen an uptick in consulting. Many companies out there are stuck in the rut of doing things the same way they have for years. They simply do not know any better. The danger in this is that the market never stays in a rut. Whatever industry you are in it is a moving ocean, and if you are anchored, the water will simply move around you. Most of these companies simply need a third-party observer, who has been through situations similar in the past, to tell them exactly where they are full of crap.

Fortunately, I have never been one to hold back.
I say fortunately, because not only do I have the skill to dish it out but I also have the strength to take it as well. Many people are responded to me privately concerning my blog. I have had many people tell me when I was full of crap and when I was making sense.this allowed me to consider different point of views and in one or two cases actually change my line of thinking.

At the beginning of November when I faced my employment change, I looked at it initially as a bad thing. However, since then I have realized that not only have I grown as a person but I have grown as a businessman as well. I have been forced to grow in ways that I never thought I could. I was able to achieve things that I never thought I would be able to achieve.

Even better, I have been able to assist others in achieving what they thought they could not achieve.

The truth is, we will all stay in our rut as long as that rut is comfortable. When the rut becomes uncomfortable, that spurs innovation.

Wish Me Luck

Well, I am taking my insurance test today. I have been studying for the past two weeks, almost obsessively. I have studied and reviewed every type of Homeowners policy, dwelling policies, commercial policies, personal auto policies, business auto policies, and then the other policy that you can think of.

Even with all this studying, I still feel very unprepared. I do not know exactly what questions will be on the test and I am not fully confident that I have A sufficient expertise in the products.

Is not this the way it is usually is in life?
We study, we educate ourselves, we try to improve ourselves and we do everything possible in the quest for self betterment. But, when it comes down to it, we still require faith.

Faith is a belief in things not seen. For some, this is a very religious Idea and for others, it is simply belief in oneself. For me, it is a combination of both. I know that I will do my best and that I have studied as thoroughly as I can, and yet I have faith that it regardless of the test results tomorrow, that things will work out. If I pass, I will be Thrilled, if I fail; then I will schedule another time to take the test again.

Either way, life moves on. I will still be working on my leasing company and on my popcorn franchise. I still intend on opening up my insurance agency however depending on tomorrow's results, it may take a little more time than originally planned.

So, here I go on my way to Riverside California to take a four hour test. Wish me luck!
Go forth with faith.
Thanks,
John

PS-I want to give a quick shout out to my daughter and say "happy birthday"!

Sequestration and popcorn.

Today I begin my three day sequestration in preparation of taking my California insurance exam on Monday. I have been studying night and day in the living and breathing insurance for the past two weeks. I have not felt this way since college. I feel like I am cramming for my finals all over again.

If anybody out there has any hints, tips or tricks, I would appreciate the comment back. 

I have always known my subject matter very thoroughly, but has never had a really strong test taking skills set.

I am also in the final stages of signing a franchise agreement with doc popcorn. I don't know if any overview have heard of them, but they are the little popcorn stands that you see at some sporting events and in large shopping centers. I almost decided not to but had a personal experience that is reaffirmed this diversification plan.

I am trying to teach my 10-year-old son responsibility. He is about to cross over from Cub Scouts and Boy Scouts and every previous year, we have always paid for his scout camp. This year I thought it would be a good idea that he earn his own money to pay for his first Boy Scout camp. After brainstorming for a few days, my son and I came up with the idea to sell popcorn. The intention was to sell 4 cups bags of my addicting popcorn for $.50 each. In four short days, my son had already earned $40, simply by selling popcorn. He would still be doing this, if he had not gotten in trouble at school for having a longer line than the cafeteria did. Even though he is unable to sell his popcorn at school, he is still selling it to friends and neighbors; albeit at a far lower volume.

I realized that not only did I teach my son responsibility; I am also teaching them how to be an entrepreneur.

There many times in business that the best made plans, don't pan out because of a simple technicality that was previously been considered. My son and I never thought that his project would become large enough to attract the attention of the administrators at his school. And even if it did, we were unaware of any conduct guidelines that would permit him from selling popcorn on campus.

Well, it turned out that both events happened. 

The administration not only took notice, but thought that selling popcorn was a disruption during the children's lunch breaks and recess; it also appears that selling, non-school, fundraising items on campus is indeed a violation of their ethics policy, which was so buried in the student acceptance packet that nobody other than the administration knew that it existed. 

Even against this type of opposition, my son and I simply decided to change our business method. Instead of selling it at school we are now selling it throughout the neighborhood and through other acquaintances. 

My son is still getting orders and I, I'm still making popcorn for him. But he is now thinking of new, innovative ways in order to sell his popcorn. The latest is to open up a lemonade stand in our front yard, over the weekend, and sell popcorn and lemonade (by the way, incidentally, we will also have Girl Scout cookies available). My son has learned not only to overcome adversity, but also to retain that entrepreneurial spirit.

For as much of a pain in the neck as my children are, many times they can teach me lessons.

Why ask for advice?-Resisting Change

Over the past several months, while I have been trying to grow my own finance company, I have been doing a lot of consulting for other smaller organizations. It strikes me funny how an outsider can come in see the same issues and problems that somebody on the inside sees and yet upper management thanks that it is a completely new revelation. 

When it comes down to it very few people in an organization are willing to take responsibility for problem even though they see it.

 That's where I come in. If an outsider, somebody with a new perspective, reviews your processes and policies and notices some of the same deficiencies that have been notated before, it sparks a sense of responsibility. 

What I consult for the organization, only 50% of my time is spent showing the organization something new, or introducing them to a new concept. The rest of my time is spent simply stating the obvious. As an outsider, I have no problem objectively reviewing a process and pointing out where the deficiency truly lies. This immediately places pressure on those with the deficient process.

It is amazing how many businesses need to be reminded that the sky is blue and that gravity causes objects to fall. Most of the consultants I know simply state the obvious.

One of my recent clients just made a decision that blew me away. They acknowledged their process deficiency and acknowledged that this deficiency was creating a liability and that this deficiency was a true threat to the organization. However, when presented with a plan to correct it, the principles of the company decided that they would rather continue with their old process.

I was stunned speechless, which doesn't happen very often.

If you know something is wrong; why wouldn't you fix it?

This organization's response was “This is how we have been doing things, since we started.”

I then asked them if they were happy with the way that the business was running and they told me, “No.”

I then asked that if they were unhappy with the way the business is running why they would be reluctant to make any changes to the way they were running their business.

I came to the stark realization that even though their business processes were truly deficient and that of their company is headed in a downward spiral. The leadership of the company was comfortable in the way that they were running the business.

From their point of view, it is far easier to slide down a slide that it is to climb up the stairs. I really shouldn't say easier; I should say more comfortable.

It left me wondering why this company would pay me for my advice, acknowledge that my observations and advice were correct, and yet refuse to take any action.

If you, as an organization, are not willing to adapt incorrect your policies; why ask for advice?

I have realized that in business, it is not change that causes discomfort, it is the resistance to that change. 

• I would suggest that everybody here full their arms across their chest.
• Now reverse it.
• It feels uncomfortable, doesn't it?

It's not that one way is better than the other; it's that one is more comfortable and changing our situation causes a temporary uncertainty. This uncertainty can be uncomfortable. But if you refuse to acknowledge this uncertainty and work through this uncomfortable environment your organization, like the organization that I'm working with, will continue in a downward spiral.

We as business owners and senior executives must always look for the most efficient and beneficial solution no matter how uncomfortable that change may be.

My Bread and Bacon Theory.

I have a theory concerning our economy that may not be as complicated as most of the economists but for me it has always been a good indicator. 

I call it the bread and Bacon theory.

Bread and bacon is a household staple for most Americans, unless your religion precludes it, (I still haven't found kosher bacon) and is therefore a good leading indicator for not only inflation but consumer spending as well.

This past week while grocery shopping, (yes, I'm still playing Mr. Mom), I noticed that the price of bread seemed to have decreased since last month. I was actually excited by this, until, I read the package labeling. 

The price of the bread had indeed been reduced. However, this is offset by the reduction in product quantity. When calculated mathematically, the overall price per ounce had actually increased by 20%. 

Once again, paying for the necessities of life became 20% more difficult.

After loading my card up with two loaves of overpriced bread, I then rounded the corner to the Bacon section. After a mild heart attack after seeing the prices, I actually decided to skip on the Bacon. Why would anybody pay almost 5 dollars a pound for bacon? As much as I love bacon, it is simply no longer worth the cost. Therefore, I would rather do without.

Now how does this relate to truck finance you ask?

Simple.

As the price of commodities increase, and the cost of living and running a business becomes more challenging, companies will be looking for ways to reduce cost.

For some companies, many expenses like fuel, insurance and operating overhead would fall into the bread category. Because of the cost increases in these categories, many companies will simply try to do more with less. They will push for automation and efficiency. They will try and reduce human capital investment and will cut equipment maintenance budgets. But, they will still need these items and therefore they will put the bread into the cart.

For these same companies, there might be an increased need for equipment. However, when faced with having to pay an increased amount for your bread, there is a good chance they may skip the Bacon. As a business owner, I am leery of spending capital, even more so than in the past.

In a previous blog I asked where all the truck buyers went, because I have not been seen much in the way of volume. 

This did not match up with industry statistics would said that trucks were being purchased in order to take advantage of end of year tax credits. I didn't quite understand this disconnect until this weekend. The companies that still have deeper pockets and can still afford bacon are jumping on this opportunity for additional tax sheltering. These customers are not searching for financing. They either have long-term relationships set in place or they have the actuarial ability to fund themselves.

These companies can still afford the Bacon.

What I find concerning about the situation is not necessarily the price of the bread and bacon but the growing distance between  those who can afford it and those who can't.

In short, the smaller trucking company is being squeezed out of the market.

As costs increase, they are not able to compete with the volume discounts given to the larger companies. Let's face it; if I buy 100 pounds of bacon, I am sure the price will not equal out to five dollars a pound. Yet, in my situation, if I were to buy 100 pounds of bacon, most of it would simply go to waste and it would be an economic drain not an economic advantage. I simply do not use or have the capacity to use that much bacon.

Neither does the owner operator or small fleet.

The increased inflation that we're facing, will cause an increase in frustration.

In trying to build up our economy in the short term, I fear that our government has destroyed it in the long term. Something must be done to decrease the cost of running and maintaining a business. If the company can't afford to keep their doors open, this will increase the unemployment rate and increase the social burden. Increasing the social burden will then increase taxes, which will raise taxes, which will increase inflation.

It's a never ending cycle. Our economists need to figure out a way to halt inflation and to make business affordable again. Not just for the large companies who can afford as much bacon as they want, but for the small companies who are struggling to simply make a BLT.

Is a code of ethics effective?

In many of the organizations that I work with, I have spent numerous hours assisting them in defining their code of conduct and code of ethics.

By definition, a code of conduct is a list of behavioral requirements designed to support the company's code of ethics.

My personal belief is that, as various companies are forced to grow and compete at an ever-increasing rate, with ever shrinking margins the need for aggressiveness in marketing, is increasing the size of the gray area in everybody's business code of ethics.

Ethics is not simply a matter of following the letter of the law. There are many things that are legal that I would consider unethical.

Ethics is simply learning what is right and what is wrong, and choosing to do the right.

Doesn't that sound simple? We teach it to our children and yet in the midst of an organizational crisis or under extreme pressure, we rationalize ourselves into believing that a lapse of ethics will be better in the long run for companies.

Human nature dictates that we will always do what is comfortable. What is comfortable is not always correct, yet we repeat the act over and over again. The key to a change in behavior is changing your acclamation of comfort to properly align with what is truly right. This is what a properly structured and enforced code of ethics does.

A code of ethics simply provides and encourages a level of comfort and support  for doing the right thing.

I have seen properly managed codes of ethics and their accompanying codes of conduct strengthen floundering companies. 

A properly managed code of ethics will allow you to focus all of your team's efforts in the same general direction. Enforced ethics programs help maintain a moral course during times of transition or turbulence.

When people or organizations are in times of change, it is far easier to lose your ethical and moral compass. As your organization loses a moral compass the Enron effect will begin to occur. Many people currently being prosecuted for financial fraud never intended to defraud the public. They entered the business in the correct frame of mind, but lost sight of their ethical compass. In their minds, they were still performing in the best interest of the company. However, without a strong managed code of ethics, these people drifted off course; in many situations, destroying their personal lives and their organizations. 

In my church, we have a saying: “Do what is right and let the consequence follow.” I have tried my best to live the embodiment of this. Because of this, I have upset certain people. Many thought that I was limiting their organizational creativity. In truth, I was merely advising them of the long-term consequences of their actions. 

When companies and the leaders of those companies do not do what is right, the consequences not only affect themselves, but affect all who are dependent on that company. By losing their ethical compass, they are injuring their stakeholders, employees, themselves, and worst of all the customers and vendors who depend on the services that they provide.

Over a month ago I posted a link on my blog to a business code of conduct page. There is nothing outrageous in this pledge. It stated simply that you do what is right and place your customers’ needs ahead of your own. Not one other person was willing to publicly endorse this. I received many private messages and e-mails in support but for some reason nobody would take a public stance.

Why is that?

Are we sure that as an industry that's we are following the correct ethical compass?

www.spotlightfinancial.net

Incompetence

I just read one of the best quotes that I've read a long time while preparing for my insurance exam. The quote is as follows:

"Not all consumer abuse is a direct result of fraud or willful intent. In many cases, increased competition drives a business environment to move (or grow) two quickly, and incompetence results".

I have now seen this several times as many companies are scrambling to try and be the next GE capital. It seems like many in the industry are trying to keep up with the Jones's by growing the portfolio and businesses well beyond the means of their ability to adequately service them.

Many companies that I have worked with or consulted for, are always looking for the next big opportunity when in reality that opportunity could kill their company if they are not prepared for the law of unintended consequences. 

For every action there is a reaction; and for every opportunity, there is a cost.
People sometimes forget this.
I know many companies that are so focused on growth that they neglect prepare for unknown liabilities.
I am not talking from a small-scale point of view I'm talking about large shifts in your business model. Many truck leasing companies have started doing businesses in states or regions in which they knew little about the local market. And several have even done so without being properly licensed.

When your sole focus is portfolio growth instead of portfolio quality, you'll eventually grow yourself into a level of incompetence.
You will find situations becoming convoluted.
You will find yourself running around trying to clean up after the mess when a situation happens.
You will strain the structures of your organization.
You will soon find yourself acting beyond a level of common sense.
Thus, as the quote says, you will grow into a level of incompetence.

I am not anti-growth, but I am 100% for smart growth, Instead of rapid growth.I am a firm believer that you should check the ocean for sharks before diving into the water with a steak around your neck.

As entrepreneurs, we often jump into the lion's cage. But, most of us are aware of the Lions.
When a plan of action is understood and weighted against the risks, then it is time to act. For those in a hurry to become the next GE capital, you should at least learn by the mistakes that they have made. And remember that your pockets will not be as deep to pay for those lessons.


A good rule of thumb would be to regulate your growth in direct proportion to your ability to service that growth. In other words, focus on getting your house in order before opening it up to the neighbors.

Another week, another dollar.

Well, here we are, already another week in to February. I'm not sure about the rest of you but, so far this year does not appear to be a high-volume year. I understand that it's the beginning of the year and truck sales are slow. But, usually, even in these slow times, I process three or four deals a day. I am now averaging three or four deals a week. 

Where have all the truck buyers gone?

I'm not overly concerned with the volume yet because I am predicting that our volume over the next two years will become madhouse crazy, especially in California, where the environmental compliance regulations are forcing a turnover in the classic market. I am concerned for the late adopters. Many of these guys have challenged credit and are still trying to purchase old trucks. 

This doesn't make any sense considering that the trucks they want to buy will only be compliant for less than two years.  This simply does not make any economic sense. They can finance in 1998 truck for 12 months and pay $1200 a month or, they can purchase a 2008 truck with a 48 month term and in average payment of $1500 and then not have to worry about increased maintenance costs. 

It is important to know that these old trucks will eventually break down and become useless and all that the California regulations of done as advance this timescale.  

 Currently, because of the perceived customer demand, 2006 trucks still appear to be priced at a premium. As a finance source, I am concerned that the depreciation of these assets will increase and that they will be almost worthless in two years. If you start from a higher peak and appreciate to nothing, of course your rate of depreciation will be accelerated. As a lender, who might repossess the  collateral, I find it concerning.

Why would I want to take additional collateral risk when I am already taking a credit risk?

I would rather finance these guys in newer trucks.

Something compliant.

Something without an artificial end-of-life.

Even with this scenario, I am still receiving many calls a day asking for me to finance customers with poor credit on older assets. I understand that there are many dealerships that wish to expedite the sales of these assets, but how does this make sense to the lender?

I have actually begun to broker off any transaction that is not on a 2008 or newer truck.

Luckily, many finance sources are still willing to accept collateral risk and credit risk for a rate premium.

I hope that you all are enjoying a nice Martin Luther King Day.

Thanks,

John