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Weaving Technology with Equipment Finance

Date: Feb 07, 2018 @ 07:00 AM
Filed Under: Business Planning
Related: Technology

For much of its history, technology was a "back office" topic for the equipment finance industry, now it has shifted to the forefront and is top of mind for many. A lot of this is driven by the massive rise in data and advanced technologies and possibilities for leveraging that data.

In his recently released book, The Zero Dollar Car, John Ellis – a Big-Data Futurist and former Global Technologist for the Ford Motor Company’s Connected Car Division – imagines a world where the data about a thing is more valuable than the thing itself. Ellis, who gave the keynote address at the 56th ELFA Annual Convention, shares his reasons for believing that this world is closer than we might think. As we equip more and more devices with sensors, the data they produce may be able to be traded for money drastically reducing the cost of purchasing just about anything. That’s a fascinating theory to consider as a consumer, and perhaps even more fascinating for an industry that finances all sorts of increasingly connected devices for commercial enterprises.

After his ELFA keynote speech, I caught up with Ellis for a deeper dive into his theories on technology, leadership, the innovative mindset, and the possibilities for the future of equipment finance.

“It’s the 21st Century; now you are a software company,” Ellis said, cryptically.

But what does that mean? What could it possibly mean for a finance company? Why should finance leaders even care about technology?

Ellis continued: “It’s easy for software companies to learn how to be a finance company. They can figure out what finance is and hire experts in finance. It's not easy for a finance company to become a software company; it's a flip of mindset.”

To illustrate this, he shared a story about a company hired to do a teardown of a Tesla car to find out what makes them so different. In the end, they found that from a manufacturing perspective, a Tesla utilizes the same types of materials and parts as a conventional automobile – the significant differences are software, mindset and culture.

Ellis went on to explain how Tesla cultivates more of a software company culture than a traditional automotive company culture.

According to Ellis, "In the automotive industry, most people know that they can say, ‘No’ to new ideas, but no one believes they can say ‘yes.’ In a software company mindset and culture, it is the opposite. In the Tesla example, there is only one person who can say no, that's Elon Musk. Everyone else just has to figure stuff out.”

In other words, when you think like a software company, there is a motivation to value new ideas and creativity.

"This doesn't mean you are not concerned about regulatory oversight, about the physical world, and other constraints,” Ellis explained. “These all exist and will be handled, but they are not FIRST. We start to explore new ideas by saying ‘yes we can do that or we will figure that out’."

This simple shift in mindset can unlock creativity, passion, and a willingness to push boundaries and unleash your team's internal capabilities. As we typically see in the finance industry, if you start with "no" it leads to a fight. It's like continually saying we can't, or we’ve never done that before, or we tried that a long time ago and it didn’t work, or whatever is the limiting belief of the day.

When you start with "yes I think we can do that" or "I don't know if we can do that, let's figure it out" you are encouraging entirely different mental frames. That is the mentality played out in the creation stories of companies like Uber, Airbnb, and other innovative business models.

In his book, Ellis shares a story about how he struggled to try to bring Ford along to a new way of thinking, to employ that software mentality. He ended up very frustrated, and eventually left the company.

Is it possible for traditional companies to make the leap into this way of thinking? It's a massive mindset shift, and a big question for traditional organizations. I asked Ellis if he had any examples of companies that succeeded in doing this.

His answer was a discouraging one. “No,” he said. "I don’t know of any company that has made that transition. It is not that they may not exist, I just don't know of any. It is tough. You gain expertise as a company in the physical world, which has constraints, almost to the exclusion of everything else.”

Ellis shared, "Interestingly, one of the folks at the book signing [after the ELFA convention keynote], explained: ‘Our fear in the equipment industry is that on Monday customers say that they want the benefit of sharing data and they buy into the whole idea of giving data away. Then on Tuesday, they rescind the idea.’ That’s where I think you need to get into dynamic pricing. You have a contract with a clause, where the terms are changing in real time. I don’t think in finance you have to get down to microseconds, but it may be a day or an hour at a time. It’s not about writing the paper once, and sticking it in a folder. It’s about constant interactivity. This is what being a software company is about. It’s a huge shift in mindset.”

What if contracts become dynamic, driven by big data and connected equipment? How would we handle that?

"Maybe your traditional tools for equipment finance don’t do this, but that’s because no one has asked for it,” Ellis said. “If you were in this software mindset, you would ask for it and companies would step up to offer those technologies, services, and tools."

Many of the leaders in our industry are curious about advances in technology. But how much do equipment finance leaders really need to know about technology?

Ellis is clear on this point: " So, you are an executive in a finance company, do you need to be an expert in the rules of finance? Yes. Now you are a software company, do you need to be an expert in technology? Now that you are a technology company that happens to deliver finance, the answer is yes. The fact they are asking this shows we have not adopted the mindset of being a technology company."

Technology is changing at a rapid pace and executives need to be aware of technological advances and trends, and to understand the potential impact for their customers, employees, company, and industry so that they can make good decisions with long-term future in mind. Making strategic decisions about your future with a limited understanding of technology is not going to be an advantage in this day and age.

"A CEO today can't get away with saying they didn't understand the financials,” explained Ellis. “It's the same way with technology. Boards of Directors have a responsibility to have leadership staff that understands the space in which they operate. You can't claim you didn't understand. If you cannot understand the role of technology in your industry, you’re not going to be around very long. Tech people will learn your industry a whole lot faster, and they are continually looking for disintermediation."

Finance is a vast space with a lot of intermediaries. Those who issue, underwrite, insure, collect, and manage accounts. Then there are those who make, sell, and use the products.

“All technology companies want to do is disintermediate because there is money in disintermediation,” said Ellis.

That may not be something that people in the finance industry want to hear. But let's imagine a financial services leader who listens: what steps should they take to raise their technology awareness?

Ellis laid out a simple path for business leaders, and it had a lot more to do with mindset than technical expertise:

  • Acknowledge that you need this, Ellis said, "it's more than just ticking a box, you need to know that you need to understand it."
  • Get comfortable being uncomfortable. Ellis continued, "Recognize that you are not always going to be the expert but you need to be constantly learning."
  • Understand that the rules for hiring these days may be different.

Ellis explained: "The old rules were built in a time that is no longer applicable, at least for tech. Being willing to hire differently is hard. You are not hiring bankers, you are hiring tech people. You need to surround yourself with people you can trust. Hire people from outside the industry. If you want real tech people, they are from outside your industry. They are not going to be biased by your industry, and this is where you can get fresh thinking.”

We discussed the type of technologies and trends that leaders in the equipment finance industry should pay attention to as they are thinking long term.

Here are the big five, according to Ellis:

  • Internet of Things (IOT) and Blockchain (Both are great technologies to watch and to consider their possibilities.)
  • Transportation 2.0. (Autonomous, Electronic, Connected vehicles)
  • The impact of advancement in autonomous flying vehicles, or drones
  • 3D Printing. (Companies can now fabricate parts on demand; what happens if you get rid of the concept of obsolescence?)
  • Artificial Intelligence and Machine Learning (Pay attention to developments in the ability to analyze data at scale and to automate previously non-automatable processes.)

Let's imagine, what could a finance company look like if it started with a software company mindset?

Ellis thought for a moment and responded, "I think it would start in a narrow vertical, one asset type, like Amazon started with books. It would then get to know that asset type and what could be done with that product. Convince the manufacturer or buyer to add sensors to ensure that we can get data from the asset, and then, once the possibilities for that data are understood, entice the manufacturer to 'play along' to sell more or get more value. Finally, use the data for real-time optimization of maintenance, pricing, insurance, and more. Continue to improve. Then, move into another vertical."

The next great equipment finance concept lies at the intersection of business, technology, and mindset. It requires fresh thinking. Equipment finance companies don't need only equipment finance business people to be successful. Today, they need the technology, and people with modern technology capabilities. We need the wisdom of the past, but we also need fresh new thinking for the future. We need the wisdom to know how to strategically design a business for profitability, but we also need to have the boldness to question long-held traditions, and to reimagine how we can get there. Then we need to harness new technology to make it happen.

Business and technology are not separate any more. Technology is woven into the fabric of what we do, and equipment finance companies need technology platforms that evolve along with their business model to be successful. 
Most importantly, we need to learn how to stop saying “No.” Amazing things are possible when you start with “Yes.” 



Deborah Reuben, CLFP
Founder & President | Reuben Creative, LLC
Deborah Reuben, CLFP is CEO & President of Reuben Creative, LLC a consulting firm specializing in strategic process and technology consulting. An equipment finance industry veteran, she has a broad professional background in both financial services (Wells Fargo and TCF) and the software industry (HCL and Linedata Capitalstream).

Known for connecting the dots in unconventional ways, her unique industry experience, creative approach, and a keen eye for future trends enables her to bring forward-thinking insights and original ideas to developing vision and solutions. A coach and trusted advisor for leaders who want to leverage cutting-edge technology to achieve their business goals. She helps leaders and teams to see the bigger picture, understand technology possibilities, stretch the imagination of what could be, and chart a course for transformative change.

A frequent speaker at industry events, she served as ELFA Operations & Technology Committee Chair and is a founding member of the ELFA Women's Council.
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