2017 Conference

Watch 2017 Recap Video

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Using the “Jobs to be Done” framework, watch and listen as Bob Moesta and Chris Spiek interview a borrower for insight into their purchasing journey.

Big Picture: What’s Your Purpose – Lisa McLeod

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Lisa McLeod - Founder at McLeod & More

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Transcription

Chris Spiek: What happens is all this stuff starts to feel a little elusive, right? We’ve talked about Snickers Bars and Milky Way Bars and homes and all this stuff. What we’re going to try to do is ground it in your world here. So we don’t know Chad. I’ve talked to Chad for probably 15 minutes to get to the fact that he had a bank and he fired that bank, and now he has a new bank. So what we’re going to do is uncover the story of the situation he was in and the progress that he was trying to make. What we’re going to do is-

Chad Neely: You want me over here?

Bob Moesta: … think about the four forces. As we’re going through this, try to … If you’re going to scribble them down, write them down. Think about [crosstalk 00:00:36] what’s driving him to make progress, what’s attracting him to a new solution. What we’ll do is … I’m going to split you guys in half. Right here. If you’re on this side of the room, be thinking about if you’re the old bank that got fired in this story, what could you have done? What would you have changed about the situation? What messaging, what interactions could you have had that would’ve stopped this from happening?

If you’re from this point over, think about how you attract him. If you’re somebody competing for this business, and now you know his story and you know the fact that his story, it might sound unique, but it’s not, there are a lot of people in similar situations, how would you package something that had the right message and the right features and was advertised the right way to pull him in? Right? So we’re going to go for 20, 25 minutes. We’re going to hopefully get to the core of the story, and then we’ll have a discussion. Got it.

So Chad, thank you so much for taking the time.

Chad Neely: My pleasure.

Bob Moesta: Alright. Set up is pretty simple. We’re trying to understand the language that people use as they talk about banks and under … So this is early research. This is just trying to make sure we have a conversation to understand what you say, because we know what we say, but we’re not sure it’s the right stuff. So this is really about trying to get your story down. The best way to think about it is, I want to shoot the documentary of you understanding that your bank wasn’t working, figuring out they’re not going to work, deciding that you need a new bank and how you chose. It’s just literally that documentary. We’re going to ask some weird questions, it’s going to be a little bit … But we have no list of questions. It’s literally just we want to hear your story.

Chad Neely: Do I need to put $20 in the swear jar?

Bob Moesta: I already paid that fee for you. [crosstalk 00:02:11] you’re in on that, okay? So let’s just start. Tell us a little bit about you, your company, and then when did you switch. And then we’ll kind of let the conversation flow from there.

Chad Neely: Sure. Well, I actually started my career in the finance and banking world and was really [inaudible 00:02:30] for the first 12, 13 years of my career in that world. Through a confluence of opportunities and just identifying some opportunities and assets, left that world and started a medical device company in 2009 called Wenzel Spine. And then we started a sister company called IsoStem two years later, which is our biologics arm.

Bob Moesta: Okay.

Chad Neely: And so in 2009, we did an asset purchase, acquired IP and related assets out of another orthopedic company, which is … That IP portfolio is what we’ve built our flagship product around.

Bob Moesta: Okay.

Chad Neely: So in late ’09, we were basically putting together our initial team, as well as raising our Series A equity in conjunction with initial financing.

Bob Moesta: Okay, and this is when you had, let’s say, the old bank? Or did you have banks between that?

Chad Neely: Well, yeah. So we basically kind of shopped around for our first bank.

Bob Moesta: Yep.

Chad Neely: So fast forward from 2009 to today. About four, four and a half years ago … Gosh, maybe it’s five now, I’m-

Bob Moesta: That’s alright.

Chad Neely: I’m dusting off some cobwebs.

Bob Moesta: That’s alright.

Chad Neely: We switched.

Bob Moesta: Five years ago you switched?

Chad Neely: About five years ago.

Bob Moesta: Alright.

Chad Neely: We switched institutions.

Chris Spiek: We’re in like 2012 or something like that.

Chad Neely: Yeah.

Chris Spiek: Alright.

Chad Neely: 2012, 2017.

Bob Moesta: Not fresh in your memory at this point.

Chris Spiek: That’s fine.

Bob Moesta: You might have a few cobwebs.

Chad Neely: Yeah, the dates are fuzzy, but the reasons stick out.

Bob Moesta: Got it. So hold on a second. Game off, right? Part of this is you’re going to see that part of this is getting him to recall memory, and when it’s emotional, it’s in there. You just have to dig for it. Short of water boarding, we’re going to get it.

So 2012, you switched. Who did you switch to? Just so that, so we have a name of … I have the old bank, do we want to talk about new bank or do you want to say who it is?

Chad Neely: We’re with Comerica today.

Bob Moesta: Okay. So you switched to Comerica in 2012? Rough.

Chad Neely: Correct.

Bob Moesta: Got it. And what did you switch? What services did you switch?

Chad Neely: Everything.

Bob Moesta: What does that mean?

Chad Neely: Our loans. We refinanced and restructured.

Bob Moesta: How much in loans?

Chad Neely: At that time? Probably just right at two million in outstandings. Today we have … Well, actually, we probably have roughly just about the same today, but we also switched all of our treasury management services. So maybe two and half, three million in total, treasury management services in terms of deposits and short-term investments.

Chris Spiek: Did you switch it all at once?

Chad Neely: All at once.

Chris Spiek: Okay, and I cut you off. Was that the list? The loans and the treasury management? Or was there more?

Chad Neely: Merchant card services.

Chris Spiek: Merchant. Okay.

Bob Moesta: How much is that worth?

Chad Neely: I have no idea. I need my VP of finance here to answer that question.

Bob Moesta: It’s okay. At some point, it’s like whoever the old bank was, something happened that says, “Today’s the day we’re going to Comerica.”

Chad Neely: Correct.

Bob Moesta: So tell us the story about … At what point … When did you have the first thought like, “Oh my god, I think we need a new bank.” Rough.

Chad Neely: Well, I would say that the relationship didn’t start off well in that when we closed our acquisition, the bank transposed the wires and sent a 1.8 million dollar wire to where a $10,000 wire was supposed to go, and a $10,000 wire where the 1.8 million was supposed to go.

Bob Moesta: 2009 or 2011?

Chad Neely: 2009

Bob Moesta: So right out of the hat.

Chad Neely: Yes. And that, frankly, right there would normally have been enough for me to say … Well, let me follow that up by saying it took me half a day to get somebody on the bank on the phone because they were in internal meetings, which I would think that sending a million eight wire to the wrong recipient would’ve been a reason for somebody to get out of a meeting and call you back.

Bob Moesta: Alright.

Chad Neely: So right then and there, that was a really bad start. However, what I will say is, is that after that happened the next day, the management of that institution were at our offices essentially saying, “Listen, we screwed up. It’s not acceptable. This is not how we operate,” and frankly gave me confidence that that was just a really unfortunate one time clerical error. We said, “Okay, great. We really appreciate it. Thanks. Let’s just move on with our relationship.”

Bob Moesta: Got it. So a little chink in the armor, but they patched it up with basically, “Sorry, here’s what we’re going to do. Here’s how we’re going to help?”

Chad Neely: Yeah, and frankly not trying to, “Oh well this happened, or you screwed up, or it was really your fault.” I mean, it was just basically, “Hey, it was our fault. We really apologize. We’re going to make sure we try not to do it again.”

Chris Spiek: Who are the players in this story? Is it just you that’s tackling this?

Chad Neely: At this point, it’s basically me.

Chris Spiek: Okay.

Chad Neely: When we first started out, we were a team of four. You know, I was basically doing both the CEO and the CFO roles at this point. So I was negotiating everything with the banks, raising the money from our venture capitalists.

Chris Spiek: Okay.

Chad Neely: Doing all of that, because I had just come from that background.

Chris Spiek: Sure.

Bob Moesta: So let’s-

Chad Neely: As we progressed, we had a Bridgepoint CFO for a period of time, but then have now VP of finance and an internal accounting team, and all of that is internal now.

Bob Moesta: Okay. Fast forward. Help me get to like … At some point it’s like when did you start this process of, “Okay, they have this …” It’s in the back of your head. It’s like, “Yeah, they screwed up, but they made up for it.” But at what point does this really start to become something like, “Okay, we have a problem?”

Chad Neely: I would say we did a minor acquisition.

Bob Moesta: Alright, in?

Chad Neely: It would’ve been right into 2012, beginning of 2013.

Bob Moesta: Okay.

Chris Spiek: Okay.

Chad Neely: We internally financed. We just paid cash for.

Bob Moesta: Okay.

Chad Neely: But because we did that and there were some change to the cap table as a result of that, there were some things that we needed to do structurally to the existing term facility to say, “Hey, this is what we did. This is … We changed a couple of things here. You know, we’re meeting and exceeding plan. You know, we’re positive EBITA. We got this, we got that. But we do need to change some of these things, because otherwise we’re going to be in … Or we need to get permission to do some things to make sure that we’re in compliance with loan documentation.”

Bob Moesta: So what happened next?

Chad Neely: Well, it became very clear that the existing institution we were with did not understand our business at all. And more importantly, just didn’t have a desire to understand our business.

Bob Moesta: What do you mean? How do you know they didn’t understand? What do you mean they didn’t understand your business?

Chad Neely: Because of things we were talking about and the things that we were trying to change were very, very standard in a life science business. We were getting pushed into a very cookie cutter kind of scenario, is what I would call it, where it’s just about checking boxes and, “Well, you’re in program 248-7, and that means you get this.” As opposed to understanding what we’re trying to do, where we’re trying to go and setting up for the next round of financing, which we did want to put in place in about six months.

At this time, too, we’d also been through, I think, maybe two or three relationship managers.

Bob Moesta: What do you mean two or three relationship managers?

Chad Neely: So the person that we started with, who we put the facilities in place with initially, that position had turned over.

Bob Moesta: Okay. Three times?

Chad Neely: At least three times, and so the person that we were dealing with at that point, I’d never even met face to face. And so it just became very clear that this was going to be a very arduous, long process to stay with that particular institution to get something done, which I felt was a very, very minor change structurally. But that didn’t concern me near as much as knowing that in six months we wanted to put some new financing in place for cap X financing to be able, basically, finance our cap X budget for the remainder of that year, which for us is the instrumentation.

Bob Moesta: Yep.

Chad Neely: So the actual the instruments that go into the OR that surgeons use to implant our devices.

Bob Moesta: Okay.

Chad Neely: Which we own. They’re our assets. And I was much more concerned if we were having a problem of that nature, or that small-

Bob Moesta: On this little thing [crosstalk 00:11:44].

Chad Neely: There’s no way we’re going to get any kind of understanding of the cap X financing that we needed.

Chris Spiek: Alright. [crosstalk 00:11:51]. Help me with the conversation. Like I don’t want to get too far into it, but are you trying to educate this relationship manager?

Chad Neely: Yes.

Bob Moesta: Is that where it started? [crosstalk 00:12:00] You said you never met him face to face?

Chad Neely: No.

Bob Moesta: Are you doing this on the phone or email?

Chad Neely: On the phone.

Bob Moesta: On the phone. Are they local? Are they-

Chad Neely: Local.

Bob Moesta: But he wouldn’t come over or you couldn’t go see him?

Chad Neely: Well, I’m not going to go. I mean, not to sound-

Bob Moesta: Just say it.

Chad Neely: … without hubris here-

Bob Moesta: He works for you, right?

Chad Neely: Yes, and if they wanted-

Bob Moesta: Damn it.

Chad Neely: And if they wanted to understand our business, come see our freakin’ business.

Bob Moesta: Right.

Chad Neely: You know.

Bob Moesta: Right, so he’s literally sitting at his desk trying to hear all these words, doesn’t understand your business, and at some in time is like, “Okay, I got to explain all these … Like, oh my god, really?” You know, did you invite him over?

Chad Neely: Oh, absolutely.

Bob Moesta: And he’s just like, “No, I don’t have time for-”

Chad Neely: And I don’t remember the details of that, and my COO was involved as well. So the talk track that I distinctly remember was that we had several phone conversations where we talked exactly about the same things. Same questions, same issues. We would have a conversation, basically the way the conversation ended was, “Okay, I need to go talk to some people. Let me get back to you.” Ten days would go by. I would pick up the phone. Say-

Chris Spiek: Yep. Call him back.

Bob Moesta: “Where are you?”

Chad Neely: “Hey, what’s the story on this?” And we’d go-

Bob Moesta: Oh my gosh.

Chad Neely: “Oh, okay. Yeah, I needed some clarification.” And we would literally have a 30 or 45 minute conversation on the exact same issues.

Chris Spiek: Is there time pressure on your … Do you need to get this done by a certain date? What’s the calendar look like on your side?

Chad Neely: For that particular item, there wasn’t a significant amount of time pressure.

Bob Moesta: But it’s that other thing [inaudible 00:13:43].

Chad Neely: But I knew that the clock was ticking, because I wanted our new cap X facility-

Bob Moesta: Wow.

Chad Neely: … in place in about probably within, call it 100 days.

Chris Spiek: Yep.

Chad Neely: And if I’m going to switch institutions, well now there is time pressure because now I got to, basically, start that process and repackage the whole deal.

Chris Spiek: Yep.

Chad Neely: So it wasn’t time pressure particularly for that institution, but for me there was time pressure in terms of [crosstalk 00:14:13] are we going to stay or we going to go?

Bob Moesta: The other part is you’re not revealing to him this other plan, because it’s just going to … Like, “Oh my god. If I add that at it, it’s just going to confuse the crap out of him even more.” So you’re not even telling him what you’re thinking.

Chad Neely: Well, I’m not trying to be a shitty customer and say, “Well if you don’t get this done, we’re out of here and we’re leaving and screw you.”

Bob Moesta: No, no.

Chad Neely: I’m trying to say-

Bob Moesta: You’re trying to make it work.

Chad Neely: “Listen, I’m trying to give you more business and I think this should be, frankly, a relatively easy thing to get done, but if you’re going to put us on the back burner and just not give us an answer and string us along for six months, then that’s just not going to work for us.”

Bob Moesta: So I want to shoot the scene of you hanging up the phone, or wherever you said, and you turn to whoever and say, “Okay, we need to start looking for banks.” When did you … Kind of like the last straw of at least looking?

Chad Neely: I think it was probably the second or third phone call where we-

Bob Moesta: Same shit.

Chad Neely: … again went over the same exact things. And coming from the industry, I knew, I was like, “We’re dealing with somebody who’s very green. It’s probably their first or maybe second banking job.”

Bob Moesta: Why didn’t you elevate it? Why didn’t you just take … I mean, you get somebody seasoned. They could do it.

Chad Neely: Oh, I tried.

Bob Moesta: What do you mean you tried?

Chad Neely: I tried.

Bob Moesta: What does that mean you tried?

Chad Neely: I went to the president of the bank and basically was told-

Bob Moesta: This is your guy.

Chad Neely: “Well, you need to work with that person.”

Bob Moesta: Wow.

Chad Neely: And at the time, I think we were probably, if not the largest, maybe the second or third largest long-term loan they had in their Austin portfolio.

Bob Moesta: So all of sudden, is this where you open the flood gates? How do you find Comerica? You just say-

Chad Neely: Well, at that point we had a VP of finance in place. We had just hired a VP of finance. So basically I was in the process of making the transition of allowing that individual to really own the banking relationship, own what a VP of finance should do.

Bob Moesta: Welcome to the company.

Chad Neely: Yes, exactly.

Bob Moesta: [inaudible 00:16:06]. Find a new bank.

Chad Neely: And so we sat down and basically my directive was, “The most important thing to me is that we have an institution that understands our business.”

Bob Moesta: What does that mean? What are they supposed to know?

Chad Neely: So, I take as most everybody in the room, at least in this audience, is intimately aware, different businesses have different unique metrics. For instance, in this town, a big issue, like for software companies, is what’s a receivable, what’s not? Is a maintenance contract a receivable? Or is an annual renewal? Do we lend on that? Do we not lend on that? How do we structure that borrowing base? That takes some real in depth knowledge of that particular company’s contracts, how they renew with their customers, et cetera. For us, similar with hospitals.

Bob Moesta: Got it.

Chad Neely: You know, hospitals typically slow pay. I don’t think that’s a shock to anybody. Our borrowing base is not a standard 90 day borrowing base. Anything past that, screw you. You know, we have almost zero bad debts. But-

Bob Moesta: It’s just longer.

Chad Neely: Our borrowing base needs to be 100, 120 days.

Bob Moesta: Yep. Yep.

Chad Neely: And so if we’re at an institution where it’s basically just, “This is our standard deal, here’s our template. You either fit this or don’t.” That’s not a place for us. And frankly I don’t think that’s a place for any company.

Bob Moesta: Who wants that, right?

Chad Neely: Yeah.

Bob Moesta: The other part though then, how do you go find that bank? Because let’s be clear [crosstalk 00:17:45].

Chris Spiek: I’m going to back up to the conversation you’re having with the guy that you’re putting in charge with finance. Give me the nature of this project? Like is this going to turn into an advantage for you? Is this something that … Are there gains to be had here?

Chad Neely: Yes.

Chris Spiek: Or is this all just negative, like getting rid of the negative.

Chad Neely: No, no.

Chris Spiek: This is [inaudible 00:18:01] positive.

Chad Neely: It’s a positive, because we were in a position where we were growing. You know at that time we were approaching a 10 million dollar revenue level. We had positivity of good cash flow. I mean all of our metrics were good. We had VC equity money in.

Chris Spiek: Okay.

Chad Neely: It wasn’t a situation where we were in a distressed situation and we were, you know, basically like pleading with somebody, “Please don’t cut us off.”

Chris Spiek: Yeah.

Chad Neely: We were in growth situation saying, “Listen, we shouldn’t have to be dealing with this …

Chris Spiek: Got it.

Chad Neely: … ticky tacky nonsense.”

Chris Spiek: So if I think of the emotion, it’s like it’s going down … Like these guys don’t know us. These guys … I’m really trying to save this relationship. But the moment you make the decision, we got to go shopping, it turns positive. It’s-[crosstalk 00:18:47]

Chad Neely: Absolutely.

Chris Spiek: Now like the world is kind of open to us. We got to figure this out and it’s going to have benefits to it.

Bob Moesta: Do you even give them a chance? Do you even tell them that you’re shopping? Or do you’re like [crosstalk 00:18:55].

Chad Neely: I think after the third phone call, basically I unleashed my VP of finance and just said …

Bob Moesta: Unleashed.

Chad Neely: … “Here’s what we need to go look for. Here, three institutions off the top of my head that you should go talk to. Whoever you want to add to the list, do it. But let’s reconvene and-

Bob Moesta: How fast? Like I need it by the end of the week? [inaudible 00:19:14].

Chad Neely: No, I think it was two weeks. But he had meetings set up, I mean [crosstalk 00:19:21].

Bob Moesta: How many banks did he bring you?

Chad Neely: Maybe four we met with.

Bob Moesta: Okay. And so help me understand … By the way, active looking, right? Four banks, what do I need? Help me understand what those four meetings were like. Right in a row? Did you do them together?

Chad Neely: I mean all within two weeks.

Bob Moesta: Of each other?

Chad Neely: Yeah. I mean, meaning over a two week period we had-

Bob Moesta: Everybody come in.

Chad Neely: … four meetings.

Bob Moesta: Yeah. How do they know what to pitch?

Chad Neely: Well, actually that’s an interesting question, because my … If I sit down in a meeting like of that nature and there’s a PowerPoint presentation already prepared, and there’s some deck that I have to sit through, I get up and leave.

Bob Moesta: Why?

Chad Neely: Because they don’t know us. The finalist in that process were the ones who opened up the meeting with, “We’re really happy to be here. We want this meeting to be all about us understanding you and your business and your needs. And then we’re going to go back, put our thinking hats on and then come back with a deck or presentation or you know, or whatever.” As opposed to, “Here’s our standard deck that we give to every company, whether it’s Snickers or spinal implants, and you’re going to fit into one of our three boxes. And if you ever get out of one of these three boxes, you’re fucked.” There’s your 20 dollars.

Bob Moesta: [inaudible 00:20:47]. Thank you for swearing. There you go. He opened the door. There we go. Alright. So literally people just coming in, “Here, thanks for having us in.” PowerPoint. “See you guys later.” Walking out.

Chad Neely: Yes

Bob Moesta: Right. So the guys who come in and listen, what kind of questions are they asking you about your business? Because it’s really hard.

Chad Neely: So getting into … And again, understanding from an underwriting side, they’re underwriting risk. And so they’re trying to find out what are our needs. Is it really just a restructure of the existing deal? Is it adding something on top? Okay, we want to add a cap X facility. Is this an annual deal? In other words, should we be prepared to do annual cap X financing? Is this a every two year? What’s your budget? In terms of cap X budget, receivables. Talk about, “You ship your product here, it goes here, who pays you? How does that mechanism happen?” And those are the kinds of questions that, to me, indicate that there’s real interest in our business and how our business works, and that the underwriting that those individuals and that institution is going to do, is going to be somewhat, I mean within the confines of the bank and regulatory and all that, customized to our need.

Bob Moesta: Right.

Chad Neely: Ultimately, why we ended up where we did, is they started from a blank sheet of paper. Now-

Bob Moesta: So Comerica came in with a blank sheet-

Chad Neely: … in full disclosure, I knew that group very well, but I tried to remove myself from that decision [crosstalk 00:22:31].

Bob Moesta: But even knowing them very well, they still came in with a blank sheet versus a PowerPoint?

Chad Neely: Absolutely.

Bob Moesta: And you didn’t tell them to come in with a blank sheet or PowerPoint? That’s just their-

Chad Neely: No, not at all.

Bob Moesta: Was there another bank that came in with a blank sheet?

Chad Neely: Yeah, yeah. There were two.

Bob Moesta: [crosstalk 00:22:43]. There were two other besides them? So there was three.

Chad Neely: No, no, no. Two finalists, I would say.

Bob Moesta: So Comerica and Bank A?

Chad Neely: Yeah.

Bob Moesta: Let’s say, right? The other two of the four basically gone right away. So now you’re down to two.

Chad Neely: Correct.

Bob Moesta: How in the world did you choose? And what was the timing on it?

Chad Neely: Here’s an interesting … Going back to some comments you were making about like features and price. Comerica was more expensive.

Bob Moesta: You bought the more expensive one?

Chad Neely: Absolutely, because the structure of the term facility on the future cap X was much more flexible.

Bob Moesta: So you bought flexibility?

Chad Neely: Absolutely.

Bob Moesta: Right, so in some cases [crosstalk 00:23:27] trade off.

Chad Neely: So not to get to detailed, but I remember distinctly, I think it was like a $750,000 cap X facility. Basically a six month draw down, interest only period that converted to a three year full amortizing term. That could be drawn in two tranches anytime we wanted. So my staff wasn’t going to be sitting around collecting invoices, and packaging up these things, and faxing them over to some 800 number where they languished in some office for a week before we could draw down. It was a very simple structure that gave us incredible flexibility.

Bob Moesta: To grow the business.

Chad Neely: Yeah.

Bob Moesta: Yeah, yeah, yeah.

Chad Neely: And frankly just to make everybody’s lives easier.

Bob Moesta: Yep, yep.

Chad Neely: And that was what the real, in terms of features or in terms of what we really cared about, that was what we cared about.

Bob Moesta: So ultimately it was a combination of the flexibility, their ability to close, you were willing to basically pay a premium to get that done so you could actually grow the business.

Chad Neely: Absolutely.

Bob Moesta: And tell me why the other guys lost, besides that. Was there anything else? Was that the only thing that’s like … Or was it like their people? Is there anything about the people or the [crosstalk 00:24:47].

Chad Neely: I mean, personal relationships certainly played into it.

Bob Moesta: What does that mean? Tell me more about that.

Chad Neely: Well, I knew that group extremely well.

Bob Moesta: What do you mean you knew them?

Chad Neely: I knew the individual who ran that group, I worked for at Merrill Lynch.

Bob Moesta: Okay. Yeah, but working for somebody and knowing somebody …

Chad Neely: I trusted him.

Bob Moesta: What does that mean? Whoa, trust. Big word.

Chad Neely: I trusted him that he would tell me things clearly and upfront. Meaning what they can do and what they can’t do.

Bob Moesta: So wait a second. [crosstalk 00:25:18]. So give me an example of exactly that. What’s something they said, “Yeah, we can do this, but we can’t do this.” Can you think of a specific causal thing? He earned his trust by telling me this. It was five years ago, so it might be too hard.

Chad Neely: Well, I’ll say this, originally when we switched, I personally guaranteed everything.

Bob Moesta: Wow.

Chad Neely: And in those conversations, I remember very distinctly in the particular conversation saying, “Is there a way that we can structure this and I can get off as a PG and we can just go forward that way?” The other bank said, “Well, maybe. Let’s look at it. Let’s talk about it. Something …” Which just to me means, “No-

Bob Moesta: I just can’t tell you.

Chad Neely: … but we don’t want to tell you now. We’re going to pop that on you two days before closing.”

Bob Moesta: Or two days after.

Chad Neely: And Comerica was basically like, “Nope. Can’t do it and if that’s a deal breaker, we need to walk away right now.”

Bob Moesta: Wow.

Chad Neely: It turned out two years later, they did it.

Bob Moesta: So just want to make sure I got this straight. Delivering the bad news and saying, “That’s what it is.” You’re like, “He earned the trust because the other guys just waffled on it, and they’re like, ‘Yeah, he’s going to blow that at me later.'”

Chad Neely: Yeah.

Bob Moesta: I want somebody who’s going to be direct to me, and trust was earned because he could deliver the bad news.

Chad Neely: Yeah.

Bob Moesta: Can I-

Chad Neely: And it was reasonable, because at that time he’s like, “Listen, we’re restructuring all your stuff. Yeah, you’ve great liquidity, but we’re adding a bunch of cap X. We’re basically kind of doing this as a non-covenant deal, and I’m not going to do a deal where you can just throw me the keys and walk away.” I was like, “You know what? That is fair.”

Chris Spiek: [crosstalk 00:26:51] Go back to the first day when you first started this thing. How did they build trust? Because we heard when it was eroded, right, they started asking you questions repeatedly. My real question is, was trust important the first time?

Chad Neely: Yeah.

Chris Spiek: Or was it-

Chad Neely: The difference was that when we did it the first time, when we were putting it all together in ’09, we were dealing with senior people at the institution. The chief credit officer was basically my point of contact, and the individual in Austin who ran credit for that bank. So there was just a different level of conversation.

Chris Spiek: Sure.

Chad Neely: And if it got to a point where I’m just like, “Listen man, this is the way it’s got to be. We got to get this done.” And he said, “Okay.” It would happen.

Chris Spiek: Okay.

Chad Neely: What then happened is after we got all that done, then we just kind of got shuffled around to-

Chris Spiek: The person that you trusted is like out of the equation, or he has stepped back and now somebody’s stepped forward. And now [crosstalk 00:27:56].

Chad Neely: Yeah. And you know Chris, he might have even left the bank. I can’t remember.

Chris Spiek: Okay.

Chad Neely: That’s a little hazy. I don’t know if it was just an internal process, or whether it was that individual leaving. I can’t remember of the top of my head.

Chris Spiek: Sure. Yeah, that makes sense.

Bob Moesta: We got about 70% of the story. I’d love to be able to go more, but I want to make sure we’re …

Chad Neely: Yeah.

Bob Moesta: We’re holding these people from lunch, and I want to hear what they heard. So if you don’t mind staying here, [inaudible 00:28:23]. So let’s talk about, what were the pushes? What pushed him to say … First of all, did he want a new bank? No. Like who wants to switch banks? Right? What pushed him to basically finally say, “Today’s the day I have to get a new bank.” What pushed him?

Audience: The acquisition.

Bob Moesta: The acquisition. The restructuring the debt. The fact that he went out of formula, and they don’t understand my business and they basically are using a check the box. He’s like, “Oh my god. The same thing three times, really? Okay, this is going to go nowhere or they’re not going to help me get to where I want to go.” So it’s actually not even that little transaction, it’s the fact that they’re so hard to deal with here. I have this big thing out here I want to do. Like, “Oh my god, if they can’t get this, they’re never going to get that.”

What else? There’s another push. What’s another push?

Audience: Customer service.

Bob Moesta: Customer service. He got three new people. Literally, he didn’t even meet the guy and the guy wouldn’t come to his office to learn his business. Really? What else?

Audience: Lack of responses.

Bob Moesta: Lack of response. That’s exactly right. So there’s all these pushes that are pulling up, right? They’re all coming up. So what caused him to switch to Comerica? What’s the pull?

Audience: Flexibility.

Bob Moesta: Flexibility, what else?

Audience: Trust and experience.

Bob Moesta: Trust. Experience, right? But here’s the interesting part. If you listen to it, experience is hard to substitute, but what did he describe trust as?

Audience: [inaudible 00:29:54].

Bob Moesta: They’re going to tell me the truth, upfront. So in some cases, my belief is when you start to get to those things, they had enough that the guy before could tell him the truth, but my belief is if he didn’t know the guy and said, “Look you’re going to have to it. There’s no way to do this before.” You can actually cause trust without having to have that experience. The key is digging deep enough to, “What the hell do you mean by trust?” What causes trust? Trust is a great word, but as an engineer, it’s a bullshit word. It literally means everything that … Who doesn’t want trust? How do I cause trust? That’s what I got to do.

Alright? What are the anxieties he had?

Audience: Timeline.

Bob Moesta: Timeline, because I had a lot of time. If I don’t get this done fast enough, because I need this new financing piece [inaudible 00:30:38]. What other anxiety?

Audience: Workload to his team.

Bob Moesta: Workload to his team because he had a new CFO. Can they really get it done in that timeframe? They only had four people, right? But the fact is because they were listening. What else? Let me ask this, how much habit force did he have? How much was being pulled by the old bank? Like, “Oh, I love my old bank.” Zero. It literally got blown up. So he was moving almost no matter what and he actually never gave the guy the chance. Not even a chance to bid on it. Were they like, “Oh my gosh, what do you mean you’re leaving?” Were they surprised?

Chad Neely: Yeah.

Bob Moesta: So my belief is it’s happening to you today and you don’t even know it. And that’s what you have to be afraid of. And at the same time, as an opportunist, you have to be able to say, “Oh my god, how many people can I go get who are literally so pissed with their old bank that they won’t even tell them that they’re looking?”

Chris Spiek: Can we go back to the room division?

Bob Moesta: Yep.

Chris Spiek: If we’re on this side of the room and we’re the incumbent bank, what do we do differently? Anyone?

Audience: Take better notes.

Bob Moesta: Take better notes.

Audience: [inaudible 00:31:50].

Bob Moesta: One, we need to change the way in which we actually hand off account things, because he says, “I’ve moved three times. Nobody’s willing to come to the office.” We need to change our account management system because, at the end of the day, without that, we’re literally going to lose everybody. The fact that that guy wouldn’t get off his ass and basically get in a car and drive … He’s local. It’s different if he’s in Atlanta. I get it. But at the same time, the fact is he should still go see him.

What else?

Audience: Do your homework.

Bob Moesta: Do your homework. Understand where he’s going. Know the business. Know when he’s out of formula, what that means, and if it’s an underwriting problem, tell him the freakin’ truth. What else?

Audience: Change the CRM.

Bob Moesta: Change the CRM, yeah.

Chris Spiek: So the thing is if you hear the trust decay over and over again, we have to recognize that as a vulnerability. Right? They built trust, they got the deal, and then they made a bunch of changes and you’re essentially left in a situation where you’re saying, “I used to trust these people, now it’s critical and I don’t trust them anymore.” That’s a spot to be improved, right? We’re saying CRM and things like that, but how do we monitor this to say, “If we need to shuffle things around, can we do the trust check to say, ‘Are we still good? Do you still trust us?'” It’s not, like you said, on the engineering side, it’s not an easy thing to deliver on, but if we know that we’re vulnerable on that side, how do we correct it?

Bob Moesta: And let’s be clear. They will lie to you. “Do you trust us today?” Like, okay, that’s just a shitty question.

Chris Spiek: Yeah.

Bob Moesta: You got to dig deeper than that.

These people over here that are the new bank trying to get his business, what are the two or three things you learned that you should do as if you were trying to get his business?

Audience: Bring underwriting into the conversation earlier.

Bob Moesta: Bring underwriting into the conversation earlier and tell the truth about it. “Here’s what we can do. Here’s what we can’t do.” It builds trust. As hard as it is, most sales people want people to like them. And the fact is, nobody likes to have those hard conversations, but the fact is that’s what he wants. He doesn’t want to play golf. No, he might like to play golf.

Chad Neely: I don’t play golf.

Bob Moesta: I don’t play golf either. He doesn’t want to play golf, right? He wants to be spoken to truthfully. “Honestly, tell me what you can do,” and literally he appreciates and values it. That’s the crazy part.

Anything else you’d do?

Chris Spiek: [crosstalk 00:34:01]

Bob Moesta: Exactly. The whole notion of showing up and saying, “Yeah, I don’t have a presentation. I just want to talk.” Most people are like, “No, no, no. I need to tell you about all the features and befits of the bank because we’re the greatest bank in the world and we can do bah, bah, bah, bah.” It’s like literally, they don’t hear shit. It’s simple, you don’t know their problem and you’re telling them that you have all these things that they don’t need. They need only these three things. Crazy. By the way, happens in lots of other businesses too.

Stay up here for a minute. Here we go. Four tips, keep you going. One, find the struggling moments. Find struggling moments that Chad had. Understand how to solve them. They don’t think about switching banks until they have the struggling moment. What are they? And they’re not what you think they are because they lie to you, so you have to dig for these things.

My favorite one on this thing is, anybody who wears glasses and goes to a hotel, which one is the damn shampoo? Right? You pour it and you’re like, “Oh shit, that’s the conditioner.” Which is ridiculous, come on.

Second, think progress. What’s the progress Chad’s trying to make? What is his business about? Don’t talk about terms, and interest rates, and payments. At some point in time you don’t understand, he’s willing to make trade offs on all that shit. You literally are having the wrong conversation with the wrong people if you’re at that level. What’s he trying to do? He’s trying to grow the business. You enable him to do that. So think about the progress he’s trying to make not the details of the product.

You want to do that one?

Chris Spiek: No, go for it.

Bob Moesta: Alright. Identify the trade offs. My favorite is this, choose what to suck at. My favorite is Southwest Airlines sucks at food. They don’t have a Cobb salad, they have no hot meals, they have none of that, and they’re okay with it. And people bitch about it all the time and it goes right into the garbage, right? Because they know what’s important.

Jason Freed is a guy we work with, he said, I think, really well. He said, “I’d rather have a kick ass half, than a half ass whole.” Right? Think about what makes things kick ass. Where do you say no?

And last but not least, understand the big hire, what causes Chad to switch and the little hires. Because the little hires, he has struggling moments at his bank right now, but they’re not enough to cause him to switch. But you need to focus on what his little struggles are, because if he struggles too much they’ll accumulate to say, “Today I’m leaving Comerica.” So focus on that.

Chris Spiek: So before you get to your last slide, I just want to say what you just saw is the simplicity of this, right? There’s complexity to the method. We do all kinds of formula analysis and that sort of thing, but if you leave here and all you end up doing is talking to a handful of customers in an extremely casual way about, “Can you just tell me the story of the last bank that you were at and how you ended up here?” It can be a golf course conversation or over a beer or a coffee or something like that. “I just want to know, of all the things you could’ve worked on in your business, you decided to stop everything, pull your VP of finance in and say, ‘Here’s the project, you got two weeks.’ What led up to that? What caused this whole thing to happen?'”

Right? And you got to do it from a place of genuine curiosity. “Just tell me the story so I can improve my service and improve my product,” and that sort of thing, and have a 15, 20 minute conversation and start to gather those stories. And make sure that when you’re making service and product decisions, that you’re sort of layering that in. As much as these things sound complex, it can really be just as simple as that.

Bob Moesta: That’s right, it’s the causality. And so find that causality. So I want to leave you with this. So I’m with Clay about a year ago, Clay Christian at the [inaudible 00:37:48], basically says, “Hey, so what’s your best innovation ever?” I’m like, “Holy crap. Lots of products, thinking about it.” He says, “No, no, I’m going to give you context. You’re dead. You’re on the pearly gates. Saint Peter has a list. What is on his list that gets you into heaven?” Clay’s a Mormon, so anytime we get to religious conversations … I’m Catholic and it gets kind of weird. And I’m like, “Okay, so first thing, the patriot missile is not going to get me into heaven. Pokemon mac-n-cheese is not going to get me into heaven.”

So I start to think about it, and I go back to Dr. Deming. So when I was Dr. Deming’s intern, I had to drive the car, and again he screamed at me the whole time. So the whole time you’d be driving down the road and there’d be an exit sign, and if you pass the exit and he’d literally like, “Where are we? We need to call the municipality. The exit sign is poor quality. Exit should be before the exit thing because people are making the decision way after. This is horrible.” I’m like, “Oh god, okay.”

The scariest part of every trip was returning the car. I had rent a Ford car, but the thing is I had to fill it with gas. And what would happen is, I’d get to this point where you’d be driving into the gas station to fill the tank, and you’d realize you have no freaking idea what side that gas tank is on. And you’d literally get to the entrance and you’d go, “Shit. Which one do I go to?” So you’d look in the mirrors to try to see at least some clue of where the hell it was. And then you’d roll down the window and you’d try to look out, and Deming’s like, “What are you doing? What are you …” And then you’d literally just gingerly pull up and go like, “I have no idea.” And then you pull up in the wrong side, and then you have to stretch the thing all the way to the other side. And Deming’s in the front seat screaming at me like, “[inaudible 00:39:30]”

So in 1987, this was the Ford Taurus gas tank, the gauge. It took me five years, but I helped create that little freaking arrow that gets you to figure out … And if you think about it, it didn’t change the world. It didn’t save lives, but it’s that little thing that … I have no credit for it. I make no money on it. It’s literally just … And it happened in 1985, but basically it is ubiquitous in every single car. The best part is half the room is going like, “Holy shit, that’s awesome.” The other half is like, “What arrow? What arrow?”

So thank you very much.