Sunday, December 13, 2009

It's BLT or Toast!

I was talking with a man a couple of days ago who runs a factoring company. He called to ask about my experience with The Receivables Exchange. Before I could begin to really answer he launched into a bit of a diatribe regarding the impossibility of TRE’s ever becoming successful.

As he delivered his “I know more than you do” lecture I thought of that wonderful quote from Hebert Spencer:

“There is a principle which is a bar against all information, which is a proof against all arguments and which can not fail to keep a man in everlasting ignorance—that principle is contempt prior to investigation.”

Now this man had done some investigation and he’s a bright and experienced person. But he has a view of what is possible that is strongly influenced by a desire to maintain the status quo.

The problem is that once the genie is out of the bottle, the status quo cannot be maintained. The nature of a disruptive idea, process or event is that it DISRUPTS, no matter how inconvenient that disruption might be.

I believe that the IDEA of TRE is disruptive.

The question, in my view, is not WHETHER there will be a successful online auction market for accounts receivable. Now that the idea is out there, the question becomes whether the specific TRE model and process will be the one that survives and prospers or, if it fails, what changes to the TRE model will be necessary for the NEXT such venture to succeed.

As much as the traditional factoring industry pushes back at the TRE model, I haven’t heard anyone say that the basic idea is a bad one. The devil is in the details. Those who offer opinions that the Exchange can never work often point out perfectly valid weaknesses in its process.

But anyone can do that! I’ve done that; often and publically. It’s not hard. But they tend to stop before suggesting a solution. And there ARE solutions. They might be hard. But a lot of things are hard; that doesn’t make them impossible.

Here’s what’s hard, in my view.

To think BIG, not small. To think LONG TERM, not short.

Federal Reserve data suggest that about $18 Trillion of B2B receivables are created in the US each year. That’s a BIG market. The factoring industry touches less than 3% of that volume. It might be threatening to suggest that a highly professional and well-developed financial market is actually quite small compared to its potential. Especially if the idea comes from a source outside the industry!

In this case, thinking BIG is not a matter of a few percent points change in growth rate. Thinking BIG requires conceiving of exponential growth!

When you’re ass-deep in alligators, as many have been over the past year or two, short-term thinking is critical. Survival is the priority. And in that kind of environment it’s very hard to shift gears and think long-term. But when confronted with a disruptive idea, the only way to craft an appropriate response is to detach from the present crisis and look out to the horizon.

Is it possible that there is room in the industry for a very different model to work? And not only to work but to add value in an important way? Not to replace the current model, which is probably the best one for many clients. But to provide a solution for those whose needs are best met with a different approach.

There’s no question that there are many elements of the TRE model that deserve to be addressed in a critical way and a few of them might well be make-or-break practices or polices.

But in the long term let me suggest that it doesn’t really MATTER whether TRE gets it right or not …or even if TRE itself survives or not.

What matters is that the idea is now out there and the real-time, real-money, market experiment is well underway. If TRE fails it will leave behind valuable evidence of the cause of failure and the next venture will have a much better chance of succeeding.

I’ll get back to criticizing in my next post. Today’s message is to those who practice the Spencer principle of contempt prior to investigation.

In the face of disruption think BLT (Big and Long-Term) or (risk becoming) toast!


  1. Well said Chuck.

    I like the TRE guys, and their model, so I do hope that they continue to do well. So far, one of their greatest strengths is that they LISTEN.

    Unlike your buddy, I take it.

    And the reality is that with all that unleveraged A/R there is plenty of room for both aggregators/exchanges like TRE and for smaller factoring companies.

    The ones in either space that execute well will survive, and the ones that don't, wont.

    Frank Harrison

  2. Thanks, Frank. I agree that there's both room and need for more than one approach.