There is a silver lining

by RonOpher on August 12, 2010

There is a silver lining.

I have been wanting to write about this phenomenon for some time now.  Most of us have more time and less money flowing nowadays.

When money was flowing more freely, many of us would lament that we did not have time to enjoy it.  Few of us mastered staying on top of that wave of growth, surrounding ourselves with good people whose compensation did not put our businesses in the red and managing growth effectively – many of us opted instead to work longer hours and took solace in the bigger numbers we were achieving.

Not only did this type of lifestyle take away from our opportunity to enjoy non-business pursuits, I think it also made it difficult to find time to forge potential new business relationships, to survey the landscape, to learn from others and to share with others.  We also might have fallen behind the curve on learning about new business tools that can help expand business opportunity – most particularly in social media, blogging and bulk e-mail.

So where is the silver lining, you ask?

If you agree that we are operating in a permanently changed business landscape, the fact that we currently have more time to forge potential new business relationships, to survey the landscape, to learn from others and to share with others and to get caught up on the new business tools is a silver lining to the dark economic clouds which are stubbornly hovering overhead three years after the beginnings of the subprime mortgage meltdown.

I have noticed that people are much more eager to learn and share, to take time to meet and see if there’s synergy.  Or if there isn’t – to make introductions to others who might help or could benefit from the introduction.  It has all been called “networking” and it has all been done before – but I see it being done with a renewed sense of purpose and with a great deal of sincerity.  After a long period of reaping – we are now in sowing mode.

Just as it is raining hard today after several weeks of drought-like conditions in the Philadelphia area – while no one wants constant rain throughout the summer, dealing with the occasional rainy day is just as necessary as the enjoying a long string of sunny ones.

Let the rain speed up the process of watching what we have sown grow into the next harvest!

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The dawn of an era of structural change

by RonOpher on February 2, 2010

Are we emerging from a cyclical recession or a structural one? And why should it matter?

There has been some discussion recently in the business press about whether we are emerging from a cyclical recession or a structural one. A cyclical recession implies that the recession was inevitable and that the upswing of the cycle will return to former levels, simply by conducting business as usual, with very minor changes in scale, but no change in approach.

I submit that we have experienced a structural recession – particularly as it relates to the consumer debt collection industry (who originally commissioned this article). Part of the reason for this belief is that the confluence of faulty premises under which incredible amounts of money were loaned against real estate collateral with risk shifted away from the borrower and the broker will simply not occur again for decades, if ever – and certainly not in the volume at which it once occurred.

The other part of the reason is more of a positive – many people simply interact differently today than they did just a few years ago. Social media is not a fad – it is a new paradigm for how people interact with each other. And its use is growing exponentially – “virally” as it is often termed. If you have not seen the statistics presented in a compelling visual, you might want to visit www.youtube.com/watch?v=sIFYPQjYhv8

Why is this important?

I am here to suggest that if debtors interact with other humans differently now than they used to, after setting aside lien payoffs and garnishments (which I would term as “involuntary collections”) – the vast majority of funds collected is derived from interactions with debtors where collectors seek their cooperation in making payment arrangements. And the vast majority of those interactions take place on the telephone.

What if we could change the dynamic of that interaction, while being fully compliant with the laws which govern the interaction? What if we acknowledged the debtors’ individual circumstances in each interaction, and had a genuine conversation about their financial obligation to our respective clients – without initially bringing leverage to bear? Is it possible that for every situation where some money is left on the table, there is a multiple of situations where debtors who otherwise wouldn’t have paid voluntarily are doing so – which in turn would both increase revenue, and decrease the overhead of ongoing involuntary pursuit?

I am embarking, along with some of my colleagues in the telephone customer service world, on a pilot project to test some of these theories. I’d like to hear back from anyone who’d like to discuss this further – I also intend to follow up with more specifics in a future article.

I also take note that I am writing this article on Groundhog Day, from Pennsylvania.  With all apologies to Bill Murray – I hope that what we learn from the changing landscape of doing business allows us to wake up each morning and not have to repeat the prior day’s mistakes until we get it right!

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I have spent some time since my last blog post (aside from the work that I do consulting, the charity work at do at Daddy’s Spirit – www.DaddysSpirit.org – and preparing for the opening of The Center on Central in Paoli, PA – www.TheCenterOnCentral.com), attending presentations by four noted economists.

In April, I heard Temple University professor Dr. Bill Dunkelberg speak at a Greater Philadelphia Senior Executive Group meeting (www.gpseg.org).  While I had heard him speak before, and have blogged about it, when it came time to ask questions, I asked a question that led to him speaking about a subject that I had not heard addressed by him or by any other business expert.  I asked whether, based on the events in the financial industry that imperiled the global economy, corporate leaders had learned anything or would carry around lessons throughout their career that would be a departure from their prior behavior.

Dr. Dunkelberg used the opportunity to offer an opinion that corporate boards of directors (most of whom are paid) had not been performing their duties adequately.  To go further, that many boards did not challenge the “C” level leaders at the companies they served and, for the most part, allowed CEOs and other top leaders wide latitude in implementing whatever initiatives they wanted, and awarding whatever compensation they wanted.

In early May, I heard Robert Hunt of the Federal Reserve Bank of Philadelphia speak at the National Association of Retail Collection Attorneys’ conference in Boston (www.narca.org).  While some of his material went over the same ground I had covered for the NARCA workshop in January in San Antonio, Mr. Hunt had the benefit of the Fed’s credit card data and macroeconomic resources to get into greater detail, and also had the benefit of the passage of a critical several months’ time, in order to be more able to say that the recession had most likely bottomed out, and to suggest that the credit markets might normalize somewhat in the near future, as they find a place between the incredibly loose underwriting standards of 2002-2006 and the incredibly tight standards we have seen immediately preceding and during the recession.

In late May, I attended a lunch sponsored by the Center City Proprietors Association (www.centercityproprietors.org) where Dr. Mark Zandi of Moody’s (www.economy.com) spoke and fielded many questions.  Dr. Zandi had the unique opportunity to be an advisor to the McCain campaign, and is currently an advisor to the Obama administration.  Dr. Zandi did state that he is a Democrat, and did further offer the opinion that the stimulus was necessary and is keeping a bad situation from getting worse (contrasted with Dr. Dunkelberg’s often-stated opinions, as chief economist for the small business oriented National Federation of Independent Businesses (www.nfib.com), in which he feels that by the time government acts and gets the money “on the street,” the crisis has generally passed, the priority of what money ought to be spent on is of minor concern in the elected officials’ haste to do something, and then the taxpayers are stuck with a hefty tab.

On the hefty tab part, Zandi and Dunkelberg agree.  They both expect higher inflation and interest rates (to the tune of 1 or 2%) than what might have otherwise occurred, beginning sometime in the next 2 years or so and continuing for 5-10 years.  They also both agreed that pent-up demand based on historical replacement figures for motor vehicles should help auto sales rebound in the not-too-distant future, though too late to help those displaced by the Chrysler and GM bankruptcies.

One thing that Dr. Zandi noted was that, regardless of the debate of the details of what did and did not belong in the stimulus bill, he felt that elected officials in Washington demonstrated the political will to get something done, which was no small feat.  Dr. Zandi further suggested that there are other heretofore unaddressed issues of federal government spending relative to taxation (most notably in health care and social security) which need to be addressed, but probably won’t be addressed until and unless another crisis arises.  Needless to say, this statement raised a few eyebrows and led to an editorial in the 5/22/09 issue of the Philadelphia Business Journal (www.philadelphia.bizjournals.com) which essentially stated that Dr. Zandi predicted a future crisis.  While the ingredients for a possible crisis are there – if the US Government’s deficit spending trends don’t get reined in, it is possible that foreign investors n US Government debt will dramatically slow or stop buying that debt, causing a sharp rise in interest rates – there are ways to tackle that.  One way which seems inevitable in increased taxation.  I have always felt that raising tax rates is not generally the best way to raise tax revenue.  Elected officials are always challenged to find that “sweet spot” where tax rates still are low enough to encourage investment in business development which increases revenue and keeps people (taxpayers) employed, so as to bring in sufficient revenue to cover costs.  At Dr. Zandi’s talk, it became apparent that this “sweet spot” moves due to macroeconomic and demographic factors, and that elected officials by nature are far more reactive than proactive.  It also became apparent that economic recovery would be much more regional, and that regional demographics would play a large role.  The Philadelphia regional economy, which is particularly strong in the medical and post-secondary education arenas, is poised to benefit from the aging baby boomer population (50 year olds being the single largest US age group) and the off-to-college and soon to graduate age group (20 year olds being the secind largest US age group).

Finally, last week I attended a breakfast hosted by the Main Line Chamber of Commerce (www.mlcc.org), where TD Bank’s chief economist and Bloomberg’s 2008 most accurate economist, Joel Naroff (www.naroffeconomics.com), spoke.  He felt that in housing we are seeing a turnaround by “fence sitters” jumping in to take advantage of lower prices and lower interest rates.  Of course, that presumes that rates will stay attractive enough (prices figure to stay attractive for longer).  One thing I had observed and discussed about the delinquent accounts collection world is that in the past, the subprime mortgage market paid off a lot of delinquencies of SELLERS of real estate.  What seems to be going on now, with tighter credit standards, is the prospective BUYERS of real estate are now being required to pay those delinquencies as a prerequisite to obtaining financing.  This shift in lending standards and resulting paradox should improve things somewhat in the collection industry, since home equity and subprime lending, which were propping up the industry from 2002-2006, have evaporated dramatically.

Naroff, after addressing the dot-com bubble and the real estate bubble from a historical perspective, offered the opinion that business leaders tend to make more mistakes in periods of lengthy economic good times and lengthy economic bad times – based mainly on a perception that the status quo will last longer that it invariably does.  He cited an example of a 2005 visit he made to the Phoenix area, where real estate professionals were expecting a second consecutive year of 40% price appreciation in Phoenix-area housing, which Naroff felt – and was proven correct – was unsustainable.

While Naroff was rosy about the recession bottoming out, he was pessimistic that any significant upswing would take place anytime soon; while Zandi was talking about 3-5 years before we reach a full employment economy again, Naroff was saying 5-10 years, pointing out that statistics indicating an upswing are misleading because of how low we went as an economy over the last 2 quarters.  Naroff essentially said that there is no third bubble on the horizon.  This prompted me to ask the question of whether he agreed that the dot com era was an era of innovation coupled with a tortured business model and that the real estate bubble was a zero-sum game, and if so, what kind of innovation might lead to his revising his less-than rosy picture of future economic recovery.

Naroff did agree that the dot com era produced innovation which we are actually implementing better now than we did then, offering the opinion that the economy of ten years ago was not prepared to fully implement these innovations.  He went on to say that whether or not we believe in the “green” economy, the federal government is and will be spending massive amounts of money and giving these projects significant attention, so that businesspeople and scientists might be wise to pay heed and follow the money and make their strategic decisions accordingly.  He

So – what is the point of all this – other than disseminating information?  My thinking is that that mere fact that economists are now talking about a variety of topics, sprinkling in optimism, and talking about the worst of the financial crisis in the past tense – is a sign that opportunities exist and business leaders who act in an informed and decisive manner will be much more poised to reap the rewards than those who continue to adopt a defensive or neutral “wait and see posture.”  A re-read of my first blog from just over 6 months ago (www.ron4law.com/of-crisis-and-opportunity) might be in order as well – what do you think?

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