Refined lending approach attuned to business lifecycles

The best companies in your loan portfolio are likely the ones at capacity, providing stable and predictable return on investment. It doesn’t matter if these firms are large economic enterprises or small mom-n-pop shops — sales and earnings variances are low and businesses experience planned growth with long term stability.

One only needs to look at the business lifecycle model and place a finger firmly on the place where business is at market equilibrium (see graph 1). Your best businesses are at the place on the model that creditworthiness risk algorithms are designed for — the prediction of future trajectory based on a substantial record of past performance. But something is missing. This is not the only phase on the business lifecycle model, and certainly it does not take into account businesses that are at the point of invention, innovation or pre-launch development — which includes research and development activities — nor  does it account for business launch, the period of exponential growth on the way to capacity and equilibrium, nor businesses that are ready for expansion. These six “other” phases are real and they deserve bankers’ attention.

The business lifecycle model is a valuable tool because in its totality, it reminds that the phases of a business’ lifecycle can be identified in discrete and knowable pieces, and that the phases have predictable characteristics. The characteristics of each phase are different, and shouldn’t be measured using the same criteria — if for example, we judge a fish by its ability to climb a tree, the fish will fail every time.

Likewise, a banking culture that is driven by a measure of what is not helps no one go forward. Ratios and algorithms tell the banker what is, but do not provide any insight into the questions what else, who else, and so what? The answers to these questions come with evaluation in the presence of the appropriate criteria relevant to the specific phases of lifecycle. This is not a process where one tool fits all uses. Resilience and a commitment to evaluating each business phase as an opportunity is a creative endeavor, one that can help overcome banker burn-out and bring an excitement that is the result of finding and applying fresh perspectives to solutions all along the business lifecycle. It helps bankers and businesses alike to meet each other where they are, on the way to where they need to be. [Continue]

Precision ag holds promise, but limitations persist

“Robotics is huge,” said Curtis Drozd, a third-generation corn, soybean and sorghum farmer in the southwestern Michigan town of Allegan. Drozd has invested in unmanned aerial vehicles, or UAVs, and GPS-integrated auto-steering computers on his tractors. Lest you think Drozd’s auto-steer system is rugged and reliable enough to allow his tractor to autonomously start itself in the barn, drive to the field, and complete plowing or planting all while he attends to other tasks on the farm, Drozd is quick to clarify: We still need the farmer. [Continue]