Is Bigger Really Better?
Kevin F Clune, CLP
What is the take away from the FaceBook purchase of WhatsApp, a company with only 55 employees, for a whopping $19 billion? My initial reaction was that I am in the wrong business but on a positive note, I felt hopeful that even a relatively small business can deliver an impressive product that outperforms, or at least competes with, their larger counterparts. Very simply, they saw a need and decided to create a solution.
While the App technology development industry is starkly different from the lease finance business in many ways, there are some lessons to be derived from the “WhatsApp” story. Read more here.
One of the owners, Jan Koum, wrote on their blog, “When we sat down to start our own thing together three years ago we wanted to make something that wasn’t just another ad clearinghouse. We wanted to spend our time building a service people wanted to use because it worked and saved them money and made their lives better in a small way. We knew that we could charge people directly if we could do all those things. We knew we could do what most people aim to do every day: avoid ads.”
This comment inspired some basic questions that are specific to Clune & Company and the leasing industry, but they could also be adapted to any business venture.
1. What do potential customers really value in a leasing company?
2. How can these needs be incorporated into a lease finance product?
3. Can a relatively small, Independent Equipment lessor compete with larger competitors?
Based on conversations with both vendors & lessees, the most important factors they want in a lease/finance service are a rapid response, competitive prices, straightforward contracts, and easy process.
It is very understandable that a quick credit decision is vital to the vendor who has a customer in need of equipment. They need a prompt answer or else they risk losing a sale.
The monthly payment must be competitive with similar services. However, it is important to weigh the total cost of the lease against a competitor’s total cost, which may include hidden fees.
Straightforward contracts without onerous return conditions and the risk of automatic renewals are also a necessity for both the vendor and the leasing customer. The equipment dealer may lose a good customer through no fault of their own, but rather due to the practices of the leasing company they recommended.
If the application process is cumbersome and the credit analyst at the leasing company is inaccessible, all of the other factors may be unimportant to the leasing customer. Many businesses who have financed equipment with a lease have concluded that a lower monthly payment may not be worth the hassle of a complicated application process and the lack of a professional leasing agent who is readily available and responsive.
There are many sources of equipment lease financing and they can all incorporate these priorities into a lease finance product to varying degrees. We always advise leasing customers to shop around when presented a lease quote by an equipment vendor. They do not need to accept the lease contract the vendor recommends.
In the WhatsApp example, the creators of the technology determined that customers, who were getting a similar product free, would pay for their product because there was no advertising. The same thinking could be applied to the leasing industry. Customers who value a straightforward contract, a rapid response, a lower total cost, and an easy application process are willing to pay a slightly higher monthly payment.
Ironically, with the advances in technology, the playing field is becoming more level for a relatively small independent leasing company such as Clune & Company. It is our contention and hope that small to medium sized companies can differentiate themselves from larger competitors with their ability to be more flexible, responsive, creative, competitive, and fast.
As Dr. Seuss said about Green Eggs & Ham, “Try it, you might like it.”
Let us know how we may serve you,
Kevin F. Clune, CLP
Clune & Company
