Using Data to Make Strategic CUSO Startup Decisions

Every day, a community financial institution closes its doors. Statistics cite mergers, losses on investments and plunging asset values as major reasons for these closures. The common root of these failures, ignoring criminal actions, cannot be found on the institution’s balance sheet but instead in its culture.

Community financial institutions fail because of a lack of innovation. Innovation begats technology and solutions that allow a financial institution to compete with national competitors. Innovation allows institutions to prosper by improving efficiencies, preventing losses, delivering better products and even creating more opportunities to provide better service. In short, institutions that survive are those that are not satisfied with the status quo, as noted by Harvard Business School professor Michael Porter who said: “Innovation is the central issue in economic prosperity.”

If your institution is one of the lucky ones that is awash with good ideas and fosters creativity, communication and collaboration, then you are likely faced with another challenge: Which idea do we execute on? A single good idea, when executed well, can completely change the trajectory of an organization. Just ask the leaders of Slack or Yelp, who were on the brink of failure before a major pivot (a.k.a. a good idea) made them, if not household, then “business-hold” names. For this reason, leaders of community financial institutions are anxious to find those good ideas and invest in the resources needed to bring them to life.

However, without access to unlimited resources, picking the right idea can be the difference between a success and a flop. The good news is that financial institution leaders don’t need to rely on luck to pick the right idea. A regimented process exists for turning problems into successes. That process, commonly referred to in entrepreneurship as the lean startup methodology, focuses on learning before building. Gathering data and acting on that information in an agile way allows a credit union’s internal entrepreneurs to validate ideas before investing time and money.

Lean startup methodology tells us that the best ideas are ones that, in addition to having a great ROI, directly solve a widespread, “hair-on-fire” problem. In the credit union space, these are problems that multiple people, teams or even entire departments within an institution are actively trying to solve for. The demand or urgency of these problems is often directly related to the number of rudimentary workarounds people have already invented to try and alleviate a given pain point. The first step is to find these problems. This can be done by conducting a thorough analysis of processes to identify bottlenecks or error prone areas, but is most effectively accomplished by simply asking for feedback about what causes friction.

Once top pain points have been identified and the information from the first round of insight gathering has been digested, the next step is to ask more specific questions. Try to prove your assumptions about the pain points incorrect, get specifics and ask questions that can be quantified by cost, time and frequency. The process of asking questions, collecting stories and analyzing responses should be repeated and iterated on as the true causes of the frictions become clearer. More friction-specific questions can be asked as the process continues; staying more general in the line of questioning, and then asking “why” or for examples, will help avoid any confirmation bias.

Once a good idea has been validated, and a clear picture of the problem at hand and who is experiencing it has been painted, a proposal for a solution can start to be crafted. It is important to design the solution in terms of the person experiencing it. Staying true to the “who” allows for a solution design that truly solves a problem and is in line with the credit union’s overall mission of serving people, including employees. Visual mock-ups or workflow diagrams that can relay the concept quickly and affordably should be reviewed by end-users to confirm that the problem has been understood correctly. Next, an interactive demonstration can be created, followed by a minimally viable product and then a full-scale development with the customer (in this example, your employees/end-users), to allow for feedback all along the way.

It is likely that a problem faced by an individual credit union is not entirely unique, and the credit union can expand the impact of its innovation through collaboration among other credit unions. A credit union’s competition, the data tells us, is not other credit unions but the large national banks. To expand the reach and value of a good idea, an institution can look at leveraging a unique instrument for empowering other credit unions and leveraging the power of the cooperative: A credit service organization, or a CUSO. Guy Messick, in the forward for Brian Lauer’s book “CUSOs” (Messick and Lauer are partners at Messick, Lauer & Smith P.C., a law firm serving CUSOs) wrote: “CUSOs used to be a cute oddity, but in today’s world, CUSOs have become essential to credit unions’ sustainability.”

When solving an internal problem, the direct resource pool is limited to the individuals who are exposed to the friction. When looking to expand the scope from an internal effort to a CUSO, credit union entrepreneurs can gather insight in the same way but from a much larger pool. In fact, a credit union entrepreneur should seek to gather input from no fewer than 100 individuals. One hundred may seem like an arbitrary number, and in truth it somewhat is, but reaching the triple digits will allow the researchers to start gathering concrete evidence of a problem that is ripe to be solved.

The credit unions that will continue to thrive and have the largest impact on the people they serve are those that innovate using agility and facts. Credit unions that don’t shy away from their problems, but go looking for ways to solve them, will find ways to better serve their members, improve the satisfaction of their employees and positively impact the financial standing of their communities.

Timothy “Buck” Strasser is the Founder of Clear Core based in Tucson, Ariz.