Production is down and regulation is up. In response, companies hope to increase production via branch development and brokers are looking for a safe harbor from all of the new regulations. But how do you find the right fit? Read on and I will share four tips that will help your chances of getting it right the first time.
Whenever I write my column, I try and think of some clever eye-catching title that will draw the reader. One such title was based on the well-known lyrics of an old song “Looking for love in all the wrong places!” It seemed appropriate when considering how some are going about the process of branch development.
There are two obvious components in any “branch development” plan … the branch (the production folks) and the company (the funding folks)! Regardless of which side of the equation you are on, both have one common goal: Getting into the right relationships and avoiding the wrong relationships. If you are a company pursuing a branch development strategy, you would do well to follow the principle set forth by James Collins in his book, Good to Great, which is “Get the right people on your ‘bus,’ and get the right people off your ‘bus.’” The same principle works for a production group looking for “the right” company to join. You want to make sure you are “getting on the right ‘bus’ and avoiding the wrong ‘bus’… simple as that. But that can be a bit trickier for both than it would appear. If you doubt that, consider America’s high divorce rate. It would suggest that ‘just maybe’ we get enamored with all the wrong things when considering a long-term relationship. Why do you think we would be good at selecting the right business partnerships when we struggle as much as we do to find the right mate?
We are a consulting firm that has extensive experience consulting to companies that have, or desire to have, a branch development plan as well as to production groups looking for the right home. Here is some free advice … three tips to be exact … that I would suggest you consider before entering into a branch relationship.
Tip #1: Consider getting counsel
The harsh “hindsight reality” that will hit you in the face if you make a mistake is this, “You don’t know what you don’t know!” We all have blind spots. Don’t be blindsided by your own blind spots! Here are some places to go for advice:
►Friends and family: I don’t know about you, but some of my closest and most valued friends are those who tell me what I need to hear and not necessarily what I want to hear! This can be the result of being in denial or just having “blind spots.” Getting to an objective view point from those you trust is important. I have found this advice to be some of the best advice I have received … and best of all, it is the cheapest advice we can get for free!
►An experienced consultant: Unlike friends and family, this advice comes at a cost. Yet, it can be some of the best money you every spent and save you hundreds of thousands of dollars in hard cost and even more in lost revenue opportunities as the result of time spent. We can always make back the money, but we can never regain the time lost which may prove more fatal than the loss of money.
We don’t always have the time or money for a mulligan … a “do over” if you will. So, to help you “get it right” the first time and avoid those painful “whoops … why didn’t I see this?” kind of mistake, seek the advice of others!
Tip #2: Consider the culture
There are three key ingredients, the “4-Ps,” that you should carefully examine before getting into a branch relationship … and these, like everything else I suggest, apply to both sides of the equation … the company with the branch expansion plans and the production team looking for a good home.
►Products: This may come as a shock to you, but we are amazed by the number of times this most basic and obvious of considerations is being overlooked. The reason for this is that some wrongly assume that everyone in business today has the same basic product offerings. While this is generally true, don’t make the mistake of assuming something as basic as this, or as the saying goes, it will make an “ass out of you and me.” For companies considering bringing on a production group, make sure to get a report of their last 12 months’ fundings, itemized by product type. Production groups … don’t assume the company you are considering joining offers the products you sell.
►Pricing: Most originators don’t miss this one, but more companies than we can count don’t take the time to find out how price sensitive the production group you are considering hiring is. The best way to find out is to again get, if at all possible, funding reports of not only the products, but also the rates the production group funded the loans at and compare those prices to where you were at.
►Personalities: Whether it’s business or personal, everyone is on their best behavior in the courtship phase of any relationship. As soon as it has been determined by both parties that there is potential for a relationship, then the courtship phase hits high gear and our blind spots grow.
►Pressure: As the old saying goes, “Haste makes waste.” Too many deals are done too quickly because there’s a false sense that “We’ve got to get this done ‘yesterday’ so that we don’t lose this opportunity.” When rushed, things “below the surface” or blind spots, don’t have time to become evident and obvious. There are deals done in haste that blow up that otherwise didn’t need to blow up.
The first two may seem like no-brainers, but you would be amazed at how many folks overlook the obvious, especially if the courtship phase gets “hot and heated” and we rush into a relationship prematurely. How many couples after a few months or years of marriage realize they may have been more “in lust” than “in love?” I would suggest that “lust” because it has a “greed factor” to it is way more blinding that “love” ever is. And if we look back at most failed relationships, whether personal or professional, hindsight reveals a selfishness (a “what’s in it for me” perspective more than a “what in this for us” perspective) and lust (“I want this relationship for me or my company”) as the motivation behind why we did something.
Tip #3: Consider capital constraints
This is probably the most overlooked important factor a production group should take into consideration. If ever there was an area where the saying, “You don’t know what you don’t know,” is truer, it is here. Capital is king if you are a higher producing group. If you are a production group that has the ability to fund a good amount of production each month, you really need to dig into the funding capacity of whomever you are seriously considering going to work for. There is nothing worse than finding yourself in a company that maxes out their funding ability.
Tip #4: Consider character
If there has been anything we have learned from this last business cycle it is that “character matters!” Even if you get good counsel that covers the business aspects of the deal, and if you like the culture of the company, and even if you verify that they have plenty of capital, you would do well to make sure they have the kind of character and values that align with yours. Failing this important assessment can lead to frustration in the relationship and even to failure. What is most interesting about assessing character is that it can be the most difficult thing to do. Why? In a word, it is “posing.” Posing is something that we all have a tendency to do to some degree when we are getting to know someone for the first time. Basically, posing is when someone tries to project something about themselves or their company. This is relatively common when people are considering getting into a relationship. Where this becomes a negative is if the intent is an attempt to mislead or even deceive someone about themselves, which drives home the point that assessing character takes effort and a plan. This, in itself, could constitute a whole article if I were to outline ways and tips for making a character assessment, but for the sake of time, I want to simply make sure that you consider and evaluate this critical assessment and make sure there is adequate alignment so as to not impede, inhibit or cause the relationship to fail down the road.
After reading this article, I welcome hearing from you and receiving your feedback. To leave me feedback, please e-mail [email protected]
Also, I would encourage you to tune into my weekly radio program, “Lykken on Lending,” each Monday at 10:00 a.m. Pacific, 11:00 a.m. Mountain, Noon Central or 1:00 p.m. Eastern. To listen, log on to www.blogtalkradio.com/search/lykken-on-lending.
David Lykken is president, mortgage strategies and managing partner with Mortgage Banking Solutions. David has more than 35 years of industry experience and has garnered a national reputation. David has become a frequent guest on FOX Business News with Neil Cavuto, Stuart Varney, Liz Claman and Dave Asman with additional guest appearances on the CBS Evening News, Bloomberg TV and radio. He may be reached by phone at (512) 977-9900, ext. 101 or e-mail [email protected]