Vendor Finance Strategy Foundations—Can you really be a generalist?

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Be honest, this generalist thing is really of more value to the end user small business than the dealer, right? The end user small business can benefit from your versatility by financing a skid steer from you today and a pack of laptops a few months from now. Cool. In most vendor shops this is the exception rather than the rule though. Almost all of your volume comes from the dealer, not the repeat existing customer. There is a reason dealers specialize in assets as opposed to being a Wal-Mart of commercial equipment.

The dealer wants the specialty. They want the deep understanding of the industries that count on those assets combined with unique solutions that help finance the industry situations and assets each dealer sells. In fact, in our 2014 research, 72% of dealers prefer working with a specialist over a generalist. As Scooby might say, “ruh row”.

Does this mean all vendor shops are to abandon their generalist approach? Of course not. It does, however, mean that some strategy may need to be developed. A few things to ask yourself:

Are you really a generalist?

Listen this is the equipment finance business so trucks, yellow iron, technology make a big piece of the pie. If more than 30% of your volume comes from one asset class, is that not a specialty? To do that volume in that space you know the industries that need those assets pretty well. You know the issues facing the dealers and you know the typical finance offering that best matches both audiences. You’ve seen the ups and downs, the crazy in and out competitors and know how to make some things work for those dealers. That sound like a generalist to you?

What is a “soft” vertical?

So let’s say 40% of your nut is trucks, 25% dirt pushing, 20% technology and the other 15% miscellaneous. And of that pie chart, 90% of originations come from a dealer. You may say that this is an obvious example of being a generalist. We say this is a diversified vendor finance company with 3 verticals. 

Here’s how you establish a “soft vertical”: Have a meeting with the dudes and dudettes (sales, credit, doc, ops/asset, legal) that are behind the bulk of those industry originations and develop your UNIQUE story of how you help dealers of those assets sell more. If you struggle with how to craft that messaging, just get in a room and tell deal stories. You’ll hear some consistent themes that really emphasize your unique experience, offering and knowledge of that vertical.

Capture that unique story and build standard messaging to that vertical. Build some cool marketing (web, articles, ideas, email, flyers) focused exclusively on that audience.  Then dedicate some people as experts to leading the effort and voila…a vertical specialty within a “generalist” business. These “ experts could be focused exclusively or in part. Imagine a salesperson that is 60% trucking, 40% material handling. You can be a specialist in a limited number of areas, just not every area.

How to choose these “verticals”?

Trucking may be really hot right now, but be careful not to go too far into that or any one space. For all that have been around a while you know the heat factor of these industries run in peak and valley cycles. Be very strategic about the asset types you are targeting. Manufacturing assets and trucking assets follow each other as they are both economic leading indicators. So not a bunch of diversification there from a volume point of view. Real diversification might be Security Technology and Material Handling…two very different spaces.

Can crazy contribute to more success?

Yes. Every vendor finance company, generalist or not, should look for a unique niche, or crazy, space. Sign companies, Pizza ovens, POS systems, Assisted Living Centers…find a unique space with less competition and own it!! The key to success here is doing your homework. Really research the market opportunity, the dealers, the assets and then take them to your credit/asset folks. In the process of all that research, doing a few deals in a less populated space and walking a few industry shows, guess what? You are developing a real specialty. These areas may never be the biggest piece of your pie, but they can be higher margin and more stable through the cycles while the higher competition areas are ebbing and flowing.

Moving forward

Now that you have strategically developed your areas of specialty, have a dedicated staff and messaging to those dealers and an industry diversification strategy, all you have to do is build the go-to-market plan.  More on that in the next few days. Wanna chat? Give us a holler.

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