The old adage, “Timing is Everything” is true in most aspects of life, and it is especially evident in today’s asset-based lending human capital market. Market forces have driven the cost of good talent to the levels of 2006 to 2008, and some would argue even higher. History is always a good place to start, and then we can examine the current state of affairs.
In a short span of three months at the end of 2008, the ABL industry and general economy suffered a serious downturn with unemployment as high as 40% in some areas of our industry. The crash was sudden and unforgiving as Wells acquired Wachovia, Textron Financial shuttered its doors altogether and numerous other commercial finance companies closed. All suffered actual losses or lacked liquidity. Bank ABL groups decimated their departments with layoffs when in actuality, many of the losses and cutbacks in these bank ABL groups had nothing to do with losses in the ABL departments. Rather they had suffered losses in other divisions, such as mortgages or commercial real estate. I watched amazed as the Feds forced solvent banks to take TARP money and then the same banks began hiring freezes or laid individuals off who could have used their ABL skill sets to lend that money safely. The very time when it would have been the smartest to use ABL’s collateralized lending was the same time that many very talented people were put on the sidelines.
The individuals who were lucky enough to be with surviving organizations felt uncertain as did many others in the country. The individuals who were not that fortunate were scrambling to find any type of position to survive the crisis. There were virtually no positions available, and if something was available, it was definitely a buyer’s market as companies had a great talent pool from which to choose. Because of this low demand, a tremendous amount of talent left the industry altogether. Some went to work for the FDIC as there were a lot of positions available with the government auditing the banks. Some went into workout positions while others searched for any position in finance –- commercial or otherwise. Additionally, there were a number of industry professionals who became consultants. (i.e., “I am out of work, and I need to have some type of income until I can find something.”)
That is certainly not the case in 2014. It is difficult to go a month in the past couple of years in which one hasn't read of a bank forming an ABL group. In some cases, non-bank entities, which have access to a tremendous amount of capital and are looking for a place to deploy that capital for a decent return, have also entered the fray. As the regulators have pushed banks hard to diversify out of real estate and into more direct C & I Lending, and as the banks have become starved for fee income, they have miraculously discovered this great product called asset-based lending which monitors collateral and has a higher yield. As is always the case in a free market economy, this causes a demand for talent that is specific to this discipline. With this increased demand, the cost of talent acquisition has risen dramatically. This situation is challenging due to the amount of talent that left the industry during the downturn. Many of these talented people have discovered other livelihoods which they either like better or feel may not leave them stranded in the future.
I have defined the past and the present, but what about the future? As you proceed in your quest for talent, I can only reinforce what you already know to be true. If you want to be successful, surround yourself with the most talented individuals you can find in a very competitive market. This competition is true in the marketplace for lending opportunities and also for talented individuals.
I am reminded of a conversation I had several months back with a highly respected national sales and marketing director and he stated, “You can never pay a great salesman enough, and anything you pay a bad salesman is too much.” I would contend when it comes to sales people, the very best are worth the additional cost as sales drive profits. Additionally, I have found the statement that past performance is a predicator of future success to be extremely accurate. The sales challenge within our industry is the referral sources of the salesmen. ABL is a continually changing and competitive lending atmosphere and the days of calling on just certain banks or just certain sponsor groups is simply not as effective as it has been in the past. The very best sales individuals in our industry are on the cutting edge, continually utilizing as many new methods of gathering referrals as possible to really bring the best opportunities to the table. Additionally, the very best producers want to know the back room is extremely good to ensure they will be able to close as many deals as is feasible. Therefore, to attract the very best in sales, you have to be willing to:
- Pay more for the best. This does not necessarily mean you have to increase the base salary. A strongly competitive bonus/commission structure based on production is key to winning the best individuals. The best will ask about the upside while the less than spectacular will ask about the base salary .
- Invest in the best talent in credit and underwriting. As someone who has recruited many of the top salespeople in the nation, the number one reason for dissatisfaction, other than money, is a lack of talent in both underwriting and credit. The best salespeople lack the support to close deals. Of course, every salesperson complains about a tight credit box being inflexible to structure deals in a timely manner. If the complaints are true and your competition has superior talent in their credit and underwriting, you will not lose every salesperson, only your very best.
Just as important as assessing the risk of the deal is the portfolio management and operations personnel. The most expensive account executive or portfolio manager is not the one with the highest base salary, but the one who takes his or her eye off the ball. A single missed cue from a distressed borrower or a missed cautionary signal from an account debtor can cost many times the base salary of the individual who did not catch the challenge early. It is not only important to have oversight and redundancy on the individuals who manage the accounts, but also to have the highest caliber people who are financially intuitive and conscientious. These individuals are absolutely worth a bit extra; quite frankly they are the exception -- not the rule.
In 2006, the ABL industry had approximately 9,500 individuals including heads of groups, senior management, sales people and portfolio management all the way down to credit analysts. Today, my estimate is around 7,000 and quite frankly, I do not see a lot of newcomers entering the industry. One reason is the lack of management training programs which used to be quite prevalent. They do still exist but not nearly to the degree they did in the past. If you combine that lack of training with both the exodus of talent in 2009 to 2010 to other industries and the numerous new players today, the demand for talent is quickly outstripping the supply and driving the cost of that talent higher.