Evan Baehr and Will Davis sat in a meeting room in the office of the United States Postal Service in Washington, DC. One by one, the Postmaster and his entire senior leadership team (Baehr describes them as “wearing terrible suits and looking angry”) told them why their new idea would not work.
Baehr and Davis had started a company to reimagine the way people receive mail. For a monthly fee, Outbox would collect and scan members’ mail so that it could be accessed anywhere with an Internet connection. Outbox also helped consumers unsubscribe from junk mailing lists.
“We want to find a way to work together, we want to give you all of our data, we want to share with you all of the stuff we’re learning,” the young entrepreneurs explained to the Postal Service executives.
“The problem is, those aren’t our customers,” responded the Postmaster. Instead, he explained that the real customers were the several hundred volume mailers (otherwise known as the creators of junk mail).
“He kind of explained it dispassionately, almost like a doctor who is telling you that you have prostate cancer and you’re going to die in 12 months,” said Baehr. “It was a surreal moment.” After failing to convince the Postal Service to compromise on a solution, Baehr and Davis realized that their business was probably dead.
So they turned to something new.
Baehr and Davis still had money from their investors, and they were encouraged to start a new business that they were passionate enough about to spend the next few years of their lives on. After doing some research, they decided to start Able, an online lender to small businesses.
Able tries to answer an important question, said Baehr. “Why has the sociological revolution that is collaborative consumption or the sharing economy not materially impacted financial services?” Baehr and Davis came up with several ideas in this area, but after building and shipping four loan products, the feedback was dreadful. “You actually learn a lot by shipping bad products. And you take all those learnings together, you marinate on them a little bit, and then that is what birthed Able,” said Baehr.
Able launched two and a half months ago. Since then, Able has made over 50 loans at an average amount of $100,000. The loan structure is unique, requiring small business owners to get three to five “backers” – typically close family and friends – who must cover 25 percent of the loan. This allows Able to offer a lower interest rate than their competitors on the other 75 percent.
It’s a tough world for small businesses, said Baehr. “For small business owners in the United States, there is less opportunity now than there was 20 years ago.”
Part of the problem lies with government regulations that have been restricting the banking industry for years. “This causes concentration,” said Baehr. With 50 percent of the assets held by four banks, it is harder for small businesses to get funding. “2008 was the first year in the last 60 where more small businesses were destroyed than created,” he said. This year, even though the economy has mostly recovered, Baehr believes we will still lose 75,000 small businesses.
The number one problem small businesses have is not government regulation, but “uncertainty about future government regulation,” said Baehr. This causes a “chilling” effect that discourages investment and expansion opportunities – all because “they don’t know what the government is going to do.”
“We have had to come up with a different way to extend credit to small businesses to keep the Fortune 5 million alive,” said Baehr. “We need to find ways to provide clarity and predictability to business owners.”
As Able takes off, it could be just what small businesses need.
First published at Opportunity Lives.