Knowing When to Grow, When to Go

Recently changing regulations and unfavorable market conditions have cast a shadow over the credit union industry. Lost fee income and rising interest rates have dampened expectations of growth for 2014, driving many credit unions toward starting CUSOs to earn noninterest income. Some have turned to consolidation to cut costs. According to CUNA Mutual Group, the industry lost 272 institutions in 2013 and consolidation will continue in 2014. The credit union industry is not alone in this trend. Sixty-seven percent of midmarket executives anticipate more consolidation in 2014, according to findings from a Capstone survey.

Although the outlook for growth may seem bleak, opportunities are there if you know where to look. Rather than trying to keep up with changes in the marketplace or competition, credit unions should focus on future demand.

Ultimately, your growth depends on your success in meeting the needs of members you have yet to capture. What do they want today? What will they want in the future? When you shift your vision from competition to future demand, you see the opportunities for growth. Once focused on future demand, you can consider five options for growth.

Organic growth

For many, organic growth has stalled, but before giving up, consider some creative ways to reenergize your organic growth. Go back to the fundamentals. Think about your core competency, your organization culture and your weaknesses. For example, you may offer a great service but have weak marketing. You could design and build a mobile site to market your services. At the same time, be prepared to think outside the box and search for less-obvious solutions.

Lowest cost provider

Sometimes, your best option is to dramatically cut costs. Growth in this case might appear more on the bottom line than in topline income or size of market share. I call this the jellyfish strategy: You go up when the tide is up and down when the tide goes out. There may not be many natural predators, so you survive, but this is clearly no way to drive long-term expansion. Note that being the lowest cost provider is distinct from being the lowest priced. One of the drivers for credit union consolidation is to leverage economies of scale so that services are provided at a lower cost but sold at the same price.

Plan to exit

As painful as it may be, leaving the current market is an option that should be seriously considered. If the odds are getting increasingly stacked against your success, and you’ve considered a number of creative solutions with no success, it may be time to consider selling a piece of an operation.

Do nothing

Of course, doing nothing is rarely a pathway to growth, but I have to include it because executives drift into this by default every day. By doing nothing, you effectively let your competitors set your course. When things seem to be going well, we all get tempted to keep doing what we are most accustomed to. However, the long-term costs can be disastrous.

External growth

Both credit unions and for-profit businesses have found organic growth to be anemic. Traditional services and products no longer generate the same incomes they once did. Given the current environment, I strongly recommend credit unions explore external growth.

External growth not only refers to 100% acquisition, but also includes other collaborative forms of partnership such as strategic alliance, joint venture, and minority interest. Embracing these options can the most powerful and fastest way to meet desired growth and income levels.

You can use acquisition to quickly add new products and services that are in high demand. For example, with the recent Target credit card breach you may see future demand for cyber security services. It may take too long to build your own solution from scratch; acquiring or partnering with a cyber-security firm gives you a ready-made solution to offer customers.

Whatever growth option you choose, the best piece of advice I can give is to be proactive and demand-driven. Every organization, even credit unions, faces unfavorable market conditions. Those who win are the ones who anticipate future demand and use it to guide their strategic plans.

David Braun is CEO of Capstone Strategic. He can be reached at 703-854-1910 or Growth@Capstonestrategic.com.