By Ken Musante
Eureka Payments LLC
I have been in this business a long time, and the most important lessons I've learned have come from times when I've taken my lumps. Sure, I've enjoyed successes, too, but for some reason, the wins stay with me for a short time, whereas I continually re-live my losses.
With that in mind, I posted the following on GS Online's MLS Forum toward the end of 2010: With year-end approaching, we will all be reading about and considering our resolutions for 2011.
Given that we all learn more from our mistakes than from our successes, I thought this would be a good time to reflect on our past business (or personal) failures and, more importantly, what we learned from them.
I'll let you all decide the level of detail to include, but what I'm really seeking is the lesson learned.
Sharing failures can be intimidating, so I began the discussion with the following post:
"My biggest business blunder, in terms of dollar impact, was not properly conducting due diligence on a portfolio my bank was purchasing. (I'm omitting details for the sake of those involved.) There were many reasons for not conducting the due diligence, including it was being done elsewhere; however, in retrospect, because I was to manage the business once we acquired it, I should have insisted on being a part of the due diligence process.
"The size of the acquired portfolio was very significant relative to our bank. I knew there were aspects of the business that I did not understand, but having never gone through an acquisition before, I let my other duties (which were numerous) cloud my better judgment.
In retrospect, I should have (as I have been known to be) been more forceful in demanding that further due diligence be conducted. If I was not able to do so, I should have at least more fully voiced my concerns.
"Unfortunately, I did neither in an adequate fashion and, as a result, my bank lost a gob of money and we threw our profitable 'baby' out with the bath water. From that... I have taken away enormous experience, including:
"1. Know when to be forceful. In this situation, the stakes were very high and I should have been more forceful with my concerns.
"2. Trust your business instinct. I thought something was not quite right, and had I followed my instincts I would have followed up more thoroughly.
"3. Understand and prioritize items by the magnitude of the impact. This was a big deal for our bank, and I should have put it ahead of my other duties because of its size regardless of what my duties included.
"4. Know when you need professional help. Having not gone through an acquisition before, I should have asked for professional assistance."
A discussion on wisdom would be incomplete without a comment from CLEARENT "Wisdom doesn't always have to be gained through a lesson learned on a mistake or error," he wrote. "I gained wisdom once in a unique situation several years ago.
"It was Christmas Eve morning when I got a call from one of my ISO partners. Seems one of his new merchants was perpetrating fraud: he was force-placing transactions on closed credit cards and posting exactly the same amount as a credit to European accounts. Simply put, the batches came in as zero, but there was over $200,000 in money moved, and the first chargeback was arising.
"He called me wanting me to file a theft report and have the individual arrested. However, (to spare the specifics), [I pointed out that] there were steps we could take to recover the money, and if we had him arrested, we could not do them. This partner was so adamant that [the individual be arrested that] he even threatened to have one of his friends come over and 'straighten me out.'
"But I knew if I was to give in, we both would lose, so I held my ground. The funds were recovered, the ISO was protected (because he had liability) and his friend never showed up.
"Lesson learned: often, when you know for a fact you are right it's better to stay true to that and not give into pressure to do the quick and easy thing. There was a second lesson learned: don't threaten people. We terminated our relationship with that ISO due to his threats.
"We all gain wisdom through our errors (when we admit we made one) and through life experience. Gaining the wisdom and using it are two different animals. If you fail to use it, you are proving Einstein's definition of insanity: doing the same thing over and over and expecting different results."
CLEARENT's post emphasizes that to benefit from our errors we have to admit we made them. Nobody wants to be wrong. I well recall Arther Fonzarelli's (from the television show Happy Days), stutter when trying to say the word "wrong."
JDECKARD provided us the Catch-22 for gaining wisdom. "Good judgment comes from experience; experience comes from bad judgment," he wrote.
A post from HIPOINT reminded me that there are no atheists in foxholes and that when we are down, prayer consoles. He quoted from the Bible, James 1:5-8>. To see the text of the verses he excerpted, follow the discussion thread titled "Re: Street Smarts Article - Gaining Wisdom" on the MLS Forum.
BER provided sage advice. "Don't try to 'sell' every merchant; instead, look for valuable merchants you'd like to have as clients and add to your portfolio," he said. "Remember that you are building your company for an end goal, so act accordingly in the present. Don't fight for nickels and dimes, or fight in merchant locations or fight with other credit card processing guys."
I received a private post about actions taken and lessons learned from an individual who wished to remain anonymous. The person discussed the entire 'debit interchange changes' and ensuing industry response. "Simple knowledge told me that many members are trying to create new revenue streams to replace potential lost profits from this," the individual noted.
"It made me think that many really fear the end is near for them in this industry and are beginning to run amok with ideas. Sometimes fear of the unknown can impact any outcome considerably, along with the potential to further tarnish the industry and its reputation."
Fear of uncertainty breeds bad decisions. Think about the financial markets in early 2009 and how perilously close our economy came to a full depression. Those that bought large-bank stocks like Citigroup Inc., Bank of America Corp. or JPMorgan Chase & Co. profited handsomely at the time by buying at a low point in the market, as large banks' stocks were being hammered because of the uncertainty we were facing.
Chase purchased the Bear Stearns Companies Inc. for a fraction of what it was worth only a few months before. Lehman Brothers filed for bankruptcy. Merrill Lynch & Co. was taken over by Bank of America. And our government had to rescue our automotive industry and take over mortgage securitization as well as American International Group Inc.
These extraordinary measures were taken in 2008 and 2009 because the markets were in uncharted waters, and this was causing radical, never before seen gyrations in the markets. If it were not for the stabilizing force of the government, our economy would be much worse.
During this time of upheaval, wise, decisive leaders made fortunes; others were paralyzed. The moral is if you can make informed, decisive decisions during a period of uncertainty, you can make extraordinary profits.
In retrospect, it is easy to see that instances of poor judgment and lack of execution could have been avoided in most cases. Bad decisions are rarely the result of bad luck; similarly, most successes are not the product of good luck.
Certainly luck plays a part, but as some have said, luck is the perspiration of desire. So why can't we see mistakes before we make them? Greed, hubris and inattention to detail are the most common culprits for blunders.
Greed often propels us to try to do too much at once. Hubris leads us to assume prior good decisions will insulate us from poor future decisions without our having to do the same kind of work that led to our initial successes.
Inattention to the small points, which led to some of my past foibles, paved the way for subsequent successes. If only I could have avoided the sting of failure. But wisdom is often gained through seeing what our lapses in judgment have wrought.
Let's think of our business blunders as our education (to which I, for one, have paid a fortune in tuition). Here's to our collective sound judgment in 2011.
And, as always, when in doubt, sell something.
Ken Musante is President of Eureka Payments LLC. Contact him by phone at 707-476-0573 or by email at kenm@eurekapayments.com. For more information, visit www.eurekapayments.com.
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