Retail is tough. For every success, there are hundreds of retailers who live precariously close to failure. I have a number of retail clients and friends and know just how hard they paddle beneath the water to stay afloat. I’ve been there too. Mortgage Brokering is essentially retail, you’re only as good as the next homebuyer through the door. For most brokers however, the advantage over other forms of retail is low operating costs and not needing to be on the High Street. We are more “retail” than typical brokers.
At Squirrel we pay salaries to make sure our advice is impartial. We don’t employ sales people (hunters) preferring to focus on advice. We aren’t part of a bank or a real estate office so we are independent and our leads come from our clients. And so we have a High Street presence and promote and advertise our service like most retailers.
When I launched the business in 2008 we had no clients and reasonably high fixed costs. It was also just as the global financial crisis really started to bite. Who would launch a mortgage business into the worst housing market in 30 years! Through 2008 and 2009 we were so close to failure, you could smell it. The bank balance gradually whittled away. (It was debt, so the amount of leverage we had gradually whittled away.) About six months after launching Squirrel I hit rock bottom. I’d borrowed money off family and over invested upfront because I thought I could grow the business way faster than reality.
Having come from a Corporate environment I didn’t really appreciate how hard it was to get started when nobody, and I mean nobody, knows who you are. The first big call was making half of the team redundant. We were burning through cash fast! It was surprisingly easy, because I had been upfront with them on how we were going and it wasn’t really a choice. We came perilously close to running out of cash. In reflection, any amount of pontification, even for just a few weeks, would have taken Squirrel under at that time. From the start we'd tried to do too much and be too many things. It was like we couldn't say no and at the same time wanted to hedge our bets. It was obvious we needed to simplify our proposition. In one weekend we cleared out the dumb ideas and focused entirely on mortgage advice and first homebuyers. That was where we were having early success and they valued our service. But that wasn’t enough. We were still underwater on cash flow and I couldn’t bring myself to get more money off family or go even further into debt.
Prior to Squirrel, I had come out of a senior bank role. With Squirrel struggling I had to approach old colleagues and got some consulting work with the banks to cover our bills. At night I’d head back to Squirrel, catch up with the now small team and see clients. It was 14-hour days, 6 days a week right through the second year. We had a huge mortgage (at the time about $800,000), and Anna-Lisa wasn’t working looking after our two young daughters. Each fortnight we’d have to borrow off the credit card just to make sure the salaries went out on time. There were weeks where we got down to the last $1,000 (on the credit card.) At one stage Anna-Lisa also went back to work and we looked to rent out our house. But we persevered, ran a frugal budget, got a few lucky hard earned breaks, and it gradually came right. It has left me with a strong distaste for wasting money and paying too much for something.
Life on a bank salary was easy, and I now realise how financially lazy I'd become with it. Being a Retailer always feels vulnerable. You totally rely on people coming through the front door. Things always change, most of which you have no influence over - the environment, your competitors, the economy. The cliff is always close when you are a small retailer and you have no money and lots of debt. To get any sleep at night, I had to diversify my income. The business had its roots in First Home Buyers, which could be vulnerable to market changes. So I started to focus more on property investors, and then more recently we built up teams in the Chinese and Indian markets. That means we do well, no matter which part of the market is firing.
Diversifying the business was well timed given the subsequent Reserve Bank LVR restrictions. Around 2010 I also consciously diversified into low risk property development. I know that's not real diversification, given everything I do is still exposed to property. That's why I joint-ventured with a friend who had a different risk profile to me. For me, doing Development was purely to create new income sources and spread risk. Squirrel is now in year 7. It has continued to grow and is now one of the largest mortgage brokers in Auckland. We've won stacks of awards and are weeks away from reaching $1 billion in mortgages. We write over $300m of mortgages each year. The hard days are gone, but I still have the scars to keep it all real. Thanks for supporting us over the past 6 years.
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