oe Kaplan knows the secret of success, and he won't hesitate to share it with others: A successful business is the result of successful relationships. Kaplan, President, CEO and co-founder of Innovative Merchant Solutions (IMS), a billion dollar bankcard processor, credits his achievements with the fact that he serves customers well. And he means really, really well.

"I believe that you can be successful for the rest of your life if you provide great service to one customer because they know five people and they know five people and they know five people," Kaplan said. "And then it just kind of perpetuates."

Innovative Merchant Solutions services more than 85,000 merchants. The company offers multiple payment-processing solutions ranging from different types of bankcard transactions, check guarantee and an Internet payment gateway. Kaplan and his partner, Tim Jochner, also own a bank and even offer a concierge service to merchants.

Kaplan believes that small businesses often don't have time to seek out products and services for growing their business. "If you can create a loyal merchant by servicing them well, then they'll utilize all the other services that you have," he said. "After they start to use more and more [of your services], the less chance you have of them ever leaving you. You've got to service your customer."

Kaplan has a diverse background that includes working in the meat-processing business before and after college, graduating with a B.S. degree from UCLA, attending law school for several years at Whittier College in Southern California and, of course, making a name for himself in the payment industry.

"The industry is fast-paced and has a high-risk factor that makes it exciting," he said. "It really attracts a unique group of people that I believe are just awesome. The best part about growing your own business is being in charge of your own destiny."

Kaplan started out in 1990 as a sales rep for Cardservice International (CSI), and it didn't take him long to make a mark. He said he noticed the company's agent program wasn't producing a lot of business – only about 400 deals a month – so he asked CSI if he could "redesign" and run the program. He started with a core group of people and built from there.

Under Kaplan's direction, in 18 months CSI's agent program grew from writing 400 deals a month to 3,000 a month. "I offered them the opportunity to feel more like part of a company than just being an outside agent," he said. "We created some great relationships and developed better efficiencies than they ever had in the past, so it was easier for them to do business."

Kaplan worked with CSI until September 1994 until he decided to go on his own. "I felt that the industry was very production-oriented and not customer service-oriented and that it needed to change," he said. "Everybody can produce in this world. It's the ones that can service and keep their customers happy and then capitalize on that relationship that I believe can succeed."

Superior Bankcard Service

Kaplan wanted to start his own business, so he sought out a partner who shared a similar philosophy about providing service. Tim Jochner was in charge of CSI's bankcard program at the Bank of Oakland. Kaplan says Jochner helped CSI change from a marketing company into a service company, so he asked Jochner to be his partner. Together, they started Superior Bankcard Service in November 1994.

Kaplan and Jochner had trouble raising money for their new venture, even after revising their business plan several times (they had never created a business plan before). So instead they turned to other means: their own savings accounts.

"At the time we invested all of our life savings, and we really were too stupid to realize we could fail," said Kaplan. "We just jumped in head-first. We were confident that we had the ability to market our company and service our customers. We also knew how to create relationships. The reality was, whether it was bankcard or something else, we would have an opportunity in whatever endeavor we undertook."

Kaplan and Jochner hired a few people, and the staff quickly grew to seven. "Fortunately, we found amazing people to work with at Superior, and we grew organically to become the eighth-largest non-bank acquirer in three years," Kaplan said. He attributes a lot of Superior's success to the service it provided.

As Superior grew, the industry changed, too. Mergers and acquisitions become more prevalent.

"Companies were rolling up into each other and buying one another. We felt like if we didn't do something, we could be left in the lurch," Kaplan said. "Not so much economically, but that we'd be so small and insignificant as a business that we would really miss the boat."

Although business was strong – Superior was profitable and debt free – Kaplan and Jochner decided to take control of their destiny. They negotiated a deal in July 1998 to sell Superior to PMT Services, Inc., which then was merged with NOVA Information Systems two months later. Kaplan and Jochner worked for NOVA for a year and then "retired" in September 1999.

Innovative Merchant Solutions

Kaplan said they "retired for a day" but soon realized they still wanted to stay in the industry. So the two set out again and started Innovative Merchant Solutions.

"It's not often in life you get to recreate the wheel you've created before and make up for all the mistakes along the way," Kaplan said. "We had the knowledge we left with about the good, the bad and the ugly, and we tried to create an even better organization than we had before."

Once they secured a location to build their headquarters, they were up and running and processing transactions within 30 days. Kaplan attributes their jumpstart to solid relationships with vendors, great employees and persistence. "One person's job was calling Pac Bell every 15 minutes to ask if our T1 line was going to be put in today," he said.

When Innovative Merchant Solutions opened for business on October 11, 1999, its goal was to sign up 100 merchant accounts in 20 days. Kaplan said IMS signed 1,063 merchant accounts in 11 days and grew from there, to the point where they were writing 5,000 accounts a month. The growth didn't stop. Kaplan estimates that, in the last three years, IMS has written more than 100,000 accounts.

Innovative Bank

Kaplan believes that the banking industry, in general, is not great at turning impersonal relationships into personal relationships, and this belief spurred IMS's next move.

"We felt that by the sheer nature of the contract a merchant has with the ISO and the bank that they are already a customer of the bank, so we should be providing them with checking accounts and also other things that go with banking services, such as loans and CDs," he said.

At the end of 2001, Kaplan and Jochner purchased the Bank of Oakland – the same bank where Jochner had started as a teller and where he had been working when he and Kaplan first partnered. They changed its name to Innovative Bank in April 2002.

"Not only do we now go to a merchant and say, 'Can we do your bankcard?' but we have the opportunity to differentiate ourselves from our competiors by offering products and services that can go with the customers's business, such as loans," Kaplan said. "So we're helping our customers get access to cash as well as providing them with checking account solutions and banking services."

IMS offers a myriad of products and services to keep its merchants interested ... and coming back for more. The company built proprietary systems that provide quick approvals on merchant accounts, offering same-day live merchant numbers. IMS offers faxed leasing programs and has developed technology that allows merchants to submit applications online with electronic signatures. The company designs and develops its own gift card applications and provides Internet-based transaction processing services.

"The industry has changed so much over time, you have to find new ways to find the merchants and ultimately keep them," said Kaplan. "We believe that we've developed the efficiencies and really kept one step ahead of the changes by having things like loan programs and concierge services – just really pushing on different types of products and services that are a little bit ahead of the game.

"From the beginning, our goal has been to be a one-stop shop for financial services. We believed customers would appreciate the value of obtaining all of their small-business services through just one phone call. This, in turn, would create a trickle-down effect where agents who originally sold the account could eventually receive passive income from the additional services the customer utilizes."

Kaplan said 90% of the bank's loans are to minority businesses, women-based businesses, veteran-based businesses and businesses in low to moderate income zones. His goal is for the bank to be in the top 10 among providers of SBA loans – it already is No. 1 in Nevada and Washington, D.C., and No. 4 in California – and at its current pace the bank will reach that goal this year.

Contributions

Kaplan believes in giving back to the industry that has given him so much. Throughout his career, he has served on several advisory boards such as VeriFone's and The Green Sheet's, and he also is on the advisory board for the Lloyd Greif Center for Entrepreneurial Studies at the USC Marshall School of Business. The board meets with students and also helps define the objectives for the department's strategic direction.

"Being on the [USC] advisory board is just wonderful. It allows me an opportunity to meet young entrepreneurs who are fresh with ideas and desire, and everyone thinks that I'm giving up my time to be with them when in reality I'm learning so much," he said.

He also is on the Board of Directors of the Electronic Transactions Association (ETA); he has been involved with the ETA from its early stages and has seen it grow and change. "The ETA has been a great cornerstone of growth to really help legitimize what we all do," he said. "We came from obscurity to become an industry of strength and knowledge."

Kaplan and his businesses have been decorated with many honors, which are displayed proudly on IMS's Web site.

• It received an Enterpreneur of the Year award from Ernst & Young for 1997 and was a finalist for the award in 2001 and 2002.
• In June 2002, IMS was included in the top 10 of Entrepreneur Magazine's "Hot 100" list of the fastest-growing businesses in the U.S.
• In October 2002, Los Angeles Mayor James Hahn awarded IMS the Spirit Award, which recognizes businesses that help minority businesses succeed.
• It also won the U.S. Chamber of Commerce Blue Chip Enterprise Award for small businesses.

Part of the Family

Kaplan prefers to use "we" instead of "I" when speaking about accomplishments, and there's passion in his voice when he talks about the success of Innovative Merchant Solutions and its employees.

"I wish I could take the credit, but it's the people who work with us, the Innovative family, who have helped us grow and be a significant force in this industry," he said.

Innovative Merchant Solutions has 120 employees; most of them work in Calabasas, Calif., providing customer service 24 hours a day, seven days a week, 365 days a year.

Kaplan said IMS trains all of its employees in every aspect of the business so that each employee has a better understanding of the big picture and how team members' functions complement one another. This training has other benefits, too. When IMS operators send a call to customer service and all reps are busy, the call then rings on every phone to everyone, from the file clerk to Kaplan.

"We're all able to answer that phone call; in fact, over 88% of the calls that we answer on overflow are resolved by that same person who answers the phone," he said. "[The caller] is not pushed from one department to another. Our one-time call resolution is in the 90 percentile, and our one-time call resolution by one person is in the high 80s."

The company mans the phones with live operators and has less than 30-second hold times; its call-abandonment rate is less than 1%. But it also is incredibly proactive: Every merchant gets a call from IMS on his or her birthday, and every employee calls five customers a day just to say hello and help create a more personal relationship.

Kaplan's rigorous commitment to customer service does not mean that IMS employees don't get time to let off steam. "If you were to come to our workplace, you'd see people throwing foam balls around and playing video games. When it comes time to work we are more efficient than most any company out there," he said. "No matter how large we get or how many merchants we have, we will always be a small company with a lot of heart. For us, we'll go wherever the wind takes us."

As a 13-year veteran of the payment industry, Kaplan has witnessed many changes in the way business is conducted, especially with the adoption of new technologies. "With the advent of the Internet, it's become more of a faceless sale," he said. "And whether that be direct mail or Internet or an e-mail campaign, we're becoming a commodity marketplace by not being personal anymore. And I'm fearful sometimes that merchants will feel like it's a commodity as opposed to a service industry."

But Kaplan vows to keep pushing forward and holding true to his beliefs. "If you don't deviate from your own set of values, then good things will happen," he said. "It's not something that you have to force. Too often people don't have patience and they won't work toward a long-term benefit. It's really about building foundations and relationships."

To contact Joe Kaplan, phone 800-397-0707