Disrupting B2B Information: Social Scale

As we pointed out in our prior post, The Secret of the B2B Credit Middlemen, the process for establishing, maintaining and granting credit is fundamentally busted. It’s expensive, inaccurate and non-transparent. We believe this industry can be restored in three key ways: 1. Freeing the Data, 2. Socializing the Data and 3. Fixing the Process. In this post we’ll discuss how socializing the data can eliminate one of the key problems in business credit reports: accuracy.

The credit bureaus DON’T ISSUE CREDIT! Businesses grant credit to each other and use bureaus such as Dun and Bradstreet to assess the viability of a given company. A quick glance at the D&B FAQ and you can see to create the credit scores, they use data from multiple sources. Most of these sources include public data or utilities reporting on the timeliness of your payment.

Similarly, businesses make their own decisions about partners, vendors and key relationships. It's the same decision process.  Entering into one of these types of business relationship is similar to issuing credit in that you're allocating resources to invest in these relationships.  

The bureaus claim to manage over 100 million profiles. The biggest of the bureaus makes 20 million data verification calls per year. Something doesn’t add up! There is NO WAY they can possibly verify the accuracy of 100 Million companies by cold calling.  Imagine if they were competing with Waze, verifying traffic and police locations by cold calling drivers on their cell phones.  They're a linear tool in an exponential world! 

The ratings business information should be SOCIAL. DnB, Experian etc. are data storage middlemen. If companies are able to view and manage profiles, rate other companies and contribute ratings free of charge, then the data will be more accurate, timely and more closely correlated to business reality. Reaching SOCIAL SCALE is the only means to truly achieve this cost effectively.

At Trust Exchange, we aim to create an open, easy to use, peer to peer, risk management platform that enables companies to more effectively manage their risk.  The value of the network is proportional to the number of members...we need you!!

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Business Information Middlemen

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.

Our Epiphany. Why We Started TrustExchange.

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.

Key Learnings:

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.  

Time to Trust

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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