Brigham Young University has a slogan, “Enter to learn; go forth to serve.” Brock Blake, Founder and CEO of Lendio is a graduate of Brigham Young University and epitomizes that slogan. He and his team at Lendio are building a new way of financing for small business owners across the United States that solves for accessibility, complexity, and trust that has not been seen in the financial markets for some time.
Brock is a sound business minded individual who worked to identify a real need in the US to help our small business owners that are the backbone of the economy to get access to the money they need to enable their businesses to thrive and grow. Imagine, starting your own business and now you need capital to get the business off the ground. Where do you turn, who do you ask, how do you get the funds to make that idea a reality? Just because you have a great idea does not mean you are finance savvy. That is where Lendio comes into play. They make the process easy so you can focus on building the idea into a reality.
The slogan or ethos of Lendio is “humble hungry,” which to me feels a lot like an offspring of “Enter to learn; go forth to serve,” because essentially Brock is saying lets be open minded, and hungry to learn from our customer, let’s never assume we are just right, let’s get it right and then execute to best serve our customers. Check out my fantastic conversation with Brock and his Chief Franchise Officer, Ben Davis below…
CL: So my first question for you here is you have been around the financial space for some time. Why do you enjoy being in this space so much? And what led you to decide to found Lendio?
BB: I think I'm most passionate about fueling the American dream and people just think that's a tag line. It's actually what drives me. I've been around small businesses a lot in my life and I know that business owners, business to them is not small. It is their life, and their passion. They have visions and goals to they want to accomplish whether it’s to hire employees or expand or open a new location or things like that.
When you can take something that is so painful for them and simplify that and make it easier and then you can see the fruits of that solution come to pass, that's fun. It's fun to see the stories and hear the stories of these business owners that get financing and can expand and grow.
That's where it starts to really get fun when we tell those stories. We have business owners come in once a month to a company meeting and tell us their story. They talk to us about what we did, how it helped and where they're going. You could just see our team gets really excited and passionate about that. That's what drives us. This is why we are doing it.
CL: For those that don’t know how do you define Lendio as a business?
BB: We are a small business loan market place. It's kind of like the Kayak of business loans. We are not a lender ourselves. What we've done is we've aggregated 75 lenders under one platform and made it so a business owner can go to one place, complete one application and get access to all of those lenders.
Essentially, we have taken a very large, painful, and challenging market and have found a way to make it efficient and transparent for small business owners. Comparison shopping for the best loan offer is now easy.
CL: In 2016, Lendio grew over 111% and processed over $240 million in loans on the platform. How long do you think Lendio has to sort of run free in this space and continue to grow at such an elevated rate?
BB: I think what has enabled that growth is that when we come up with a strategy of growth and creating awareness in the market we try and do research around that idea and vet it before moving forward. We make sure that the opportunity we are considering pursuing is real and actually has legs. Once we identify a real opportunity, we pursue the best talent we could possibly get and put as much power behind it as we can.
With a clear vision, great resources and amazing team leaders like Ben, it allows me to look over the horizons and say "what's next?" For instance, today we're getting our new franchising division launched, which will be another big growth driver. But it all comes down to the talent of your team. Just surround yourself with people that are smarter than you.
CL: To that point, Comcast Ventures recently made an investment into the company. What do you think their vision is and also, what are you planning on doing with the capital?
BB: Comcast Ventures is a fantastic partner for us. What was interesting about Comcast Ventures is that they had really studied the market of financial services and had built a very strong thesis around the type of business that would be the winner.
They felt that in order to have an efficient marketplace you need a service like Kayak, Priceline or Expedia that aggregates the small business loan market into an efficient package. With Comcast Ventures aligned on our business model and my fondness of Dave Zilberman, who led the round, it just really came together. I think their goal is to invest in companies they feel like can change the world. No pressure but we feel like we're going to do it.
CL: I have seen an aversion from VC investors before to invest in actual marketplace lenders, but I think a service offering like yours is interesting because you are capturing the tailwinds of marketplace lending growth, without the risk of being a loan provider. I feel like playing the service aspect of this market is an intriguing way to reduce risk while capturing market upside. What’s your view on that?
BB: That's totally understandable, especially today because I think the wave of really innovative marketplace lenders has already passed. And any time you have a budding industry, what you usually have is providers that will crop up. So first we saw the marketplaces come to fruition and now we will see the creation of service providers across this space.
Just from a timing prospective, if I were a VC that's what I would be looking at as well. To be able to say "Okay, I don’t see that many lenders that are differentiating today but this is a growing and maturing market. Who are the service providers that are going to serve that market that are going to add value? That is where I would invest and that is exactly what we are doing at Lendio.
CL: Some of the partnerships that you've made are American Express and GoDaddy. Can you talk a bit about what those partnerships look like and why they are working with you?
BB: Let's start with American Express, which is an incredible partner for us. They really have a passion to help small business owners by offering unique loan products. So for them, and specifically over the last couple of years, they've launched some innovative online loan products. Whether it's merchant financing or working capital they are constantly looking for ways to be able to create awareness of their product offerings in the market.
They wanted to add a marketplace and we were fortunate to be the marketplace that they partnered with to be able to go to market, and we are working to continue to build out more ways to collaborate with them as well.
Then there are partnerships like Staples and GoDaddy where they have a customer base of small business owners and those small business owners, a lot of them need financing. If you go to Staples and you are a Staples customer and you need financing, Staples didn't have a way to be able to offer financing. We partnered with them and launched a co-brand in Staples Business Loans, to offer the financing to their customers.
CL: Currently, you work with 75 lenders. What type of lenders do you look to partner with and are you looking to continue to expand the reach of that program?
BB: We are not aggressively looking to expand. We're always looking for lenders that are innovative, that are unique, that offer some sort of differentiation. But, there's a lot of "me-too" lenders out there. It's slowed down quite a bit but there was a time where we were having two to three lenders a week coming to us, and asking to join the platform, but we didn’t see anything meaningfully different between them. So 75 lenders is a pretty good number where we've got good diversification across all loan products and we have two or three deep in each vertical. So now, if we find something really unique, we'll add it but we are not aggressively trying to add any.
CL: You've shown an ability to have return customers, with over 57% of customers coming back for a second loan. Is that because of the outreach you are doing and how are you driving them back to the platform for repeat purchase?
BB: First and foremost, our goal is to take care of our customer by providing a great customer experience where they'll end up wanting to tell their friends about it and hopefully end up coming back to the platform. That's the highest priority, is to just provide a great customer experience. After that, we want to make sure that we are providing good content and good education for them on their loans and helping them to be educated when it's time to look. Business owners on average get financing every three to five quarters. So if you can get out in front of them and let them know, "Hey, we've got all the options" or "if you want to refinance we can help you with that". We try and stay in the top of the mind with those customers so they'll come back.
BD: We also want to give them no reason to go anywhere else. One of the things that happened after the recession, when a lot of the banks fled upstream was that all these great new lenders came in with options that small business owners had never really seen. In solving one problem, which was putting options back into this space, it created another problem, which is this massive complexity problem. Now the question is, how does a small business owner go and sort through all of the different loan types and know what works for them?
If we build that brand in their minds so that they know "Hey, in between the time I last got funding and today, there may be new products that entered the market, but all that matters is that if there is a good one out there it's going to be on the Lendio platform.” As long as they understand that value proposition, they're going to keep coming back, and that’s the trick to retention.
CL: If we think about an offering like Square Capital, it gives you the ability to obtain a loan direct from your POS system and have it paid back through customer purchases. That seems like an extremely frictionless customer experience. At the same time, I would guess that the interest rates are high. Is that how like Lendio would differentiate to Square Capital or are those the types of businesses that you wouldn't look to work with?
BB: First of all, Square Capital is a great business with what they are doing. I always say they are fishing in a barrel. It's a great business. Square Capital looks at the volume of transactions that happen on Square. But, what if that business owner is getting customers online or what if they're getting customers that are cash based or what if they have a different merchant account that isn't swiped through Square? Are they looking at the global picture of that business owner? Square provides a great product with a working capital loan.
Where we can provide real value add is we say, what if they need a real estate loan or an equipment loan or some other loan product? Our approach is just a little bit broader and we look globally at the borrower and their needs and then we provide a broader set of solution to deliver on their specific need. Again, not to say anything bad about Square Capital, only to say that is how we differentiate.
CL: You recently announced the launch of the Lendio franchise program. What types of services are you providing through this and what's the hope of growing this program?
BB: I'm going to hand it to this guy right here, Ben Davis our Chief Franchise Officer. That's where he comes in and makes his money. J
BD: What we are doing across the Lendio organization for small businesses is exactly what we are going to do for franchises. There's been a lot of literature in this space forever about there's bank and non-bank. The banks have all of these retail locations and things like that and local customer connection and they own the database of customers. Then you've got this portion of the market that's willing to go online and do all of their lending online. Well, this brings the best of both of those worlds together. If you think about the profile of the average small business owner, half of them are over 50 years old. You think about the online behaviors of that profile, most of them still very much think about banking as a belly-to-belly, face-to-face experience. On average, they've been in their businesses for well over 11 years, 70% of them more than 11 years, so they were in business long before this kind of democratization of capital movement took place.
So when Brock first approached me about franchising, we connected a little over a year ago, through LinkedIn and he said "Hey, I've got some franchising questions I'd like to bounce off of you". He talked about a few different challenges that small business borrowers have in relation to these new online lending options and he said "We basically have three opportunities that can be solved through a local marketing strategy. We can improve awareness among the local community of business owners and small business service providers, reduce complexities through our online technology, and increase trust with customers that prefer to do business face-to-face (vs. online).”
We figured we had the complexity issue down pat since that is what we do, we take all the options and allow you to comparison shop for the best loan option. But Brock said even after that, we've still got one the trust issue to work through with a subset of borrowers that get to a certain point and feel like they can’t trust the service to go through with an online loan. Unless we are engaged with this group of business owners in their local community and have someone there in the community, like a franchise owner that is equally passionate about their mainstreet it’s challenging to engage these customers. Having people in the community changes the equation a little bit and helps them to get over that trust gap a little better.
That's really what franchising is about. It's about helping Lendio bring marketplace lending to mainstreet directly to them. So it takes what people love about non-bank and they love about the bank and says "Okay, we've got kind of the best of both worlds" through the franchising model.
CL: Why do you think the franchise space has such low coverage in terms of loan options? It's almost better than small businesses in that you know the unit economics of it of a franchise. It’s that idea of a "business in a box,” which should reduce some of the risk of investing in these businesses and yet there is very few available financing options.
BD: We think we are kind of the first ones in the franchise space specifically. And that's not too surprising, it's a relatively new space. Franchising is actually quite ubiquitous. Early on in my career, I came across franchising, and I thought it was just companies like McDonald's. But it's in every space.
Franchisees are really unique. In one of the first decks that Brock and I discussed, when he first pitched the idea and I said let me noodle on it a little bit, I came back and I wanted him to understand what's unique about franchisees. It comes down to these two issues. There are these two concepts that seem kind of mutually exclusive but when they are combined, the intersection of them is where franchising exists and it's really powerful.
It's this idea that at some point an entrepreneur has to raise their hand and say "If it's to be, it's up to me". There is this rugged individualism associated with it. This real hunger that's just like "Hey I'm going out and make this happen and I'm not going to depend on any large government or company or anyone else. I'm just going to go make this happen". So there's the "If it's to be, it's up to me".
Then there is this other idea that seems like it's on the other end of the spectrum which is "None of us is as smart or as strong or as capable or as robust as all of us". "None of us is as good as all of us." So there's this kind of collective power and those seem to be opposing ideas. Franchising exists in that intersection. You've got all of these individuals that say "Hey, I want own my own business. I want to control my own destiny. I want to put the power to create wealth for my family in the right hands, which is my own hands". There's this humility of recognizing that "Hey, there's power in this collective". That's why franchising is different than entrepreneurism and it's why it's so powerful. It's why franchise companies generally outperform their non-franchise counterparts.
So I expressed these two ideas to Brock and why franchising is powerful. It turns out that Lendio's, I hate to call it a tag line because it's so much more than a tag line, but its humble hungry. Which are those two ideas exactly. The hunger of "If it's to be, it's up to me" combined with the humility of "None of us is smarter as all of us". That's why this was such a great opportunity to pursue.
CL: Do you think you will look to partner with a franchiser, to scale loan acquisition more effectively?
BD: You bet. One of the other of the three strategies for 2017, that Brock can talk more about, for customer acquisition is building out more partnerships and that's one of them that we are working on. Now that we are a franchisor the next questions is, how do we partner with more franchisors to be the one stop shop for franchisors? We want the franchisor to be able to go to their franchisees and say "Whatever you want, be it more equipment, more licenses, more buildings, whatever it is, Lendio has your options."
CL: So Brock I know that the banks have largely left the SME loan space altogether but with services like yours where you create accessibility to the end customer pretty easily and probably at a much lower cost than they could ever do on their own, do you think we'll see some proliferation of the banks coming back into this space?
B: Yeah, I actually led a panel that was all about banks coming back into small businesses. On the panel we had American Express, Bank of America and Chase, and all of them after the recession were out. Now they are all coming back into the small business loan products really aggressively. It's great to see and very exciting for the market. Small business owners will definitely win because of that. They are great products too.
CL: As you think about Lendio five years out, what is your vision for it? Where would you like to see it be at that point?
BB: We are “THE” place to get a small business loan. I want it to be at the point that when people think I need a loan, they can either, go online, and complete our application or when they tell their accountant they need a loan he or she says "Oh, I've got your guy. There's a Lendio rep here". Wherever geographically you may be in the US I want to be there. I want us to really penetrate the market in the U.S., so we can help small business owners get the best access to financing. That's where we want to be.
The Minute Rundown with Brock Blake
CL: If you could provide one tip to someone considering starting up, what would it be and why?
BB: Oh, man, how much time do we have? Wow, that's a big question. I think focusing on the product-market fit. In other words, is there pain point, is there really a pain point, and can you make money solving that pain point?
And then just do it! You have to make sure you're actually meeting a need. To me, I think sometimes business owners go to their close friends and family who are all going to tell them "Yeah, that's a great idea" and then they open a cereal restaurant because everyone eats cereal. But you are not really identifying if there is a need. So identify the need, figure out how to make money delivering that need because if you can't make money you can't sustain it. Then go for it.
CL: How did your time at Brigham Young impact your approach to building this business?
BB: All the foundational elements of an education, specifically around financials and the fact that BYU is a very, very entrepreneurial driven university. My favorite classes, the ones I never missed, were the entrepreneurial lecture series where entrepreneurs were coming in and they were telling their stories and I'm just writing down notes and soaking it up. I took a class called "Financing New Ventures", which is what we do. It was a class that I loved and I ended up being the TA for that class. The combination of the education, the network and the non-educational learning through the entrepreneur lecture series were incredibly important in shaping my approach to business. It is also a value based school that is teaching you how to do business the right way.
BYU teaches you how to align the values of the business with your own personal values. So BYU was a great foundation. In addition, while I was in school I heard about this entrepreneurial competition. It was kind of like the TV show “The Apprentice,” I don't know if that's the best example anymore. There was a 100 college students that applied and they narrowed it down to 20 and then the 20 of us went through this very intense, competitive eight week boot camp. We had all of these competitions we had to do. We had to do sales, and marketing, and we created this fundraiser event. At the end, these venture capitalist and philanthropists chose five and gave them $50,000 to start a business. I was one of those five and could use that to be able to start anything I wanted. A lot of my schooling helped me in that process.
Brock and Ben are a dynamic duo that you just enjoy having the opportunity to sit down with. Their vision for building a business that meets a need, that plays well in a market that is still learning and growing and that has scalable potential that would excite any investor is invigorating.
Every once in a while I sit down with a team and just walk away saying that team gets it, they are onto something. Brock and Ben are most assuredly one of those teams. Their “humble hungry” nature is perfectly aligned with the needs of their customers.
As they continue to build out the service lines they offer including the franchise business I do believe that Brock, Ben and the whole team are poised to do big things. They’ve carved out an important part of the marketplace lending space and filled it in with a solution that gets me very excited.