“Buz” Knyal is President and CEO of Franchise Mortgage Acceptance Company (FMAC). He founded FMAC in 1991 when he saw a market niche for lending to the franchise restaurant industry. FMAC has since begun lending to other sectors such as retail energy (which includes gas stations, convenience stores, oil and lube centers, and travel plazas). Under Knyal’s direction, the firm has developed a template to efficiently originate and service loans and leases that are eventually securitized, while retaining the rights to service these loans. Mr. Knyal shared his perspective on issues related to entrepreneurship, leadership, ethics, and education in a recent interview with Professors Steven Ferraro and Darrol Stanley of The Graziadio School.
Graziadio Business Review: What motivated you to create Franchise Mortgage Acceptance Company?
WK: When I started in business, I was in the advertising industry, specifically in the area of direct response marketing. The interesting part of direct mail is that it is head and shoulders the most expensive advertising medium on a per impression basis. One of the groups that was heavily entrenched in couponing was quick service restaurants such as International House of Pancakes, Pizza Hut, Jack in the Box, Taco Bell, and the like. These entities were having difficulty measuring the cost effectiveness of couponing. We ended up developing a methodology of encoding the coupons that allowed us to categorize customers based on their purchasing patterns and provide unit-level managers with more information than they were used to getting. This resulted in a large expansion of our business and enhanced personal relationships with the franchisees.
From these relationships, I realized that the franchisees were far more financially solvent than I was. I remember asking one fellow who was about my age (early thirties) to send me a copy of his personal financial statement because he and I were starting another investment together. I was surprised to find that his net worth was approximately eight times that of my own. I was working as a mortgage banker and was not as successful as I wanted to be, so I began to seriously consider franchises.
I had been in dialogue with John Martin, who at that time was the CEO of Taco Bell, to buy some Taco Bell locations. Not wanting to join the ranks of the poverty-stricken, I decided I needed to find another job, and John pointed out that while he would sell me some stores, they would not be in close proximity to where I lived. In addition, there was an entrepreneurial opportunity that would allow me to better serve the community and myself by trying to figure out a way to finance franchisees. Thus, Franchise Mortgage Acceptance Company was born.
GBR: One of the biggest problems faced by managers today is managing people within the organization. What is your basic philosophy for managing people for maximum performance?
WK: You know, we have used co-worker, partner, associate, and a lot of politically-correct titles, but the fact of the matter is that I would like to have employees think of themselves as contributing to the profitability of the company, so they are partners and shareholders. Our focus on profitability is indirect in a way. If you treat your employees and customers well, profit will by and large take care of itself.
I can’t overstate the one thing that is a capital offense around here: wanton disregard for a co-worker’s feelings, or being disrespectful to others. And it’s not about sexual harassment, although that’s certainly forbidden, but it is about intellectual harassment. In an organization like ours where there are 366 people, you are going to have people who have varying abilities, and I see an intellectual bully to be every bit as vicious as a schoolyard bully. We really try to prevent this type of behavior.
GBR: This sounds like a problem that is common in many organizations. What approach do you take to problem solving?
WK: I think that most problems can be solved in a very short order. Then there are those that you have to let lie. My style is to get up early in the morning and go to bed early at night, and never, ever try to solve a problem in the afternoon. Problems are so much easier to grasp and analyze and ponder early in the morning. Invariably, if I have a problem I will go to bed at night thinking about it and wake up with a solution. Whether or not it is our final solution, we can usually install it and see if it works. If it doesn’t, then we change it. We don’t have a hang-up about making a better decision.
GBR: How do you set and achieve goals in this organization?
WK: We follow the advice of Dr. Bob Rotella who teaches successful people how to be more successful. His message is that first you have to reach way out and give yourself a great big dream. It should be something that you really, really would love to have happen to you. You do a reality check every morning and determine what you can do today in support of achieving that goal. Then, before you retire, say, “Let me review…what did I do that would help achieve that goal and what did I do that didn’t support that goal.” It is absolutely that simple.
Years ago, my mother gave me a little inbox sign that says, “Do it now.” I think that the only way you can ever get ahead of the game is to finish what you are working on today before you go home. We had a very, very distinct goal of originating $100 million of loans in a year. Then it became a billion dollars. When you achieve a goal, you had better have another one lined up or you are going to be floundering.
Right now, one of the companies that I admire most is Countrywide. I remember reading that in their best year they ended up with a five percent share of the residential housing finance market. My current goal is to have a five percent share of the small and medium-sized business loan market, and that annual number is about $12 billion. This year, if we get fortunate, we could do $3 billion. We are a couple of years away from achieving that goal.
GBR: How are corporate goals set here at FMAC?
WK: My job is to be the cheerleader and to come up with the outlandish goals. If it doesn’t shock and concern people, it probably isn’t a big enough goal. There should be people who say, “We’re never going to reach that.” For instance, there have been people who said we could never do $100 million in a year, and last year we did $2.15 billion. Actually, we did $200 million in a day. You can say that if there were no “scary” goal out there, we would probably be placing limits on ourselves.
GBR: How would you define success in business?
WK: I’ve always wanted to be respected by people I respect. I wouldn’t necessarily call them peers, but there are people you look up to and hold to the same high standard. When you get to a point where they say, “That was great. I’m proud of you because you achieved that. You figured out a way to do X, or you did Y. I saw an article about you and it just made me feel good because I remember the day you were in my office talking about this crazy idea, and now it is reality.” Those are absolutely the most memorable events. I think being “successful” is a much more positive way to look at it than to be “a success.” I think that the term “a success” conjures up somebody who has fired his last bullet and is already sitting up on top of the heap. I never view it as if I’m finished because I don’t know how high this mountain is, so I’d rather chip away at it in little pieces.
GBR: What characteristics do you find in your most successful executives or look for when hiring new employees?
WK: Perseverance is first and foremost. It must be followed by a baseline of intelligence, organizational skills, and overall character. I’ve never been able to develop a profile of a successful marketing person because they are so varied. I have been so utterly disappointed in some people that I knew had all of the talent in the world. They had the gift of conversation, they were attractive, they knew how to dress but they just never could bring a deal in – or at least not a good one. And there were other people who had a much more modest ability who would say, “If I make ten calls, they might result in one meeting. If I have ten meetings, that might result in one deal, so I better go make 100 calls because I need that deal.”
When I was first going into business, one of my mentors asked me, “When is the best time to make a sales call?” I said, “Early in the morning?” He said, “No, just after you have won or lost a deal. If you have just won a deal, you are happy and confident. That positive enthusiasm will come across in your next call. If you just lost a deal, after you are finished being mad at yourself or your competitor, you are going to go out and make another call.” What he was really saying was if you never stop making calls, then you are likely to close a lot of deals.
I also think that it is important that employees understand who their real competitors are. The competitors in a business like ours are not just those who are directly bidding against us, they include the financial community and the capital markets as well. If the US treasury rate were at ten percent instead of five percent, there would be a lot less borrowing activity which would make a much smaller market for us. Therefore, the people who have brought you to the party are the market forces over which you have no control. These forces are temporary. They may last two years, or seven years, but interest rates are eventually going to be high again. So you had better get up and get out every day and pursue potential customers.
GBR: What skills are important for someone coming in at an entry-level management position?
WK: A clear understanding of accounting, finance and marketing. Also, a person should have some specific capabilities. For example, how to use a HP 19B. I cannot over emphasize the importance of being able to use the HP 19B. With a 19B you can do virtually all of the required work of a gifted loan officer.
GBR: What kind of ethical problems do you run into, and do you have a mechanism built into your corporate culture here that engenders ethics or helps people make proper choices?
WK: Hopefully, you do it by example. It would be a crushing blow to me to be judged as unethical. I believe strongly that, if you tell customers you are going to do business one way, and you have to change your plans for a legitimate reason, you have an obligation to explain the situation to your customers. Also, we absolutely forbid our people, and we stress this repeatedly, to ever make a disparaging comment about our competitors.
GBR: What do you see as the biggest challenge to people in business today?
WK: I was talking to the head of a major lender recently, and we were talking about the Internet. I asked, “Have you figured out what to do with it yet?” He said, “Oh, we’ve got a web site.” I said, “Yeah, we’ve got one too, but have you figured out anything to do with it yet?” “No, not really.” And I said, “I know. You know it’s there, but you can’t really figure out how to turn it to your benefit.” Then he said, “No, but you can’t quit trying.” I said to myself, “Now there’s a challenge that is probably shared by every executive in the world. You know there’s a new sheriff in town…How do you integrate it into your business?”
But as I think about FMAC, why shouldn’t we tap into the accounting systems of our borrowers. It’s not a privacy issue if we do it consensually. We can say, “Look, we can lower our lending charges if we can access your raw data.
Another option would be to send out a notification to people who are pre-approved for equipment leases up to $50,000 offering online transactions. If they need equipment, they can just go to www.fmax.com, fill out the application or recall their application, fill in the amount of funds required, and e-mail it back to us. Then we will get back right away with their approval. We should be able to do that, but we are not. One of the biggest challenges in business today is to make the Internet work for you and your customers.