The Problem with a “cradle to grave” value proposition

I still hear it a lot: credit unions that profess a “cradle-to-grave” or “one-stop shop” value proposition. I’m not opposed to credit unions trying to offer as much to their members as possible – as long as they have the scale to profitably offer a superior product.

One of the biggest challenges I see can be found among smaller credit unions that don’t have the scale to offer everything. These credit unions are working hard just to tread water, yet offering products, services, and even branches that provide little financial value and aren’t focused on what they need most: consistent loan growth. They continue to commit resources to labor-intensive products, such as Individual Retirement Accounts, that frankly aren’t usually the best value for their members and provide excess liquidity the credit union doesn’t need. Yet, they hold on because they don’t want to upset the 50 to 100 people who are using the product.

And before all of the credit card vendors pile up on me, let me just say in advance that I support credit unions offering a credit card program if they can afford it financially, and have the operational and human resources to support a strong and competitive program (the world is full of mediocre credit card offerings). Unfortunately, I’ve seen smaller credit unions race down this rabbit hole because 50 members said they wanted a credit union credit card. The credit union wants to please its membership, and grow loans and revenue, but what frequently occurs is a mediocre program (at best) that fails to generate the loan balances, products per member, or profitability desired. Most of the board members of these credit unions don’t even use the credit union credit card they voted to create because it doesn’t have the high-end rewards they want. If your board members and staff are not using your credit union’s products and services, you have to be honest with yourself and consider why.

Considering all of the financial choices consumers have today, it’s difficult for any credit union, regardless of size, to be all things to all people. I would rather see these credit union leaders focus on what they need most, usually loan-growth strategies.

Genesis of the problem

My friend and colleague Randy Thompson explains the genesis of this problem better than anyone I know. Give him a minute and Randy will explain that credit unions chased expansion of products and services (like IRAs) that opened up due to deregulation in the 70s and 80s. I believe expansion was a good thing, but for many of us, we signed up for everything as it became available because we wanted to say we had it all. Yet, many of these added products never really became profitable, and, most problematic, they diverted our attention from what made us truly different. Cast stones if you like, but I definitely believe we behave like a herd of sheep sometimes. Times change and facts change.

Simon Sinek said, “We can’t be everything to everyone, but we can be something to someone…even a lot of someones.” Instead of a one-stop shop approach, consider a particular stage of life or well-defined market segment, and become GREAT there, providing a clearly different and better option.

Good advice

In a 1934 lecture at the University of California, Berkley, credit union pioneer Edward Filene expounded on the Morals of Business. He put forth that there are two ways to become good (something all credit unions aspire to be). One way is to become interested in goodness, and the other is to become interested in the facts of life. He said there are many good people in business, but fewer good business people.

Filene taught that a good person in business will not cheat you any more than they would cheat themselves. Being interested in goodness, however, rather than the facts of business, they are all too likely to cheat themselves, and the business gets bad and cannot serve anyone very well. It takes a good business person to provide great service.

When well-intending credit union people ignore the facts and are either off on some idealistic path, or else hell-bent on staying the course on an outdated strategy they still consider practical, the business suffers – which in our world means the membership suffers.

One example: good, well-intentioned credit union people who offer an IRA product to a handful of members who are clamoring for it, even though the facts may show that the credit union doesn’t have the scale to provide a broader range of retirement services. In trying to be good, a member gets less than the best deal, and the credit union spends resources, human and financial, to manage an unprofitable offering. I’m picking on IRAs now, but this thinking can apply to a lot of credit union products and services. We need to balance our abundant goodness with a constant review of the facts.

Why it matters

Profitable and sustainable growth requires focus – intense focus on what really matters, clarity on why we exist, whom we serve, and how we are different and better than our competitors. Credit unions with thin bottom lines and negative (or breakeven) loan-growth trends need to carefully consider where their time and money will be invested.

Give me a minute and I can share a long list of best-practice credit unions that are thriving without IRA accounts, credit card programs, youth accounts, financial planning services, etc. Again, these products aren’t bad. I just see too many that aren’t profitable and divert attention that needs to be focused somewhere else. These successful credit unions offer a smaller bundle of services, but are crystal-clear on who they are, what they do, and how they do it better than everyone else. They spend more time on the right strategies, generating better-than-peer results. These effective leaders aren’t afraid to say “no” to products/services/branches that aren’t closely aligned with their purpose. They aren’t afraid to pull the plug on those things that are underperforming (including people), because they know their survival depends on clarity of purpose. Better-run credit union businesses create greater capacity to do more good.

I believe credit unions are clearly different and better when it comes to goodness, but some of us have a way to go in becoming really good business people – leaders capable at creating clarity of purpose and strong skill sets to evaluate the ever-changing facts of life and act accordingly.