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Web Loan Service Finally Flies

Entrepreneur had a good idea on uniting borrowers with mortgage lenders. It took strategy to make it work.

March 08, 2000|KAREN E. KLEIN

Ted Schmidt had been selling telecommunications hardware for a dozen years when he began researching online marketing in his spare time. In July 1997, he founded a Web business based on mortgage loans. Over the last three years, Schmidt has refined his business model and picked up some tricks of the trade, learning most of them the hard way. Now, in addition to the mortgage loan business, Schmidt is expanding into Web site design and Internet marketing services. He was interviewed by freelance writer Karen E. Klein.



When I started, I had the idea of turning the tables on the process of applying for a mortgage loan. Most people feel like they have to get down on their knees and beg for a loan. At my site,, I empower people by having them fill out a quick home loan pre-qualification form and requesting three bids from loan companies, so the applicants are in charge of choosing the best deal.

I got listed in search engines and managed to produce a batch of leads from people looking to refinance, buy a home or get a second mortgage. I produced a pretty good volume of leads, about 500 a month, and sent thousands of them to several small mortgage companies with the arrangement that I would be paid a portion of the loan fees when the loan was funded. I figured I'd be making $30,000 a month, but it didn't work out that way because my business model was doomed from the beginning.

It turned out that the companies would work only the top 2% to 3% of the leads and then close about a quarter of those. More than 90% of the leads never got followed up because the brokers didn't have enough staff to work them. So my total closing ratio was under 1%, and it took two months to get paid on the back end, when the loans were finally funded. Loan officers would quit the company and take my leads with them, never paying me when they closed the deals. This went on for about a year, and I made around $2,000 a month to supplement my full-time job until I realized that the companies did not value the leads I provided because they did not have to pay anything upfront for them.

Finally, in April, I got fired from my job because my heart really wasn't in it and I wasn't producing what I should have. For about 10 minutes I sat there with my heart in my stomach, and then I drove home and realized I was being given an opportunity to finally get serious about my business. I looked at what other companies were doing, and I saw that they were charging good money upfront for these leads. So I registered a domain name, contacted new brokers and told them I had leads for sale. I got an initial order for 50 leads, I filled it, and now I have more than 200 customers and I'm producing 4,000 leads a month, which I estimate translates into $50 million in loan originations.

The lesson is that you have to get your money upfront. If you can't get paid in full upfront, at least ask for half of your money upfront. The other lesson is that, with Internet business, nobody trusts anybody. That's a hurdle you have to overcome. I answer my e-mail promptly, and I put my phone number on every page of my Web site so I'm accessible and my customers can get in touch with me.

Something else I learned the hard way is that the Internet is still very unreliable and you need backup and redundancy. I started out with just one Web site, and if it went down for a day or two I was out of business until the problem got fixed. Now I have eight or 10 mirror sites, so if one server goes down or has a glitch for hours, I'm not losing all my business.

I always try to set expectations low and then exceed them. If a customer calls and asks how many leads I can get for him, I'll say five a day and then send him 10. If they want to know when I can fulfill an order, I'll say two weeks, and then if I get it filled in a week they're thrilled. If there's a problem with the business, I'll still fulfill what I've promised, and usually I can exceed what I've promised. When you exceed expectations, people are really happy, and they tell their friends and colleagues about you.

When you're dealing with any kind of volume on the Internet, you find out quickly that it has to be automated. And you have to do a good volume for an Internet business to make sense, unless you're selling very high-ticket items, which are hard to sell online. If you're giving something away free and it has mass appeal, or if you're selling a good value at a low price, you'll get a big response. But you need automated systems to process payments and send out orders.

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