Two years ago Vicky Rich found herself in position to graduate from employee to owner of the college-loan company where she worked. Intrigued by the chance to become her own boss when the company's founder retired, Rich took the plunge and purchased the business.
But the transition from worker to owner has not been entirely successful. As president of K.E. Ridgway & Associates, she has the stress and headaches that often come with business ownership. These include meeting her employee's payroll and making payments on the $160,000 loan the previous owner extended her to allow the transition to happen.
Despite the new title, her routine has not altered much. She remains very much involved in the company's daily operations as she focuses on administering loans to low-income students and collecting payments for the 15 colleges she serves. While she shoulders the additional responsibility of ownership, her income has not increased significantly. After expenses, less than $30,000 remains for Rich each year from the company's annual revenues of $150,000.
"I was hoping that when I took over the business that we'd be able to add schools," she says. "I thought that we could grow on good word of mouth. But it hasn't worked that way."
Rather than seeing revenue increase since taking over the company, Rich has actually seen it decline.
At the root of Rich's problem is her inability to come to terms with the new demands of her ownership position, says business consultant Michael Russo.
"I think she's facing a bit of culture shock, which is common for people in this situation," Russo says. "She's acting as if she bought a job rather than buying a business. Her emphasis shouldn't be on dealing with student loans but on building her company's future."
Rich acknowledges that she has never perceived herself in those terms. "I think of myself as more of a worker bee than an entrepreneur."
Russo says that perception reflects a lack of vision. "You need to have some goals about where you want your company to be going and then you need to put a strategy into place to reach those goals," Russo explains.
The most glaring weakness that Russo detects is Rich's total lack of marketing. She is wary about starting a sales campaign because the previous owner's attempts in that area were worse than fruitless, she says.
"He spent more than $10,000 on brochures, pamphlets and other materials and he was very aggressive calling people over and over," she says. "But he didn't get any new clients and in fact just turned people off with his approach."
With that memory still fresh, she has counted on a more passive "word of mouth" approach.
Her company offers schools dual services. It administers Perkins Title IV loans to students at colleges that have out-sourced those responsibilities rather than handling them internally through a traditional financial-aid office. It also makes collections on delinquent accounts at many of those schools.
The business enjoys a solid reputation among its clients. It has managed to keep default rates below the rates of many colleges handling the program internally. This is particularly crucial on the type of loans Rich's company specializes in because the colleges actually fund these loans themselves rather than having a bank or government agency perform that duty as is the case in other student-loan programs. The more success colleges have at getting students to repay their obligations, the more they have to lend to other students.
While the company's success is a huge asset, it doesn't justify proceeding without a marketing campaign, Russo says. In fact, because K.E. Ridgway & Associates has a persuasive story to tell, Rich should be sharing it with as many prospective clients as possible.
"You have the ability to quantify your value to your customers," he says. "You can look at their default rates, compare them to yours and show them how many dollars they are likely to save by using you. Writing a letter that shows someone how you will solve their problem is likely to be much more effective than merely sending someone a brochure that talks about your company."
He expects this approach to resonate with colleges that are struggling to collect delinquent loans themselves or are using inexperienced vendors for the task.
"Don't be afraid to get creative," Russo says. "For example, you can approach schools with high default rates and tell them you won't charge them anything if you don't improve on their defaults by a certain percentage. Perhaps you split the money you collect above their current rates 50-50."
In addition to marketing to schools that she doesn't yet have a relationship with, Rich should target colleges that already use some of her services, Russo says. In addition to collections, K.E. Ridgway & Associates performs due diligence on loan candidates, fields student-loan inquiries and handles other services such as preparing deferments for students unable to meet their original loan schedule.