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Streamline Funding Scaling private lending business

Two Perspectives on How to Scale a Private Lending Business

Streamline Funding’s AVP of Marketing, Alesondra Mora was able to pin down one of private lending’s premiere dynamic duos – Romney Navarro Navarro, CEO Streamline Funding and Chris Ragland Ragland, CIO Noble Capital – to dive into how to scale a private lending business. In this Q&A session, they offer varying perspectives on how to scale a private lending business including how to prepare pre-scale and the best markets for doing so. 

 

AM: WHAT IS THE DIFFERENCE BETWEEN SCALING AND GROWTH?

 

CHRIS RAGLAND

I think growth is a little bit unpredictable. Whereas scaling is kind of like more methodical. It’s more quantifiable, it’s predicted. Whereas growth is just kind of organic. Sometimes organic growth can be good, sometimes it can be dangerous. Growth is just, you know, what happens if you’re doing your job, right, at least? Scaling a business is more deliberate and intentional.

 

ROMNEY NAVARRO

Yeah, you took the words right out of my mouth. Scale is deliberate. You don’t scale without a plan. And without action. Growth happens if you’re running your business correctly. What we were talking about recently is that every business needs to grow; not every business needs to scale. But when you when it is time to scale, it’s not the same set of rules.  Scale has a plan.

 

CHRIS RAGLAND

Yeah, I think so too. And that also, that kind of leads me to something else you and I have said in the past, which was grow or die, right? Either you need to grow, and that could be in a number of ways. Maybe it means volume, being more efficient, or maybe means growing as a person.  So grow or somebody else that’s got a better way of doing things is going to take your place.

 

AM: HOW DO YOU DECIDE IF YOU SHOULD SCALE?

 

ROMNEY NAVARRO

This is a kind of deeply personal question at the moment, but scale has a little bit more of the end in sight. There is a defined goal, a defined target. Why does somebody decide to scale – they want to achieve something. There is also a personal component. Some people are built to grow and some people are built to work. Those that are built to scale and want to achieve something I think that’s that point where they’re saying, “Okay, next stop, exit. Next stop, some level of wealth, importance, significance.  It’s the next big hurdle in that person or that organization.

 

CHRIS RAGLAND

Yeah, I think that’s good. When I think about what are you built for – I’m built to grow around my midsection when I eat a cheeseburger. But seriously not everyone’s really built to scale. I know people that excel in small teams and work groups, and then fail in large enterprise organizations. And sometimes that person is the owner of both of those things – and that’s not a good day. But sometimes it can be a salesperson, or an operations person – not everybody is meant to be in an organization that’s truly scaling.

 

AM: WHAT SHOULD YOU HAVE IN PLACE BEFORE PULLING THE TRIGGER ON SCALING YOUR BUSINESS?

 

CHRIS RAGLAND

Look, if you want an academic answer, it’s like, here’s the really well articulated plan, resource allocation, budgets, Porter’s Five Forces – all the academics.  Another way to answer the question is your resources – which for me, most of the time, is human capital and then actual dollars. I’m either going to spend money to scale, or I’m going to recruit the right people to scale. I really believe if I have the right team that can execute, then I can attract the capital to scale my business. So, the real short answer for me is ensuring that I have the right people with enough diversity of skill sets to survive, right? If you’re going on a mission, you don’t want four people to know how to do the same thing. You need people to have a broad variety of skill sets so that you can get to the other side.

 

ROMNEY NAVARRO

So I’m going to take it in a little different direction. I continue to hit this hurdle of scale versus startup scale, totally different conversations. You need some baseline stuff to scale. You can go into product, and all the things that a business needs, but – if you do not have profits, it’s not time to scale. There’s a place for a startup to start with no cash and get to revenue. However, I still think it’s 1. Profits, then 2. some form of an operating system, it’s a thing that we all kind of do, the way we run the business; and 3. Technology. Scale means different things to different people. It could mean $1 million to $10 million or to $100 million depending largely on where you’re at in technology. So, it’s a big and broad comment but profits, an operating system and technology.

 

CHRIS RAGLAND

That’s pretty good. I will disagree with one point you made that you need profits to scale. This is because I have so much experience in startup and venture capital world. In those worlds, the scale moment is when you prove your product for the first time. You might be losing money on a run basis. Right? “We lost money this month, but we actually sold our first product ever!” You’ve now validated the marketplace with your product. And I believe that that’s actually when you want to scale. We know it works. We have a viable product. We know people want it, we know the marketplace, now go sell 100,000 of them.

 

ROMNEY NAVARRO

So I’ll add to that, because again, startup versus scale, I think the people that we that kind of live in our community of private lenders are generally operators already. We’re not talking about a blank book, “How do you start a business?” I’ll agree to say scale probably is going to be triggered by some type of product. Yeah, you could sell the same thing you’re selling right now, a bunch of times, but it’s the next frontier when you sell the next thing 100,000 times. Take product to market – it works -then multiply.

 

 

AM: WHICH MARKET IS MORE FAVORABLE FOR SCALING A BUSINESS – UP OR DOWN MARKET?

 

ROMNEY NAVARRO

You know every question that you’ve asked so far, there’s more than one way to answer it, so I’ll try to find the happy medium. There’s opportunity in both -depending on what you’re working with. In a down market, if you’ve got something that people need then you might actually have an opportunity to scale and just kind of fly by people. In an up market, again, if you have all of those key things (revenue/profits, tech, and a real operating system) I think what you’re working with at that point is going to be a real double, triple heavy push on sales and marketing. I do always go back to sales and marketing because that’s the fuel that feeds the machine, the engine.

 

CHRIS RAGLAND

Yeah, I’ll agree. I think it really depends on your resources at hand in those two marketplaces, because either of them could be better than the other depending on your resources.

 

AM: REGARDLESS THE MARKET CYCLE – YOU NEED TO BE ABLE TO STAND OUT AND ARTICULATE YOUR VALUE TO THE MARKET. HOW DOES A BUSINESS FIND THEIR NICHE?

 

CHRIS RAGLAND

What makes you unique, your niche, if you will – I think a lot of it can boil down to trial and error. You should be A B testing – kind of like a marketing campaign. If you’re going to scale and maybe you’ve decided it’s going to be through product differentiation, then you really need to AB test. You got to get out there, find out what’s appealing to the market, and also what can you build that’s unique, because part of scaling is also essentially winning, right? And what I mean by winning is if you’re selling the same thing that everybody else is, then you’re only able to compete on price, because now you’re a commodity. So, you have to figure out truly how can you differentiate yourself in the marketplace. That’s how that’s an organic process over time. What made you unique today and why people want to contract with you is going to be different than what it is a couple of years.

 

ROMNEY NAVARRO

Yeah, I’d say almost impossible or very rare that you can keep pressing the same button or running the same play for years. You need some sort of innovation. Set a calendar time on it every six months or so to do some sort of innovation. Now listen, to establish your niche, you have to figure out product. This is what kind of separates the mom-and-pop shops from the other – there’s features and there’s benefits. It’s really just turning those features into benefits that are unique to you that are meaningful to the consumer. We always struggle with it and why? – because I think every six months you kind of need to reinvent it.

 

AM: WHAT DO YOU NEED TO KEEP IN MIND WHEN TRYING TO FIND YOUR NICHE MARKET?

 

CHRIS RAGLAND

When you’re searching for your differentiator, Keep in mind, there’s two things going on. Your competition is learning from you and effectively emulating you to beat you. Simultaneously, the marketplace and the needs of the marketplace are changing. So even your strategy is outdated the moment you deploy it. So defining your niche I think is less important than constantly modifying it.

It’s kind of like skeet shooting. When you shoot clay pigeons, you don’t aim at the pigeon, you aim in front of it to hit the pigeon. However, you see a lot of people, they get a lot of reps in, and a lot of practice, because they were using clay pigeons, and then they get in the real world, and they go duck hunting, and they’re like, “oh, my gosh, it moved on me.” Yeah, welcome to the real world.

 

ROMNEY NAVARRO

I gotta add to this – sometimes the pigeon actually doesn’t move. That’s going to typically be some type of a flagship product. Keep in mind that flagship product still needs to grow and it’s usually through additional product innovation. So, when you talk about a niche – you can simply be known for that flagship. You just do the most basic thing perfectly. Again, you know that’s a marketing thing and even that’s going to continue to evolve.

 

AM: INNOVATION IS THE MOST COMMON STRATEGY WHEN TRYING TO BREAK AWAY FROM THE PACK. WHAT ADVICE DO YOU HAVE ABOUT FINDING YOUR PATH?

 

CHRIS RAGLAND

Hold on. This is important. Let me tell you something, and this is going to be counterintuitive. Breaking from the pack is not always good. Sometimes when you go live in the ivory tower and build your own thing, you innovate and you plow way out ahead. Green Pastures, blue ocean but there’s a reason that the pack is where it is, right? So, when you look at everybody that is participating in the industry, and they’re kind of in a certain zone, it’s okay to be with the pack. But you probably want to be on the fringe, where the grass hasn’t been trampled, but you still want to be kind of close to the pack.

 

ROMNEY NAVARRO

I actually think no matter at what stage businesses – $0 in revenue, or billion dollars in revenue – one of the comments [Chris Ragland] made earlier is that the competition’s always emulating, the markets always changing. I think emulating is really important, just in general. But to stand out, if you will, there’s nothing wrong with studying the ones that are doing it the best, and just tweaking it ever so slightly. Getting on the fringe or turning a 4 to a 4.1. What they’re doing is working for a reason. There’s no need to turn it on its head.

 

 

AM: SO TO GO FROM 4 TO 4.1 – HOW LARGE A ROLE DOES TECHNOLOGY PLAY?

 

CHRIS RAGLAND

It’s massive, it’s a really big part of scaling a company, not necessarily grow your company. But if you want to scale, and you don’t have the right technology in place, get ready to fail. It’s just really that simple. If you try to scale without the right technology, you will fail. It’s okay to grow organically without it. You’re just going to be less efficient. But I don’t think you can scale because there’s no foundation and support and hold up that infrastructure, that scale.

 

ROMNEY NAVARRO

Yeah, let me let me touch specifically on an earlier question – it depends on why you want to scale. For some, it’s an exit. Is there an exit that exists in today’s day and age without tech? Yeah, sure. You’re just gonna get a lower multiple, a lower valuation. It’s not everything but it’s at least a third of it. In our world of private lending, we’re just scratching the tech surface. A lot of proprietary stuff is now starting to be created. Lord knows where it’s gonna go. But somebody’s going to get it right and a few people already have.

 

 

AM: WHEN TALKING ABOUT RESOURCES LIKE TECH, HOW DO YOU LEVERAGE EXISTING BUSINESSES/PARTNERSHIPS TO SCALE VS. START FROM SCRATCH?

 

ROMNEY NAVARRO

Chris Ragland calls this build or buy. I’m not saying reinvent the wheel, but always improve the wheel.  There’s a cost to build and there’s a cost to buy. You have the triangle of price, speed, and quality. Pick two, you can’t have all three. If you’re sprinting, and we’re in the middle of a sprint of sorts right now, buy is not a bad option.

 

CHRIS RAGLAND

I’ll be your contrarian deliberately. I think right now, because we’re in a down market, AND if you were capitalized, big thing – if you’re sitting on reserves – right now is a great time to be building. You can save money, you can have something that’s more accustomed to your needs. Then when things level out and we start to accelerate on the other side, you will have a competitive advantage.

 

AM: FINAL QUESTION. READY, AIM FIRE, OR READY, FIRE, AIM?

 

ROMNEY NAVARRO

I think – actually I don’t think, I know for certain, and we’re all built differently, of course, but you know, in today’s kind of crazy marketplace, there’s opportunity. We catch ourselves putting a lot of things in writing for kind of future generations.  I think it’s time to put our pencils down and kind of our guns up and ready, fire, aim.

 

CHRIS RAGLAND

Fire, fire fire. Because you’re gonna hit at least one of those three times? Look, it depends on what you’re trying to do. If you’re trying to scale your company, you really have to aim. You can’t just shoot; you really have to be deliberate. That’s the only way you’re going to scale successfully outside of just random happenstance.

 

ROMNEY NAVARRO

I heard somebody say the other day that “money likes speed.”  I started thinking about that – the things that we think about, that we don’t do anything with, do not monetize. They do not translate into anything except good conversation. But the things that we do think about, and we turn into action quickly on – those do monetize.

 

CHRIS RAGLAND

I do think ready, fire, aim works – if you have another bullet. That’s another important part. If you’ve only got one shot to scale, you don’t get to aim again. It’s over your chances are gone. Some of the people in our industry did scale improperly are now closed because they only had one bullet. So, it kind of depends on how many lives you have, your ability to adjust, to make changes, and then scale again. Bottom line, it’s unique for everyone.

 

 View full article publication in the Spring 2023 Private Lender Magazine. 


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