False Assumptions and Mortgage Sales

This year, there has been no shortage of big name companies that were sold due to failing financial performance. One of the most recent, Whole Foods grocery chain, was purchased by Amazon after succumbing to increased competition in the organic food market and the resulting lower profit margins.

Just this past week, Sears announced it would sell appliances via Amazon because that is where customers are making purchases and not at brick-and-mortar retail stores. Who would have believed that these companies — once leaders in their respective industries — would be surpassed by Amazon who makes purchasing so easy. There is no question that Amazon has changed the landscape of the retail industry and mortgage banking firms should take note now that the online retailer is entering the real estate referral business. Senior management teams who continue to operate with outdated sales models could be in for a rough ride.

According to Todd Ordal, author of Never Kick a Cow Chip on a Hot Day: Real Lessons for Real CEOs and Those that Want to Be, the two most damaging false assumptions concern a company’s business model and strategy: “If you leave those assumptions unchecked, you will likely make a fatal mistake. Business models and strategies overlap. Sometimes your business model can be your strategy and sometimes your strategy works beneath your business model. It all depends, of course, on how you define the two.”

Ordal references Peter Drucker’s famous statement that all companies must answer three questions:

  1. Who is our customer?
  2. What does he or she value?
  3. How do we make money satisfying that value?

Ordal further states “that sometimes changing a business model results in a big win such as IBM has done over the years. Unfortunately, business leaders usually think about their business model in two situations: when the business is launched and when they’re up to their armpits in alligators.”

As far as strategy is concerned, Ordal observes, “the key question is why would your core customer buy from you versus other options?  Your competitors may have the same business model as you do. So to succeed, you must have a different strategy or execute like hell! Do not, however, delude yourself into thinking you don’t need a strategy because it’s all about the execution. It’s not. If you execute brilliantly on bad ideas, you’ll just fail faster. Underlying both a business model and a strategy are assumptions.”

According to Ordal, executives must ask: “For our business model and strategy to succeed, what assumptions must be true? If you guess wrong, you’re in trouble. Guess right and you have a fighting chance to develop a winning business model and strategy.”

This brings me to mortgage banking’s assumption that hiring more salespeople will generate the volume and profitability a lender needs. In today’s marketplace with each loan carrying a $5,000 price tag for personnel costs, this belief is utterly false.

Yet when you look at the MBA’s recent industry performance analysis, mortgage companies are still pursuing a strategy of hiring originators whether they are qualified or not hoping they will bring in new business to a lender. The more unbelievable part is that firms continue to adhere to this strategy in a lower volume environment.

In my 25+ years in mortgage banking, this is still the number one strategy for growth. Rarely, do I hear executives say “let’s address our underperformers and determine whether they should stay or go; let’s tighten up who we recruit and put in place objective standards in how we evaluate who joins us; and finally, let’s improve the quality of our sales managers who manage our sales force and drive our results.”

Inevitably, companies will need to address the quality of the salespeople they hire if they want to succeed in the long run. Generating customer fans takes a sales force that wows throughout the sales process. True sales professionals are individuals who like helping people; can establish trust quickly; and have the drive to serve the customer relentlessly. These qualities are essential prerequisites for creating an excellent customer experience that will fuel repeat business.