We’ve dusted ourselves off, and we’re back in the arena. We announce today our new venture – Able – that sets out to fundamentally change how entrepreneurs receive financing to grow their business.
“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena.” – Teddy Roosevelt
When we started Outbox, we had a vision of modernizing and bringing a fine institution - the US mail service - in step with the modern world. That attempt was unsuccessful. However, we still believe in this vision of aligning ourselves with the best of America and using technology to help us all flourish.
Able serves the Fortune 5 Million – the 5.8 million small businesses that represent the backbone of the American economy. These companies generate trillions in revenues and employ 49% of our workforce, yet the majority of them cannot find reliable and affordable sources of credit.
Small Businesses Lack Necessary Credit
This systemic problem traces its origins to the historical pattern of growth, collapse, and consolidation within our banking system. As fewer banks control ever larger portions of the capital supply, they have become “too big to fail.” To prevent failure, government regulation has attempted to eliminate risk altogether, creating an environment where only the soundest businesses can receive credit. These are often the very ones who do not need it, making it nearly impossible for smaller and less established companies to receive credit when they need it most.
The basic question behind all credit decisions is simple: Will this person pay me back? The answer to this question is called the “price of risk,” which determines the interest rate, or the price, of the loan. Today, only big financial institutions - the voice of the critic - is answering this question, pricing entrepreneurs out of the market, or worse, compelling them to take on high interest debt that ironically makes them more risky. This is all because of their inability to adequately price risk.
A New Way to Measure Risk
We believe credit is owed to the entrepreneur in the arena. Instead of turning to the critic in the crowd, we turn to the wisdom of the crowd in order to price risk through what we call “collaborative underwriting.”
The power of collaboration has already swept over other industries, such as hotels with Airbnb and transportation with Uber and Lyft. But collaboration has yet to transform the lending market. Some lenders have taken the “peer-to-peer” phenomenon and applied it to raising capital, while still relying on traditional underwriting models to price their loans.
This is the wrong application of collaborative consumption, because sharing money among peers does not enable a lender to better determine the riskiness of a small business. If a lender cannot offer a lower price or increase the availability of loans, their innovation is merely optimization.
Helping Small Businesses Grow
This is where we break with tradition. With collaborative underwriting, we can better price the risk of a small business. We’re innovating on the information layer, not simply the capital layer. By unlocking the wisdom of the crowd, we have found that we can reduce the price of our loans, and make them available to more small businesses.
How do we do this? First, we examine data from a business’s customers through the collection of reviews, check-ins, and connections that have already been generated across social media. Traditional lenders might spend a few hours researching the product of a business; we can harness hundreds of hours of customer insights about the same product.
Next, we ask our borrowers to gather 3-5 Backers – family, friends, and customers – to fund the first 25% of the loan. We rely on the judgment and participation of the Backers to affirm the message: “We believe in this person.” Once Backers are secured, Able provides the remaining 75% of the loan to qualifying borrowers. Able collects regular payments from the borrower and then distributes the proceeds to the Backers. It’s that easy.
Do not underestimate the power of Backers. At the end of Outbox, though marred by dust and sweat, we still had the unending support of our “Backers” – our investors, customers, friends, and most importantly, our families. Through this we found our worthy cause: standing behind the women and men who strive valiantly in the noble pursuit of building a business.
Later this summer we will expand our lending operations and will process requests from borrowers and Backers on a first-come, first-serve basis.
Will you join us in this effort? Today, you can reserve your place in line to give and get credit with Able.
Able: together, we believe.
Will and Evan