Most observations about the next year or two for the equipment leasing and finance business focus on macro shifts and events. While it is important to understand changes in capital markets, economic sector trends, public policy initiatives and demand for capital equipment, leaders in equipment leasing and finance companies have the responsibility for the success of their company.

In the year ahead, successful Equipment Finance Companies (EFCs) will do four things very well:

• Provide the right offering to the right client. This means that you have to target an attractive client and meet their needs. In the process, you have to insure a good customer experience.
• Maintain the correct profit mechanism. This is a combination of funding, pricing and cost management.
• Manage personnel with motivation and training. This requires making employees better performers in your strategy and replacing B and C players with A and B players when possible.
• Enhance customer management. This includes managing customer expectations, behaviors and their value to your company.

The power of leverage is part of this success. I do not mean leverage in the conventional finance sense. If anything, financial leverage is declining. Increasingly, clients of Alta are talking with us about how to increase their strengths and reduce or overcome their weaknesses. The discussions are usually in one or more of the four points of success above. The solutions are often about leverage – leveraging off of strengths and using leverage brought by others to overcome weaknesses or deficiencies. Many of the leveraging solutions are in the form of partnerships or joint ventures in which the parties each bring their strengths to a relationship to enable innovation, flexibility and other value adds not otherwise possible.

Consider the three types of participants in this business – Bank EFCs, non Bank EFCs and providers of services to EFCs. Companies in each category have general strengths and weaknesses. Look at the display below.

EFC's Strengths

• Specialization
• Focus of customer's needs
• Asset knowledge
• Asset management
• Risk management
• Customer service
• Transaction innovation
• Dedicated systems
• Unregulated
• Opportunistic
• Product differentiation

• Access to capital
• Reputation / brand
• Customer base
• Underwriting
• Financial analysis
• Syndication
• Portfolio management
• Diverse services / cross selling
• Stable / Sustainability

EFC's Weaknesses

• Accessing capital / capital costs
• Bench strength / resources
• Analysis
• Pricing power

• Institutional
• Generalists
• Regulatory compliance limits flexibility
• One size fits all
• Systems that may not accommodate certain products and services
• Customer segment / asset understanding

Further, providers of services such as law firms, technical firms and consultancies bring legal, financial, technical, operational, knowledge, facilitation, perspective, search, flexibility and objectivity resources. We begin to see what formal leveraging through partnerships and JVs with other institutions and people can do.

For example, consider a regional bank with a business footprint of bank customers that want a variety of financial products. Often a customer may come to the bank for a product that requires equipment expertise, product structuring (residual and pricing) expertise that the bank neither has nor can offer. It has capital and the customer relationship. However, it can leverage up its ability to serve its bank customer if it has a formal relationship with a non bank EFC. The relationship combines its capabilities related to asset management with the bank’s customer relations and capital capabilities. Review the lists in the illustration and it becomes obvious how non banks and banks can partner together for mutual benefit and the customer’s benefit.

There are too many one liners being used to describe the marketplace today and going forward.

• "If you don’t have capital you are dead." What can a non bank EFC offer in a partnering relationship to an institution with capital to overcome this problem?
• "We would love to offer that product but our systems cannot handle it." If it is a scale problem, get a partner. If it is strictly an operations problem, move towards the expanded capabilities that outsourcing or a partner provides.
• "The threshold for risk is getting tough." What relationships would reduce or manage the risk in a transaction or line of business? These relationships could include asset and sector knowledge, situational analysis, syndication or geographic factors. Will partnering with respected EFCs create comfort?
• "We are going back to basics." What does that even mean? No one goes backwards because the customer does not want to go backwards. Back to basics means re-sharpening your competitive capabilities and partnering arrangements can do that.
• "I know that is a growth area, but we don’t understand it." Find a partner that does or work with consultants who can provide the perspective and guidance to assist you to enter an attractive area.

Formal partnering arrangements can help drive success. But good partnerships don’t just happen. Philosophies and principles must align. Trust and transparency are essential. Transitioning from traditional “self contained” thinking to “competitive leveraged partnerships” has to be planned and managed. Formal partnering and joint venturing must be part of a strategy for doing business rather than a tactical event.

The new buzz word is RESET. The economy is resetting. What are companies resetting? Competitive leveraged partnerships and joint ventures, if done well, do not increase risk or exposure, but they do increase the capabilities of the partners. Reset or not, competition will become tougher than ever in the years ahead. Customers will have high expectations and only business models and strategies that result in those expectations being met will work.

Adam Smith urged an efficient and effective economy in which each enterprise would do what it does best and leave it to others to do the things they do best. In the paradigm I am suggesting, partnering does one step further and results in companies working together to further remove inefficiencies of scale, scope and capability. Consider an initiative to reach out to potential partners that can benefit from your strengths or who can help you overcome any weakness or deficient capability. Look carefully at the range of knowledge, expertise and capabilities that service providers can bring to you. Your company does not have to struggle alone anymore.