LAS VEGAS-As is the case with any start-up business, launching a CUSO is rife with challenges-including many that cannot be foreseen when the idea is being jotted down on a cocktail napkin.
That was the message from a trio of CUSO heads who have built organizations that are well known in the credit union industry: Paroon Chadha, VP and co-founder of Passageways; Kirk Drake, CEO of Ongoing Operations, and Mike Atkins, CEO of Open Technology Solutions.
Passageways, based in West Lafayette, Ind., is a provider of collaborative portal solutions, including portals for employee intranets, vendor management and lobby management. It currently has more than 200 clients, including credit unions, banks, hospitals, insurance companies and other CUSOs, but Chadha said he and his co-founders, "did not know much" when they started the company.
"The most challenging issue for us was finding the right people," he recalled. "In a CUSO, people must be more like entrepreneurs than a typical manager or employee in a company. People must do more than just be an employee and part of the team."
Although he is a "big believer in business plans," Chadha acknowledged while Passageways' business plan has remained the same, the services it offers have "changed dramatically."
"Make the business plan as realistic as possible," he advised.
The Turnover Challenge
Ongoing Operations, based in Hagerstown, Md., is a multi-owned CUSO and provider of business continuity and disaster recovery solutions. Drake echoed Chadha when he said finding the right people was a considerable challenge when Ongoing Operations first opened its doors.
"To me the biggest challenge has been change," he said. "We thought success would mean continuity. Instead, we have seen a lot of turnover, including some of the founders leaving."
On its core products and services, Drake said the original business plan for Ongoing Operations has held up well. However, "we have added more products as differentiators."
Open Technology Solutions, Centennial, Colo., is jointly owned by Bellco CU, Bethpage FCU and SECU of Maryland. As the name suggests, it offers collaborative technology solutions to its partner credit unions.
Atkins said the entire leadership team has turned over in just seven years, but a bigger challenge is the nature of what it offers to CUs.
"Our first contact is the chief information officer or the VP of IT," he said. "This can be difficult, because we do half of their jobs, so we are Satan walking in the door. We have to convince those people we will make their lives and their jobs better."
As for the original business plan for Open Technology Solutions, Atkins said things are "dramatically different" today.
Surprise, Surprise, Surprise!
Asked what was the biggest unforeseen surprise in operating their CUSOs, all three named some variation of "change."
"The pace of change," said Drake of Ongoing Operations. "I thrive on change, but we grew very fast. We must plan for growth because we have to be ready when we sign a client."
For Atkins of Open Technology Solutions, the shock came in the form of the rapid evolution of the business model.
"We started with a fairly narrow business. The pace of expansion was surprising."
Chadha said no one at Passageways expected "such a roller coaster ride" when they founded the CUSO.
"It took months for us to get customers, but then it really took off. We never know what was coming next."
Early adopters of technology, Chadha warned, tend to have short attention spans. He said it is difficult for a tech CUSO to keep its customers, because 12 months later so many of them "want to move on to something newer."
Impact of Audits
Atkins said Open Technology Solutions has been audited every year by NCUA, but insisted it "has not been a big deal."
"We have not had an examiner who has the level of expertise we have on our staff," he declared. "Examiners look at our books and our policies, find something to fix, and then they are gone."
Agreed Ongoing Operations' Drake, "We have had regulators visit on behalf of our clients. I am not fearful of NCUA because we have the expertise to run circles around their guys."
Chadha offered an optimistic spin on the regulatory process, saying, "One big part of NCUA requirements, from a half-full perspective, is an opportunity to provide services. Audits tell us what services to add to our CUSO."
Once a business is up and running, the No. 1 goal becomes keeping customers while adding new ones. The panelists were asked why their customers stick around?
Chadha quickly noted Passageways has "a lot" of competition, making the price point all-important.
"When a company sets a price, it sets what it will do for that price. There is a magic behind that price. Also, while the product and all the services are important, we differentiate ourselves because we know our customers' names."
Drake said Ongoing Operations has an advantage when it comes to retention because, "it takes a lot of work to install our systems, so we would have to really screw things up. Only a few of our customers have not renewed."
Atkins said when Open Technology Solutions was founded in 2003, he was told the venture was doomed from the start.
"A consulting firm told us large credit unions would not work together. But within our niche we are different. Security and disaster recovery is something that keeps CEOs awake."