The equifax breach may be the beginning of the end for the business information industry.
At a certain point in my military career, I was made to sit through an extremely dry and soul-sucking class on the process of classifying information. Without going deep into that torture, I’ll sum it up with a statement that may seem counterintuitive.
“When possible, produce information that is usable by the largest possible audience.” In other words, “don’t produce classified information that nobody will be able to use.”
Trust me. This is the hardest lesson to teach. Top Secret information is sexy. It feels powerful to produce it and to control it. But, producing information that is classified (at any level) often makes it useless. Why? It’s quite simple. Information, data, intelligence, whatever you want to call it, has no value without application. Information only has value when it can be consumed. It’s like growing a garden of fresh vegetables, then never harvesting and eating them.
Businesses of all sizes, throughout all industries, make the same errors every day. I understand, the competition is ruthless and is always looking to take some market share. Even non-profit organizations are in competition. Why would you ever want to share information with a rival? I’m going to begin my answer with an example. When casinos catch a cheater, what do they do? They quickly notify all their competition throughout the region. Why would they do this? The cheater won’t do any more damage to their business. Why not let the cheater go wreak some havoc at the competition’s Blackjack table? You know the answer, because passing that information quickly and efficiently helps to keep the industry healthy. When it comes to reporting cheaters, there is a high level of trust between competitors.
“Information only has value when it can be consumed.”
The business world needs to change its perspective. Nobody is telling you to give up a competitive advantage – that’s what the government does when you don’t properly nurture your industry. Ask yourself what information your organization collects, that when freely shared, will not put your company at a disadvantage to the competition, but protect the health of your industry. You could start with your vendors. In certain industries, especially pharma, credit unions and community banking, the vendor overlap between two randomly selected organizations is surprising. Reduce that list to critical vendors or high-risk vendors and the overlap becomes worrisome. We have the data, and we’re watching entire industries are put many of their high-risk eggs in the same baskets – a trend that does not statistically bode well over time, yet it exists. There’s an opportunity here though.
“Business information has NO value without application.”
If the organizations in an industry contract with many of the same critical vendors or high-risk vendors, does it make sense to share certain information with the industry? We think it does. It's not a complete list of possibilities, but consider the following possible events and conditions:
· An investigation for fraud or bribery
· The sudden departure of a CFO
· Continuous failures to meet compliance requirements
· A lawsuit
· The unexpected loss of a critical client
· A failure to maintain an overall industry reputation (falling out of favor) *
· A failure to keep up with industry innovation *
I put an asterisk next to the last two examples because they fall more to the subjective side of the business information spectrum – extremely important data that needs to be included in any system of business information. Look at the list again. Concerning a common vendor, is there any item on the list that would compromise your competitive advantage? I’ll argue with you later, but the answer is no.
What happens when you do share this information with your industry peers? What are the positive outcomes for client and vendors?
Positive Outcomes of Sharing Selected Information with Other Industry Participants
· The company’s reputation is improved in the peer-group.
· Disruption of business due to vendor failure is less likely.
· The industry’s reputation, in the eyes of the public and regulators, is improved.
· The quality of the vendor pool is improved.
· Vendor compliance costs are distributed throughout the industry.
· Vendor responsiveness to checklist requirements is increased.
· Reliance on 3rd-party information brokers is reduced, resulting in saved expense.
Positive Outcomes for Vendors when Performance Information is Shared
· Top performing vendors are rewarded with improved reputation, resulting in increased business.
· The vendor pool is compelled to maintain a high level of quality.
· A vendor’s awareness of reputation in increased, allowing them to better manage the market’s perception of their product or service.
· The vendor’s ability to observe and respond to market needs is increased, allowing them to remain competitive.
The biggest problem with most of the vendor management platforms is that they do NOT allow the sharing of important business information between industry peers. At the same time, they also do not allow the vendor to actively maintain their profile within the platform. They all essentially do the same thing, display the data that you already have. Trust Exchange made the decision to break this trend by applying social technologies to your business information/compliance program. Now, you have a choice. You have the choice to share business information or not. You are also now able to discover what everyone else is reporting about your critical vendors and high-risk vendors.
It’s time to adjust your perspective. Ask us how we’re different.
The state of B2B credit today can be compared to the cargo cults of the post World War II pacific islanders. Like these cults, the large credit bureaus and financial institutions are trying to predict the future by recreating the circumstances of the past and forcing modern businesses to perform their sad obsolete rituals.
The John Frum Cult, located on the South Pacific island of Vanuatu, is a modern remnant of the “Cargo Cult” phenomenon. These cults sprung up when technologically advanced western cultures exposed themselves to the native islanders. The natives, upon seeing the inexplicable technology and vast amounts of supplies brought in by the militaries of the United States and Japan, attributed these achievements to magic or divine origin.
Once the war ended and the militaries withdrew, the natives began creating rituals that mimicked the behavior of the occupying militaries. They would stage parades, build runways, coconut radios and even airplanes made from palm trees in an attempt to conjure up the fantastic amounts of men, supplies and the miracle of flight. Sadly for them, short of another war, nothing they do will replicate the unique set of circumstances they witnessed in the 1940’s. Even today, the John Frum Cult (“Hello, I’m John from America”) has a ceremony every year on February 15th to celebrate their new god in the hope of his return.
Unfortunately, the business credit industry is enacting similarly obsolete rituals. Here are a few examples.
Check Credit. It costs a lot to check a company’s credit and in most cases the data isn’t accurate, timely or correlated with any company’s long term viability or ability to pay. This is especially true for small and medium businesses. Furthermore, business failure is a process and not an event. In order to understand the true risk of entering into a business relationship you need to monitor viability vs. check credit.
Reporting Credit. It costs a lot of money to report on a company, good or bad. The quality of a report is dependent on collecting ALL of the data on a particular company. These fees are a negative incentive to participation and reduce the quality of the overall data.
Data Integration. It costs a FORTUNE to integrate real time with the large business credit bureaus. This is an additional blockage to free data and skews the existing data toward the outcomes of the larger integrations: telecom, utilities, etc.
Trust. The large credit bureaus don't trust you to update your own information. They also don't track key information beyond the payment information such as certifications. (SOC1, SOC3, ISO, etc.)
At Trust Exchange, we are trying to stamp out the cult by making the data open, free and peer generated. With our service, you can create your own standards, rate companies and monitor all of your key business relationships.
Learn more by contacting us HERE
The process of collecting and monitoring business information is broken, laden with middlemen who don't add value and yields less than perfect information. One of the most compelling aspects of Internet companies is their ability to eliminate the number of parties involved between a producer and a consumer. Dell famously did this by creating a very lean supply chain and delivered custom computer systems more quickly and inexpensively. Through podcasting, Apple enabled the producers of raw content to distribute it directly around the globe collapsing the layers between teachers and students, artists and fans etc.
The business information and credit industry is laden with middlemen creating several costly bottlenecks which should have been rendered obsolete years ago. These bottlenecks increase costs, decrease accuracy and increase the risk of sustaining financial damage.
Currently, the credit worthiness of a business is largely determined by the church of big fat credit bureaus. Quoting the Wikipedia definition:
“…(they) collect information and provide information for a variety of uses…”
That doesn’t seem like a whole lot of value. The bureaus are the data middlemen behind the credit curtain. These fading credit wizards have outlived their value yet continue to peddle stale, inaccurate and snake oily data. They keep you anchored with an ID, charge you to establish your profile, view your profile and update your profile. Then, they resell this data they charged you to input to other companies as “leads.”
This broken industry can be optimized by doing three things:
1. Freeing the Data
2. Socializing the Data and
3. Fixing the Process.
Over the next few weeks we will discuss this topic in a series of posts and present a new way to view business viability and manage risk.
The idea for starting TrustExchange came when one of my customers (from another company) went out of business. We rarely lost customers but when when it happened it was usually due to death (bankruptcy, shut the doors) or marriage (merger or acquisition). When companies die, it’s my experience that it’s a very painful process and a little check on the company stability goes a long way. This particular incident stood out in my mind because we had taken all of the typical precautions: checked their DnB, researched their business information, built personal relationships with the executives and interacted with them frequently.
Their failing wasn’t an event but a process where their loss of business stability extended over several months, and like the famous frog in the hot water, we ended up getting burnt in the end. A $25K burning! So here is the story:
We first met CompanyX (name changed to protect the guilty) just as they had begun getting traction. They were located in Silicon Valley, had signed several marquis customers, attracted some impressive investors, moved into a nice new office and from all accounts were pretty good citizens.
During the initial phases of the sales process, they were very diligent and asked all of the right questions about our product. The management team at CompanyX was pretty impressive. Degrees from the best schools, experience at tech stalwarts and a strong handle on their market and prospects. It was a tough sales process but in the end we were victorious and awarded the deal and promptly started contract negotiations and closing process. In the end, we negotiated a $10K startup fee and $5K per month recurring fee to use our product.
Prior to granting access of our product to customers we did a few things to check a company’s stability: Dun and Bradstreet check and we asked to see their financial statements. CompanyX, like most small privately held companies, refused to disclose their financials. It was a tough call since we had limited insight into the company stability but we had a quota to meet and they had a check for $10k, so we signed the deal!
Everything seemed fine for the first six months, they paid their bills on time and were happy with the product. Then we noticed they were 10 days late. When we called to check they apologized and said they would send it out promptly…except they didn’t. Then they went 30, 60 and 90 days late yet stayed in communication with us, told us they were fund raising and would be able to pay us soon so we didn’t turn them off. Our CFO checked their credit again and all seemed fine. After the fourth month, they stopped responding to emails or taking our calls.
Finally after the fifth month, we sent someone to their office and to our horror discovered an empty office. No people, no furniture nothing but a shell. We shut them off that day.
When I called some of my CEO peers, they had the same experience and were left holding the bag too.
1. Company stability is a process and not an event.
2. Credit report data is less than adequate.
3. Bad stuff happens to good people.
4. I could have stopped the bleeding if I had discussed with my vendor peers earlier!
5. I need to monitor company stability vs. just spot checking
Company Stability is a process and not an event. So…we started TrustExchange to help businesses monitor their risk and exchange key information to increase trust in each other. If you're interested and want to learn more about how we're doing this, CONTACT US.
Businesses have outsourced Trust. Rather than rely on on their own criteria businesses use services to help the determine the trustworthiness of other businesses. Will they pay on time? Will they provide good service? Are they helping or hurting my company’s compliance?
In some cases, this is a matter of scale, especially in the consumer market. Macy’s for instance couldn’t possibly have a deep enough conversation with every customer prior to purchase to get comfortable so they outsource that process to the likes of Visa, Mastercard or American Express.
In the business to business world, companies have outsourced this function to third parties in order to determine the likelihood of another business paying their bill or providing quality service. The only problem with this, is that businesses are different. B2B transactions usually have a much higher average selling price and are usually recurring. And, most importantly, unlike the consumer market where Visa, Mastercard and Amex underwrite credit, the B2B credit bureaus don’t actually grant credit. Businesses grant credit to each other and therefore, should not outsource this core task.
By leveraging a combination of Trust and Reputation, Trust Exchange is enabling companies to gain control of this function and bring actionable data directly to the people who need it most.
Why should a credit bureau define the “worthiness” of a business? Trust is built by a company’s consistent performance and results. Trust can be discovered most accurately by the individuals closest to that business: the owners and advisors. Reputation can be discovered by observing the way a business interacts with customers, suppliers, partners and vendors. Combined, we call this the SMART CROWD!
Who better to measure and define business performance that the “smart crowd” that’s already doing business with the company. Take back Trust, and be in control of your own reputation – Trust Exchange gives you the platform to do just that.
Stay tuned to our blog for more information.
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