How to drive retail growth through consumer finance solutions?

Brad Parker, Founder & CEO ● Jul 9th, 2024

The full transcript

Oleg

Hi everybody! Welcome to Devico Breakfast Bar! Here we speak with different people involved in the business landscape, share their expertise, delve into the latest tech trends, and explore the ins and outs of IT outsourcing. I'm Oleg Sadikov, and today I'm excited to have Brad Parker, co-founder at FormPiper. Don't forget to subscribe and hit the notification bell so you don't miss our new episodes. Hi Brad! Could you please start by telling us a bit about yourself and your professional background?

Brad

Yeah, sure. Well, first, it's great to be here this morning. I appreciate the invite. I look forward to chatting with you. So, I'm Brad Parker, founder of FormPiper. We're a tech company that helps retail businesses automate their consumer financing, really put a process in place to give their customers a good experience. I actually come from the retail space. I was a retailer for 20 years in the pet space. I was able to work inside of my franchise system and really develop a network of great retailers all across the country that I was able to work with. And that's really what inspired me to build FormPiper. I wanted to give my customers a better experience. So, as I learned the retail landscape, I was able to identify problems and solve them for my customers, and FormPiper was born out of that necessity.

Oleg

Can you share some of key challenges that retail businesses face while securing financing, particularly in today's market landscape?

Brad

The retail businesses themselves, if you're driving success in your space, you're going to be able to secure financing to grow your business. So, typically, that's not going to be a problem. There's always going to be some form of financing available. But when you look at the consumer finance landscape, and you think about retailers offering consumer financing to their customers, this is where it gets tricky as the landscape changes. When money is inexpensive, interest rates are low, the banks and lending companies are able to borrow money and then loan that money to consumers at a very good rate. And so, you'll see lots of lending, lots of purchases, and an economy that's really moving and bustling, and retail businesses experiencing that ease of sale. But as interest rates have increased, money is tightened up, it's harder for the banks to get the money, it's harder for lending companies to execute a solid portfolio. So, they tighten their restrictions. And then you see less approvals in the marketplace, and therefore businesses have to tighten up or prices have to go up to accommodate the cost of capital. So, people tend to spend less money. Or you see them having to get into different types of financial products that might not be as favorable as far as interest rates and all of those types of things. So, consumers and retailers together are always going to be at a happier place when money is free flowing. I think it would be really great if the Fed would stop increasing interest rates and get them back down, so everybody could get back to normal.

Oleg

But it did stop. No? Everyone is waiting for a reduction.

Brad

Everybody's waiting for it, but those things take time to roll down the hill. So, I think you have not seen finance companies open back up those coffers. They're having a hard time getting those additional rounds of funding. At the right rates, they're still able to get the funds, but what does it cost to get those funds? And then, all fees are usually always passed to the end consumer because businesses have to make money. It affects the entire landscape when money is expensive.

Oleg

What exactly happens now with retail in the United States after two years being in the period of expensive money?

Brad

You know, retailers are going to have to pivot the way they think. During COVID, it was either really, really easy, or it was really challenging, depending on what market you were in. You saw a lot of money getting dumped into the ecosystem, and so people were wanting to shop. So, as long as you were able to stay open, you ran really successful businesses during those times. Now that that landscape has changed, you saw a lot of online transactional sales increase. So, a massive, massive shift of online shopping happened during the COVID era. Everybody was at home. It forced people to use Amazon at a much higher level. And then, you really saw this elevation of the creator economy. Take social media and people who are creative, and then they created their businesses with Shopify, and they were just able to explode the online market. So, retail felt that. You know, there was a huge dip in retails. To compete or to survive, if you will, in my opinion, retailers are gonna have to continue to think about their consumers and really provide an experience that's educational, so people can come, and learn, and feel a part of the process, feel like they're being educated about the value of those products in a really good way. And it needs to be entertaining. By walking to a retail business, I need to be educated and entertained. I want to feel like I'm having a great time. I want to learn something about the product that I'm buying. And if that retailer can give that customized experience to the consumer, then they're going to be able to get them out of the house, out from behind the computer making purchases. But if you think that you can just run, you know, a business that does not have a great culture, that's not inviting people down and giving them a great experience, you're just not going to make it in this landscape.

Oleg

Do you have any examples who is the best in doing this now?

Brad

Yeah. You know, you want to think about the experience. So, I'm in several markets in my business. So, I was in the pet space. We would always book reservations for our customers to come down. If they were coming to look at a cute little French bulldog puppy, we'd have that reservation book for them, and we would be all prepped and ready to give them the best experience, and we would do a great presentation on our breeders with drone videos to show them where the dogs came from. So, really, really solid transparency in your sales presentation. And then, if you look at other industries, take the jewelry space, you have the Shane company. They do a fantastic job at letting people come down, make an appointment to clean their jewelry for free because people just forget. You know, you've got those beautiful wedding rings, they get dirty over time, but you can come down there, give them the ring, and they'll clean it for you for free. And then they create an environment where you're not in a high sales pressure environment. Nobody there works on commission, so you can take your time, you can look at things, and you don't have to feel as if you're being pressured into a purchase. Auto repair space, there's a huge competitive landscape. I have the honor of working with a group of Meineke, and what they do from an experience standpoint is outstanding. So, your car's broken down. You're frustrated. You got to get it to the shop. So, what do they do? They do free towing. So, if you call them up, they're going to send the tow truck out, pick the car up for you, get it there for free. So, you're not spending that initial money just to start spending more money. And while they're there, they do full transparency. They have these great systems. They use technology called auto vitals to take pictures of all of the aspects of what's going on with the car, and they present that to you and educate you on the issue so you can make an educated decision on whether you want to fix it or not.

I probably speak for everybody: typically, going to an auto repair shop, you're not happy that you're there. And then you never feel comfortable about is my car really broken? Are they fixing things that they shouldn't be fixing? Cause none of us are mechanics, you know. So, having that transparency in the ecosystem is huge. And then, I can't remember this gentleman's name, but you might've remembered a couple of years back, the Astros won the world series. And there was the gentleman: he owned a furniture store, and he bet like a million dollars or something, and he won a bunch of money on that game. But his business was furniture, and his ecosystem inside of his business is all entertainment. Fun, fun, fun! Every season, it's completely decorated for the season. And he talked about having a snack budget. So, all around the business, he has bowls of food, and candy, and chips, and he recreates the living room environment so you can sit down and enjoy the furniture, and you can have a bag of chips in that experience. I think he was spending 10,000 dollars a month just on snacks to give that experience. If you go down, and you have that experience, and you go somewhere else, and it's not fun, and there is no snacks, and there's no music playing, you're not going to have that same cultural environment. And so, you're going to go back to the place that gives you a great experience. These are the types of businesses that will continue to thrive. Cause I think people like the shift of working from home, and spending more time at home, and being a part of the family, but we got to get out of the house. We want to have a great experience. We want to be entertained. And anytime we're going to make a purchase, we want to be educated. Nobody wants to make an uneducated buying decision. We want to feel comfortable at our decisions when making a purchase.

Oleg

What is the impact of seasonality on retail financing? How can businesses effectively manage cash flow during peak and off-peak periods?

Brad

Oh man, I tell you that that one takes some practice. I remember I was running my first location for 14 years, and we didn't really have seasonality. It was very consistent. And then I bought my second location down in Florida. And Florida has what we call the snowbird season. So, from about November, late November, December to April, it is busy, and everything is great. Plenty of customers, plenty of money flowing, and then when May hits half the town leaves. And it's crickets. And so, your entire economic structure changes. And I wasn't prepared for that my first year. I remember getting down doing payroll, and I was paying my team with the last two pennies I had in the bank account. And so, I was like, 'Okay, I have to figure out how to adjust here. I can't do this over, and over, and over again.' So, during that snowbird season, you can't get all fat and happy and go spend all your money. You have to understand that you're going to need some of that money as you turn into that slow season. What I was really able to kind of dial into in my business was it's really all about understanding your percentages as a business owner. The P&L, it's percentages per department, and you need to know what those percentages need to be in order to drive a profit. So, you always want to start at the bottom and say, 'Okay, if I want to make a 20% profit, I got 80% to play with. This needs to be my gross margin.’ And there's only a few things a business can really control. Most expenses are fixed. But you're going to have your cost of goods and in your margins. So, how well do I buy my products versus how well do I sell them?

You want to buy them low, sell them high, but still bring the right, appropriate value for your customer. And then the main things you can focus on is your payroll percentage and your marketing percentage. Those are going to be the two main drivers that really fluctuate a business. A lot of businesses make a huge mistake, and they say, 'Well, my marketing budget is 20 grand a month. So, I'm just going to keep spending 20 grand a month.' Well, if I do 200,000 dollars a month in sales, that's a 10% marketing fee, that's okay. That's in the line of okay for retail. I would do 7 to 10%, depending on my scenario. But if I'm not paying attention, and all of a sudden my sales dip to 150,000, my payroll percentage has elevated dramatically. And if that happens a few months in a row, I have a problem. If you elevate that, if you're doing 500,000 dollars a month in sales, and you're doing a 50,000 dollar budget, and all of a sudden you have a really bad month, like 300, basically your bottom line profit has gone out to marketing, and it hasn't converted. What I would do is I would look at it very granularly, and I would change my marketing budget spend based on the previous week. So, I'd look at the last two weeks. What did I sell? That's going to be my marketing budget – 10% of that number. And I would always be fluctuating and moving it to make sure that I didn't go over my budgets. We really focus that on payroll as well. Most people will pay salaries, and they'll just pay the people everything they got to do in order to run the business, not really paying attention to that payroll percentage. Most people don't even know their payroll percentage when you ask them. That is the number one expense that you can control. And it's the number one expense that you can actually motivate people to edit. And so, if you pay people on performance and come up with a great compensation structure that's based on the performance of the business, then everybody's focused on that.

You're going to perform at a really good level, usually, but you're still going to have negative sales cycles. And when you do that, the payroll goes down because it's based on the performance. But when it's up, it goes up really, really high because you've done a really good job. For me, the biggest thing I had to learn was when we were really doing well, I needed to pay my people great money. So, they understood we're all playing this game together. I'm going to pay you a lot of money if you do really, really good. So, just keep doing really, really good. And if sales went down, they would feel it because I would pay that structure for the previous two weeks. So, if they had a bad two-week sales cycle, then they felt it in their paycheck immediately, and then we could go identify what we were doing wrong. Usually, if a business is used to firing on all cylinders, things are always going to pivot and change. People can have bad weeks. You might get bad on your phone skills. You might get bad on your presentation skills, and you need to go back, teach your team, role play with your team, make sure everybody's exuding your culture. And then you're going to see those sales go back up. So, number one thing I would say, seasonality. One, figure out if you're going to have seasons, and if you are, plan for that economic downturn in your business and make sure that you're controlling your marketing budget and your payroll percentage, and you'll be successful during those times.

Oleg

Before opening location in Florida, did you know that it has seasonality?

Brad

I think you do know. I knew that there was a snowbird season, but I had never run a business there. So, I didn't really understand the swinging impact during the snowbird season. To give you an example, we would do anywhere from 350,000 to 500,000 dollars a month in revenue. And if you're doing that in a retail setting, you're typically running a very successful business if you control those expenses. Well, then you dip down to 200 to 250 – that's significant. It's a 100,000 to 250,000 dollar swing in your actual operating capital. And it gets really hard to run it. When you're used to running a business that's doing 400 grand, and then all of a sudden it's doing 250 grand, you have to make some strides there to make sure that you're executing well.

Oleg

Yeah, understand. Could you comment on the challenges associated with the shortage of qualified specialists in the IT sector, particularly in relation to your business?

Brad

My business has shifted, right? So, I was a retailer for 20 years. In that space, we didn't really understand IT at all. You know, you kind of just have your retail space, and you're not even thinking about the security of your ecosystem at a high level. Maybe you got the guy that's making sure that your internet connection is running as well as it can be.

But what I've learned over time with data, and security, and collecting customers' information, and doing finance applications – retail businesses have to have an IT kind of pen testing solution in place for their business. That can be a little tricky, and finding the right person to work with. So, I usually recommend that people find that local company that they can work with or some kind of fractional service that they can contract with to come in and do those services for them. In my new business, it's all tech, right? I've developed software to automate consumer financing. I'm working with the lenders. I'm working with banks. I'm working with retail businesses. We're dealing with consumers’ data and information. And so, I have an entire IT department now. And look, I'm a retailer. I don't know much about IT. It's above my pay grade. And so, I needed somebody that I could trust, that could come in and do a great job for us. And so, I outsource all of my IT and security to a company called Blue Century. I'm able to come in and work with them on a fractional basis and buy time and sprints. And then they handle my entire AWS infrastructure. I've been lucky: my business partner had a relationship in that space and brought this company in. We've used them since day one. I've never had to really go out and search and try to find additional IT services. But I think it's because I was able to come out of the gate and find that high level company that was offering fractional services, so I could afford quality work without having to bring somebody in full-time to handle it for me.

Oleg

Do they specialize in retail?

Brad

I wouldn't say so. They really specialize more in securing customers’ data, and the AWS infrastructure, and making sure that as that data is coming in, and we're passing that data to the lenders and the banks, everything is encrypted, everything is secure, it's being stored in a secure environment. And really, you have to maintain your SOC 2 compliance in this eco environment. So, they're a SOC 2 compliant company helping us to be SOC 2 compliant, so really just making sure that you keep your regulations tight. I think they specialize with anybody that needs that type of structure.

I think I'm a little bit of a unique case for that type of a company. And our service and who we assist.

Oleg

You don't have internal development team, do you?

Brad

No. I've had a little journey there. So, I got lucky there as well. Maybe it's not luck. I just work a lot, and I plan a lot, and I run into the right people. But during my tenure as a retailer, I started a marketing company. I was helping retail businesses achieve the same success as me. I worked with a lot of great marketing companies as an affiliate. So, I would find companies to specialize with, and then my company was really focused on actual content creation. So, going out, filming the content, and creating beautiful imagery, and providing that out to retailers. And we ended up hiring full-stack developers to help build websites as well. And so, when I identified the problem in my business, and I knew that I needed to develop a solution to help my customers, I tried to find a company that could do it. I went out and looked, and I couldn't find a company that could really solve my problems. So, I knew that I wanted to build it. I sat down with my marketing team and my retail team, and we designed and developed FormPiper. And so, from day one, my development team was in-house. The first iteration of our project was not good. Luckily, I had my own business that I could test it in, and I didn't have to take that out to market. And we hired another developer to come on to the team. And between Alex and Brad, they put their heads together and developed a beautiful second version of the product. We were able to take it to market and get immediate success in my space.

At that time, I would say that my marketing company couldn't really sustain the growth of the development team. And so, I knew that I was going to have to kind of go outside of my own company. And at that time, Alex had started his own company, making software. So, we decided to be his first client. I was able to work with him. He was able to scale that team up for my company and like-minded companies. And so, I was able to piggyback on his growth, his professionalism, running his company at a high level. Now, I've operated with him from day one. He knows my code base at a very, very high level. Every developer he's brought in, they always start on my project. So, I have this really great wealth of knowledge around what we're building. When we paint that vision of the future and what we're trying to build, they can just go get it done for me. They know what I'm looking for. So, completely outsourced now, started in-house. But it's been the same team the whole time.It's been a great journey because I don't have to write a single line of code. I actually went to Georgia Tech. And I was going to do computer science just because, back in the day, I was told if you did computer science, you could make a lot of money. And I didn't realize that meant writing code. And I had no idea what I was doing. So, I shifted my career path to management because I'm a people person. I like to develop teams and help teams accomplish goals. That was much more my speed than trying to figure out how to write code. I wish I could go back in time though and tell my younger self like, 'Hey, you need to partner up with all of these coders at Georgia Tech and start some companies.' Cause I'm sure that all of those guys are doing fantastic in life right now.

Oleg

How do you see the role of IT outsourcing, evolving in the context of your industry future needs?

Brad

I could be wrong at this. I'm just ingraining myself into the SaaS culture. You know, I was in the retail business for 20 years, very involved, loved being in that culture, and learning how to grow. The first two years of running my SaaS company, I was still running those businesses. And so, I was spread really, really thin, and I was building the SaaS product to assist my business. When I realized that I could take it out to market, it was, ‘Hey, let's go ahead and exit the retail space. Let's move over here. And let's focus on this new business venture.' I'm meeting people in the SaaS space now, going to conferences. And you kind of have one or two personas, if you will. You have the person that understands tech and can write code. And they're trying to build a product, but they need the assistance on getting that product to market. And then you have, I would say, guys like me that can identify problems, and we want to solve them, but we can't write the code.

There's a huge population of business owners out there that want to solve a problem, that need development help, that need IT help. We need to be able to go partner with people that can help us grow. And so, I think the outsourced dev and IT community is going to be huge because you're going to constantly have business owners that need to go to market, need to develop a product, and need people that they can trust to come in and help them execute that. So, finding the right company that can assist there is just going to be huge, I think, endless opportunity for developers all across the world to partner with business owners to drive success in all industries. SaaS is everywhere. And it's only getting more fun, easier to do with more, you know, options to solve more problems.

Oleg

What are the criteria for the right company?

Brad

I got lucky. I kind of just fell into it. What I've learned in working, I think, with the right company is, first, just you got to find a company that can communicate. Can they communicate with you and explain to you what they're doing for you? Because I don't know anything about code, right? So, being able to sit down with my developer and paint the picture of the future vision of what I want, and then having them explain to me why this would be easy, why this is complicated, how we should focus on the path, what should we do first. You know, and really finding a company that will help paint that picture for you before there's development, right? Like, let's go to the drawing board and let's do our UI design. Let's do that really, really well. And let's make sure that we're on the same page because everybody has different visual cues, right? I could be explaining a scene, and everybody's going to picture that in their mind differently. Well, if five people go and develop that vision, they're all going to develop different things based on how they feel in their experience. So, finding a company that understands that what they see in their head might not be what you see, and they're going to take the time to really visualize out what you want to build and then be able to communicate that with you along the way, and really put checks and balances along the way to make sure that they do a good job would be what I would recommend for anybody looking for a developer. You know, so it's got to be somebody that you like, you can communicate with, you can sit down and talk to for hours at a time. You have to put in that time and make sure that the communication is there if you're going to be successful in outsource development.

Oleg

Brad, thanks for sharing your insights, suggestions, thoughts. It was great to hear it. You achieved decent results, and it was nice having you on my podcast.

Brad

Well, I appreciate being here. Anytime I can talk shop with people that are helping business owners grow. I'm always here for the calling. I appreciate it.

Oleg

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