How to build a business – Financing and Credit

August 30, 2011

I was always interested in running my own business. When I began in 1998 with what I later called “my only real job” at Shell, I had already started and sold several businesses. In 1999 I had no assets but was keen start a new business. I set my mind on buying a rand-cafe, where I had worked for years as a part-time bartender. With a friend that was also working there we decided to take the step, negotiated a price with the owner, and bought the business, which had a turn-over of seven hundred thousand guilders. Between the local Rabobank and a brewery we were able borrow, without any collateral, a million guilders. It was a brave decision, and a good investment, because within a year we doubled turnover, and within five years we repaid the loan.

A lot has changed in twelve years, and so have I. I bought some more bars, started a SAP R/3 consultancy business with others, sold it, had several interim assignments as a CIO, and founded Qhuba. We never sold that first Café, by the way, and it still doing well. The people at Rabobank have changed, or been exchanged, too. They used to know me, knew me by my first name, and if I had to make a urgent transfer, I could call the branch, and they would recognize my voice. Admittedly, electronic banking was not that big in those days. Meanwhile they have closed branches and opened a rather impressive head-office. But for whom?

Twelve years later, with a lot more assets to my name, I tried to borrow €400.000 to enable the growth of Qhuba. Turnover more than €6.000.000, with a three-year history of growth as well as profitability. I was prepared to provide a personal guarantee for the full amount of the loan requested. The account manager informed me this week that the risk managers refused because they considered the company a structure risk: part of the creditors are partners, so we are financing ourselves. I would argue that we could have hired the same people on the payroll, increasing our risk profile tremendously, while maybe making a bit more margin. I wonder what the risk managers would have called that.

Of course this is an issue in itself, but we will solve it another way. Probably between our internal partners, cash freed up by liquidating some assets and investments, and – who knows – an external investor. It will be an interesting process, and we will learn a few things.

Also interesting: why have banks changed, why do they not know there clients anymore, why don’t they advice on how to build a business, and why do account managers apologize for all the information they request (the systems asks for it) and hide behind risk managers when they cannot make deals, and why do they all wear suits and ties and pretend it is their money? It is the same decease that you can see all around you in business: it has become primarily transactional. There is limited knowledge about clients and there businesses, there is limited interest, and there is hardly any interaction.

The Rabobank is an interesting case because it is a cooperative bank. That sounds like working together, like shared interests, like common purpose. It sounds a bit like a network where some of the people have money, others have ideas or businesses, and by combining them, all benefit. Recently, I had a conversation with a guy responsible for innovation at this bank, and he asked if we had any ideas for him on how to build a community, how to get loyal and involved clients, how to have more interaction and participation. I guess he expected we would start talking about social networking, technology platforms, Twitter and Facebook. I told him that going back to the cooperative roots might be something to consider.

The roots of the Rabobank lie in the 19th century Germany, and had more to do with a charitable organization addressing the needs of an impoverished agricultural lower class than with a bank.

In the Netherlands the original of several local agricultural banks where the result of the involvement of three parties: the clergy, the local dignitaries, such as the mayor, the teacher and the entrepreneurs, and the farmers. Idealism played a role, but generally the entrepreneur wanted to invest money, the farmers needed money and the priest kept everyone honest. Running the bank was not a business in itself. It was clear that everyone had his role and that by working together there was a shared interest. It was obvious that the money belonged to the rich guy, and that he had an interest in the success of the small business men. The bank was the collective, but best represented by the priest or the teacher.

At some point the bank must have become an enterprise, the priest and the teacher must have been replaced by guys wearing suits, pretending to own the money, and the rich guy and the farmer were called clients, and could not talk to each other anymore.

Not all banks have similar histories of course. For instance the Swiss banking system was a direct result from the history of he Knights Templar or, as they were really called, the Poor Knights of Christ and the Temple of Solomon.

The Knights were established in Jerusalem in 1118 by nine French Knights, with the mission to protect pilgrims to the Holy Land. Most Knights were the sons of nobility and, as they joined the Knights Templar, they had to take a vow of poverty and donated their wealth to the Order. The Knights Templars’ financial power was significant, even more so because they would look after the valuables of the pilgrims, trusted as they were because of their relations with the Church and the Pope. At some point they started providing the people they would guard and escort to the Holy Land with letters of credit in exchange for their belongings, and a proper banking system was born, as the pilgrims could present these letters to other Templars along the way to withdraw funds from their account. The Knights, by having access and right of use of all this property (among them 9000 estates all over Europe and the Middle East, became wealthy and powerful and were eventually disbanded by King Philip IV of France. The Knights fled to Switzerland – they knew the Swiss because they were sent there by the Holy Roman Empire when the cantons opposed the Church. How they reconciled these roles is a mystery, but they did. It is remarkable how similar the Swiss flag and the one of the Templars is.

Templars flag on the left, Swiss flag on the right

And it is certain that when Switzerland was founded as a confederacy of the cantons in 1291, it rapidly rose to prominence as both a financial centre and temperate community that could tolerate opposing views.  The Holy Roman Empire saw something in the Swiss too, because until this day they hire them to protect the Pope.

It a side step, but also here banking started out of idealism, and cooperation.

Now if the Rabobank wants its cooperative roots to be the basis of their plans of bringing all the stakeholders together in a community with shared interests, they better hurry.

We are seeing new forms of banking, peer-to-peer lending, and microfinancing initiatives, some of which I described in an earlier blog, but we also see some former banker going back to what they now call “credit unions”. Nothing new here, of course: there even is a World Council of Credit Unions that goes back to the first credit unions 1850s in Germany to give those lacking access to financial services the opportunity to borrow from the savings of their fellow members. Friedrich Wilhelm Raiffeisen transported this cooperative financial concept to rural Germany a decade later, and indeed, this was to become the Raiffeissen bank that later became part of Rabobank. In the twentieth century the model was also adopted in the US, and from there spread across the developing countries with the help of a government agency USAID.

Now today in The Netherlands several bankers are working on plans to reintroduce the Credit Union system, specifically because small and medium size businesses, especially when they are starting have considerable difficulty obtaining access to credit.

It is not only back to the roots, but also back to the basics: the Bank collects funds from savers and entrepreneurs and lends it to entrepreneurs. The people providing the funds are co-owners, and have a say in to whom the money will be provided. There are no payment services, not even current accounts, and no complex structured investment products. The only product is the financing provided. The process is simple, the costs can be low, and the return for the saver and investors attractive. The bank is the platform, not the goal.

The credit unions can be organized by geography and by industry. It would make a lot of sense if successful business people in a certain industry were the ones providing the funds, but also assess the applications from and provide the support for the starters in that industry.

If a license is issued by the central bank, the first unions could start in 2012.

Pity we can’t wait that long, but we will be following these developments with interest and sympathy, same as all the other developments in the Financial industry

How to build a business – Crisis? Crises!

August 15, 2011

We have started our business at the end of 2007. So we have always operated in times of crisis. But what is this crisis? Four years later we can make some sense of it, and determine what the impact on building our business has been. But first: What crisis or crises are we really talking about?

There is a sequence of crises: the housing crisis, the credit crisis, the banking crisis, the liquidity crisis, the economic crisis, the debt crisis.


All together they are probably called The Financial Crisis or “the greatest financial crisis since the Great Depression” as the Wall Street Journal called it. It began with a boom-bust scenario in real-estate, or better: it really started with another boom-and-bust: the dot-com bubble of the late 1990s. When the decline of the stock markets in 2000 marked the beginning of a recession, interest rates were lowered to limit the economic damage. These low interest rates where a good stimulus to consumption, but also for the mortgage market. A lot of people were able to buy properties. The housing market boomed and anybody fit enough to put a signature under a contract could buy a house as banks and other financial institutions came up with mortgage products for anyone, including people who really where not financially fit enough to buy. The subprime mortgages kept interest rates low for the first few years (ARM (Adjustable Rate Mortgage) only to be increased in the following periods.

Housing crisis (2007)

In the US, the housing market peaked in 2006. Banks and other investors had devised complex financial instruments to slice up and resell the mortgage-backed securities in an attempt to hedge against any risks. More and more home-owners, over-leveraged, and now unable to pay defaulted, banks foreclosed and housing prices started to fall. The pyramid started to crumble, starting in 2007 when two hedge funds owned by Bear Stearns that had invested heavily in the subprime market, collapsed.

Credit crisis (2008)

Instruments with names like “Mortgage-backed securities” (MBS) and “Collateralized Debt Obligations” (CDO) suddenly posed grave problems for banks that had bought them, and at the same time more and more people were unable to pay their mortgages. Banks started to distrust each other, and credit was hard to come by, which was not only harmful for the housing market, but also for businesses. Hundreds of billions in mortgage-related investments went bad, and once mighty investments banks had to write off substantial amounts.

Banking crisis

Some of the largest insurance companies and banks had to be saved by government. Some were not. In March 2008 the Fed staved off a Bear Stearns bankruptcy by  buying $30 billion in liabilities and engineering an acquisition by JP Morgan Chase. Fannie Mae and Freddie Mac were bought by the US Government to save them, Lehman Brothers went bankrupt. Merrill Lynch sold itself to the Bank of America to prevent bankruptcy. In September 2008 AIG (American International Group) had to be bailed out for $85 billion because it was exposed to securities known as CDS’s (Credit Default Swaps, a financial instruments designed to protect against a default by a particular bond or security)

In The Netherlands losses from those investments and the effect of the tightening of credit caused ABN and Fortis to be bought by the Dutch Government.

Stock markets plunged and credit markets froze. Injections of government funds were used to strengthen balance sheet, not to lend to businesses. This causes a shortage of liquidity.

Liquidity Crisis

Central banks tried to inject liquidity in the markets, but still, the crisis spread more banks got into trouble and countries like Iceland and Pakistan had to seek emergency aid from the International Monetary Fund. A vicious circle of tightening credit, reduced demand and rapid job cuts set in, and the recession was a fact.

No doubt this period also created opportunities, especially on the longer term: banks will not be seen as they were seen before, and refinancing as well as mergers and acquisitions will be a different business then until now. I do not think we would have been able to play the role that we did in the Mobile Telecom industry if the traditional investment banks where in the same position as a few years before. Also, companies restructuring debts, reorganizing, and adjusting their strategies to the new market situation created chances that we might not have had otherwise.

One of the most interesting aspects of this crisis: it will take a long time before confidence in banks will be restored, and I can see the whole Financial Services industry changing. As Brett King, the author of bank2.0 wrote: Consumer (and business) behavior and technology will chance the future of Financial Services. And: why call it Financial Services if no service is provided? Would we have been approached by an American investor who wants to create an online B2B bank in Europe. Maybe, but an Economic Crisis could be the right time for companies to engage in ‘Disruptive Innovation’ and new business models.

Economic crisis (2008)

During 2008 and 2009 many countries tried to provide stimuli for their economies, injected cash, reducing interest rates, and sometimes buying industries. In the US  General Motors and Chrysler went bankruptcy with the US Government investing more than $60 billion. Thousands of jobs were lost. While banks seemed to recover and were returning bailout money to governments, unemployment rose to the unprecedented levels in many countries. In The Netherlands unemployment was relatively low with less than 6% in 2008 and less than 5% in 2009. On average in the Euro zone there was a 10% unemployment rate, But then, in the Netherlands a large portion of the workforce are independent contractors (6,5% or 500.000 people). This provides flexibility in terms of unemployment, but large numbers of professionals without an income.

Our company had (and has) a risk profile suited for situations like these. With relatively few people on the payroll, and more working with us in a network-setting as partner or associate, we did not feel the pressure of having to take assignments at ridiculous rates. At the same time we were able to recruit some of the most capable people around. Also, it became clear who our real clients were, and which companies were opportunistic enough to offer rates that were below what they would pay their own staff. We saw it all: low rates, ninety days payment conditions, and competitors that could not say no.

Debt crisis (2010)

By the end of 2009 the financial crisis seemed to have faded away, companies were hiring again, and the Dutch stock market (AEX) had risen more than 35%. In 2010 though a new crisis came to the surface as information about the size of Greece’s debts reached markets in Europe. After Ireland and Portugal turned to the European Union for a bailout, Greece came to the brink of default in June 2011. Support for the euro started to erode, markets began to sink worldwide and signs of a renewed credit crunch in Europe appeared.

Also in the US deficits that had risen sharply since the recession began in 2007, and unemployment levels that remained high even as the economy began a slow recovery. Although in August, hours before America would have defaulted on its payments, an agreement about a debt ceiling, and associated cost cutting was reached, Standard & Poor’s downgraded the government’s AAA rating, and, four years after the crisis began, the economies of the United States and the countries of Europe continue to struggle, confidence is not restored and markets fear the possibility of a double-dip recession.

In the “real economy”, companies perform worse than expected. Looking at our clients, companies like Tata Steel, TomTom, KPN-Getronics and E.on are facing lay-offs, Vattenvall is writing off on Nuon, RWE on Essent. Still, they are turning to us for talent and ideas. It is a good time to find out who are long-term thinkers, who are reliable and uncompromising. Just today, we spoke to an independent contractor who turned down what seemed like a once-off opportunity to help reorganize the IT Department of a major Dutch telecom company. Instead of engaging in what would no doubt have been a long and profitable assignment, he turned down to assignment because after a few weeks it was clear that internal politics as well as the strategy and lack of commitment made the chances of success, without collateral damage to the people involved, slim. He put ethics, his good name and long-term value above short-term financial gain. We cannot wait to start working with him.

We have grown, and in this crisis many new players emerged and became successful.

At the same time, we can see another bust and boom scenario coming our way. Although we are paying customers – of LinkedIn and Google, and enthousiastic users of Facebook and Twitter, some of these social network companies are sold or at least valued at astronomical amounts, without the stability or the profits to justify them. That is a bubble waiting to burst.

How to build a company – Banks, Banking2.0 and the alternatives

July 12, 2011

Banks are greedy, banks have caused the crisis, banks overpay their executives and thereby promote disputable business ethics. Banks have had a rough time. Probably rightly so.

And rough times are not over: today UBS and Credit Suisse announced massive lay-offs, and we have seen the same in the US and in Europe. With so many things going wrong, there must be some things going well?

In a business like mine, we assume we need banks everyday. Clients pay their invoices to our bank account, we pay our staff, our suppliers, and our management fees. Sometimes there are considerable sums on our bank accounts, sometimes there is fairly little, or not enough. We need to manage our cashflow carefully, and we need to invest. Banks do nothing to help us do that. They tell us what was paid to us, and what we paid to others. That is the first service: we have a bank account, and the bank informs us about the mutations. Coincidentally, they do that through their online banking software, and through printed statements. It is surprisingly difficult to persuade them not to send these statements anymore, although they are a colossal waste of energy, paper, logistics and money. I cannot remember the last time I have looked at them. Still, being an organized person, I diligently file them, and feel uncomfortable when I miss one (when filing).

Secondly, the banks provide us with credit cards. I love credit cards, mostly because I usually use them to pay for things I really like, or things I really need: lunches and diners, software, music, ebooks, subscriptions and anything from the Apple Store – and I like almost anything in the Apple Store. But do I need plastic? More about that later.

Is it really the bank that provides us with company credit cards? When we take a closer look all services related to cards are outsourced. The banks role is restricted to the approval of the application and once a month a debit transaction on our current account. So the bank is a service provider for this facility.

Thirdly, the Banks can provide capital. This, they are very reluctant to do.

Because we grow, we need cash. On average our clients pay in 44 days, we like to pay our people and suppliers in maximum 30 days. So there is two weeks we need at least last month’s turnover. And then there is VAT, investments et cetera.

Banks request stacks of documents, they want Profit and Loss statements, Balance sheets, they want consolidated Profit and Loss statements, and Consolidated Balance sheets, they want them from three years back, and projections for five years ahead. And they want security. No assets, no cash. They want the directors to sign as guarantors, the shareholders to sign as guarantors, their wives to sign. And all this time they have hardly touched on Why we started a business, how we run it, and what we are doing. They do not know about our staff, our partners, our clients.

In the end, they will probably do factoring (that is: have the invoices our debtors are going to pay as a security) or they will finance a fraction of what I will put up as collateral privately (read: the nett value of my property). Disappointing? Sure, but with some patience and with the history, the prospects and the advisors we have we will succeed. One of them is in the Supervisory Board of one of the largest banks in Europe. How difficult can it be…

Still this industry is in for a lot of changes.

Recently Gartner presented the concept of the bank as Independent Payment Advisor. This refers to a role for the bank as enabler in a cooperative fashion in order to have others provide tailored solutions to niche markets. This is a good concept and banks are in a way already accustomed to this in the processing side of the payments area, in the market area this is a new step. Nevertheless it seems the only way to go as development speed cannot be matched by any bank, committed to excel in payments or not.

The true value of the bank of the future is the value from the past. The bank who knows his customer, his preferences, his trust- and credit worthiness and is able to authenticate and protect its customer. In order to achieve this in modern times banks will have to collaborate with others who know the customer even better.


There are alternatives for banks and their services popping up left right and center. What do you think about MoveNBank, a mobile-optimized banking startup founded by Bank 2.0 author and consultant Brett King.

You can find information about Brett and his plan on Facebook page,  on his Twitter feed and in his Startuply profile. In short, MoveNBank will soft launch next year, and with very limited staff, a small office and no branches, without paper or plastic provide a NFC (Near Field Communication) enabled payment services as well as “reinventing credit scores and more with an open, social transparent, and viral model”

This sounds a bit like P2P Lending – which we would call Crowd Funding. In the Netherlands we have seen initiatives like,,, and, in the US we are keenly looking at

Brett King in his blog  ( and on Twitter: @brettking) writes about P2P lending and has examples from the UK:

“Lending Club, Prosper and Zopa are just three examples of recent successes in the P2P lending space. Lending Club is lending around $20m a month in loans, and have lent more than $300m, with an average loan size around US$10,000..

Zopa has lent more than £150m which means they are now approaching a 2% market share of the total UK retail lending market. Zopa’s average loan size is around GBP 5,000, but what is more significant is their Non-Performing Loans (NPL) ratio. Major U.K. banks typically recorded NPL ratios in the 2%-3% range from the mid-1990s through to 2007, but by the end of 2009 Lloyd TSB’s gross NPL was as up to 8.9% and HSBC’s hovering around 3% (source: Standard and Poors). So how did Zopa perform in this environment? Zopa’s NPL ratio sits at around .9%. That’s 10% of Lloyds and 1/3rd of the best bank in the UK HSBC!”

Of course for credit cards there are many alternatives, from iDeal, Paypall to payments with the mobile phone. Why do we need a bank account if we have a ten-digit mobile number, anyway.

The ultimate gamble - Running a business is risky


And if all else fails: we will put everything on red.

Of course we are following all these developments with keen interest, not only because we need these services, but also because we can play a role in this industry, and help innovative financial companies implement their strategies. Arnold Sneijers is doing an assignment with NETS and Ward Hagenaar has been active in this industry for a long time. His publications and contacts helped Qhuba get selected for a executive search quest to find an entrepreneurial CEO for a startup B2B online bank.



Ward and his Client agree: “New banks don´t pop up regularly due to heavy regulations. The payment services directive reduces these regulations to acceptable level and our client will take this opportunity. The goal is to be able to compete effectively by doing things in a different fashion. The corporate clients will be placed central and served by a dedicated transaction bank. So no mixing up of interests like investment banking but a straight focus. The new bank will be and remain very agile as its main systems will be outsourced in save and capable hands. Cherrypicking best of breed solutions the bank will compete by offering hypermodern smart client interfacing. Efficiency for client and bank resulting in a better service. Operating like this the office can be restricted to a small setup at limited costs. Not specifically focussed on new services but providing a better service at targeted accounts for a competitive price.” We want to be the first customer.