Last week, we got a note from Ralleigh Grandberry IV.
“Jer and Miro, why do Autotitle lenders fail? I’ve seen a few guys open up and close. What went wrong?”
Ralleigh is starting out in Payday, and wants to expand into Auto Title lending. Here are Jer’s comments, and I’ll follow it up.
Seriously, Failure? Let me count the ways… undercapitalized, poor collection skills, lack of focus, wrong state, one catastrophic error in the 1st 12 months, infighting amongst your Team, internal theft, poor customer service, failure to think long-term in all aspects of your business particularly regarding customer retention/remarketing/building referrals, not incentivizing your CSR’s in alignment with your short/long-term goals… Need I go on?
Having said this, there is serious money to be made and I like the future of car title much more than PDL’s and installment products.
I’m sure the “mercurial” Miro will COMPLETELY disagree with me on ALL my ramblings :o)
This is free counsel so implement at your peril.
Jer – Trihouse
Jer covers most of the big issues. UNDERCAPITALIZED is a big one. I had a conference call with a lady that was intending to open an auto title operation. She had $15k to open the store. I assumed that was her budget to get a small store open. NOPE. That was her entire budget PLUS her working capital. She had projected that she’s earn $3375.00 per month on that amount. This is fantasy.
If she’s extra careful, MAYBE she can open a 10×10 office with a laptop, printer and camera for $10,000.00. She’s not even considering signage, permits, 1st, last & security, etc. That leaves her $5k for the street. That’s enough for 5 customers. After that she has to turn people away.
Having deep pockets in this industry is an absolute must. You’re going to have to experiment to find your sweet spot as far as underwriting goes. It’s going to take some trial and error. That means, you’re going to give out money, and NOT get it back. Especially when you’re new. You’re going to attract every professional debtor within a 200 mile circle of your store. If your bank balance is FAT, you can take your hits, keep going, and then it’s going to magically turn around for you.
I think if I had to offer a few key suggestions:
1: Have deep pockets
2: It’s a people business. Be amazing with people.
3: Supervise and verify everything. Especially employees.
PS: My Auto Title course is going to be released very soon. Watch out for it.