This weekend, I had the honor to go to Silicon Valley - to present at the TedX New Wall Street - where the group imagined what a future wall street might look like. I presented an idea that I think could have a massive impact for small business owners. Here it is .....
Today we’re here to talk about a New Wall Street. Many of the ideas presented here have to do with how we might change or fix the inner guts of Wall Street. My idea, called the 10 Day Pay campaign, is different. It has to do with issues that float in the clouds around Wall Street.
Together, we can help millions of small business owners across America can grow cash flow, return to profitability, hire more employees, and help America lift itself out of the Great Recession.
We won’t require the government to act or regulators to change. Lobbying groups won’t have to be rallied, and we don’t have to wait out a year of presidential politics. This TED community, with the knowledge and resources at our disposal, can make it happen. And the benefits could start to be felt in weeks.
I want to describe the problem, tell a story that I think will help really bring it to life, and then explain how 10 Day Pay could be transformational.
Here is the problem. In today’s economy, most large Fortune 1000 companies can borrow money at dirt cheap prices. Sometimes, two or three percent. Meanwhile, for the 26 million small businesses in America, many of them who make their living supplying the big companies, getting access to credit is as tough as you can imagine. For those small businesses who make a living supplying the big companies, they often have to turn to factoring and purchasing order financing today and their cost to borrow money can be anywhere between 24 – and 48 percent.
Think about it folks --- One group of companies is paying 2 -3 percent interest. The other is paying 24 – 48 percent interest. Their difference in cost of capital is mind boggling.
But it even gets worse. Most big companies take their sweet jolly time paying their small business suppliers – for a simple reason – THEY CAN. It would make little to no difference to their long run profitability if they paid their suppliers in 10 days versus 60 days. They just don’t do it. Somebody deep inside an accounts payable department somewhere some clerk enforces these rules. And the small business owners are stuck.
Let me tell you the story of one of our clients.
We will call them Joes wiring, and their sales are above 6 million a year. Their business is providing wiring installations for a large phone and cable company who is expanding their networks across the country. We all know their client. In fact, I bet you that 20 – 30 percent of us in this pay them a bill every month. And if we’re more than 30 days late they cut off our phones, and our internet access.
But they don’t treat their small business suppliers the way they expect their small business customers to behave. Joe’s wiring waits on average 97 days to get paid by their supplier. If they complain about it, they’ll lose the account, and their business will be finished.
So how do they make payroll while they wait to get paid? They had to enter into an expensive factoring arrangement that costs them over $500,000 in fees a year. These fees destroy their profitability, their ability to borrow money from more traditional sources, and to grow their company.
The factors and alternative financiers are hugely profitable, as are hedge funds that fund them. Meanwhile, Joes’ Wiring is sweating it out like millions of other small business owners in similar situations.
Once America’s Small Business Owners climb onto the factors’ high interest treadmill it’s almost impossible for them to jump off. Financing costs destroy their profit margins, and defer hiring new employees, raising salaries and developing new products and services.
This problem has gotten worse during the recession. Recent National Federation of Independent Business research shows 40 percent of small businesses are slow-pay victims. On average, they're getting paid forty-eight days after the invoice date, a six-day increase since 2010, and up ten days since 2006.[i]
This is why I propose that the TED Community rallies together and pulls off a 10 Day Pay Campaign – with the idea that eventually every large company would pay every small company within 10 days for products and services that are delivered.
If this could happen, the smaller companies would become vastly more profitable, allowing them to grow, innovate and add employees. The factoring and alternative financing industry that is loving the recession now would largely be put out of business. And the larger companies who take a leadership position in this campaign would benefit from more loyal customers and a healthier economy in general.
How could we make this happen? Here is what I think we would need.
The first call to action is to find a CEO of a large well known national company who is willing to take a bet. We want them to take a stand that they will pay all of their small business suppliers in 10 working days, and to challenge other companies to do the same.
Let me clear. This CEO shouldn’t just do this because it’s the right thing to do for our economy. I believe that if they actively promote their stand through ads and media, they will win incredible loyalty from small business owners and their employees around the country. I believe that the bump in sales from this effort will exceed the small difference in their cash flow statements by paying their suppliers faster.
The 10 Day Pay campaign would be complemented with a website. We need a few good-hearted techies wanting to hack together a website that tracks how big companies honor (or don’t honor) their 10 day pay commitments based on feedback from validated, anonym zed small companies.
This means “buy local” consumers could check No-More-Slow-Pay performance ratings of ATT, Verizon and Sprint. When we don’t pay their bills on time, they shut down our cellphones off. Why shouldn’t they pay their small business suppliers in a timely fashion? As consumers, we should demand the same from them.
Finally, any help we could get from the advertising and public relations companies to help pull all of this together would be very helpful.
Why is any of this relevant to TEDxNewWallStreet? On a New Wall Street, banks would take how large businesses play nicely with small businesses, knowing that a big company that abused Slow-Pay really isn’t cash-rich, it’s values poor. Banks would be able to lend again to small businesses.
Between a No-More-Slow-Pay Pledge and a transparency collective intelligence website, small businesses would borrow what they need to expand at cheaper interest rates, and the big businesses that support them would be recognized through brand loyalty.
What I’ve proposed could be up and running in a matter of weeks. We don’t need Congress or await Presidential politics. We don’t need to go and fight the regulators or the big banks. We can dramatically impact the lives and families of millions of small business owners and their employees across the country. This will help our economy, and restore our sense of commercial dignity and looking out for the small fish in the sea.