Upside/Downside - Grow Your Profits and Cash Flow
Poor profits and cash flow got you down?
My name is Matt Cooley and value creation has always been central to my career, from start-ups to multi-billion-dollar product lines. As a finance executive at successful companies, I've noticed a thing or two about what creates versus destroys value. In this podcast, we explore value creation and share a few laughs on the way to higher profits and cash flow.
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Matt Cooley
Upside/Downside - Grow Your Profits and Cash Flow
Ep 30: This episode: When your bank implodes + Tipping gone mad!
Upside/Downside is a podcast for finance and business geeks about the hard work of value creation with a dose of humor thrown in for good measure. I'm your host, Matt Cooley.
Panelists Dana Price and Sami Akbay join me to discuss the recent banking debacle at Silicon Valley Bank and how value creation goes hand in hand with avoiding value destruction. Do you know where your money is tonight?
Then it's about tipping practices gone mad. Technology, fear of embarrassment and oh yeah, a pandemic have piled on to the confusion for consumers about how much extra to leave on the tab. Where do the percentages go from here?
Share this 23 minutes with us and stretch your value creation skills!
Thank you for listening and please visit Upside/Downside podcast and enter your email for my FREE list: "10 places to look for higher profits and cash flow right now!".
Matt
Welcome back, everyone. This is Matt Cooley, host of Upside Downside, where our panel explores the value creation angle of current news stories and how the actions we take affect profits and cashflow. We throw in a good dose of humor along the way and have a good time. By day, I'm the head of finance for the global network platform API business at Ericsson and a self-professed nerd for value creation and how it impacts companies and everyday people. Joining me are distinguished panelists, Dana Price and Sami Akbey. Dana is CFO of an EdTech company and never lets her burn rate get out of control. She also breaks technology, like last week when Dana was told by the chat GPT bot to leave me alone. Welcome, Dana.
SPEAKER_02:Thank you. I didn't think you heard about that either.
SPEAKER_01:Sami Akbe is a technology executive and founder and is one of those people who knows how to shove data into the black box and make something useful come out the other side. We know and love him as Mr. Data. Welcome, Sami.
SPEAKER_00:Hi, Matt. Hi, Dana. Good to Great.
SPEAKER_01:Today, we're talking about, uh-oh, my bank just crashed and the potential for real value destruction. And then we'll get into tipping, which I personally think has completely gone off the rails. But let's start with banking and the crash of Silicon Valley Bank in particular that happened in March. What this means to me is sort of like, really, people? We're having a run on a bank in 2023? We've since learned that the risks at SVP weren't diversified like like other banks. We've also learned that many customers of the bank put all their eggs in the same basket. And frankly, we're just as shocked as the rest of us that their money wasn't safe. What are the value creation lessons here? And what changes do you see as a result of the SVP experience? Sami, why don't you go first, please?
SPEAKER_00:Right. So SVB is a specialized bank, which is not your typical kind of large-scale Bank of America or Citibank or Wells Fargo type of a bank, right? They actually service a special segment. They serve a very specific role. As a startup, you don't have the same access to credit facilities or same access to a lot of the banking services that an established company would have. These venture banks do service that segment, so they do serve a critical purpose. Their demise and whether or not we should save them and bail them out, I'm actually in favor of making sure that we keep them afloat because if they go away, we're going to have a very significant impact downstream on the overall innovation in the United States, because many of the venture funded companies, a lot of the technology innovation comes out of them, have to rely on these banks like SVB. And if their banks go away, their financial freedom or financial capabilities are going to be significantly reduced. And that's going to have a negative impact on the overall economy in the long term, and I think strategically. One of the critical things that attracts innovation in the US is having that ecosystem, not only the innovative brains, but also the legal infrastructure, the financial infrastructure, everything else around the company that helps make it successful. And these banks are a part of that. So I think this is kind of a critical anomaly without that much ill intent behind it as it percolated but at the same time it requires our attention and support that's my perspective
SPEAKER_01:Dana what's in your mind about this?
SPEAKER_02:So, you know, nothing gets the blood flowing like a good bank run, right? You know, for those of us who are perhaps on the older side, you know, flashbacks to 2008, 2009, that Friday morning was definitely apparent. So, and I was caught up in this, so I just will admit that, you know, out loud. I think, you know, from my perspective, Maybe some of the upside is, as you look at this, the FDIC limit,$250,000, that's a good thing, but should it actually be a lot higher? My thought was, given who this bank serves, that Friday morning at about 12 o'clock when it went under, I said there's no way that the federal government is going to let all those companies fail because because that's essentially what's going to happen. It's a trickle on effect. And, you know, you, you obviously hopefully have learned something from 2008, 2009. So I think we saw the fed step in, um, they guaranteed all deposits, which is quite honestly what they should have done. Um, and I think that gave a lot of people comfort, you know, it took them a while to find an owner, but, you know, honestly, it's up and running. Are there logistical frustrations that that come out of that? Sure. I think the angst and the uncertainty in the moment and the emergency board calls and dealing with your customers after the fact who say, I can't pay you because you're at SVB, it's just a logistical challenge. But I think if anything, what we've learned is the government will step in. If they had not stepped in back in two 2008 2009 when they took a while I think it would have been very different but I think you just have to from you know if you're a key finance person at an organization is you know hopefully you do have a second bank if you haven't learned that in the last month I would strongly recommend you do have a second bank you know regardless of what anyone else tells you you always want to have a second bank so you have an outlet to make payments make payroll whatever the case may be and and And it also makes you sort of look at where your money is and, you know, and I mean, you know, what countries your money is in. And, you know, from the upside, it actually turns out to be a very good compliance check for various companies. So I think that, you know, Sami laid out the path of, you know, the who, what, when and where, why. And I think, you know, I just want to add all the logistics. that fall on the company and the finance people to make sure that you're doing what's best for the company and obviously protecting your cash and making sure you have access to credit as well.
SPEAKER_01:So an expensive case study, folks. So it sounds like you both agree that the feds did the right thing. The cleanup operation was the right move. Okay. What could SVP, Silicon Valley Bank have done done differently to have avoided this? Because Sami, you raised an important point. It's a different kind of bank focused on a different kind of customer that the rest of the banking community doesn't necessarily support. And this could have very big impacts on innovation. So what is it, I want to ask both of you, that they could have done differently to have avoided all of this? And I'm asking from a value creation lens,
SPEAKER_00:First of all, I don't know if Fed did the right thing up front. They were late to respond. They should have stepped in a little earlier, which would have slowed down or stopped the bank run. I think they waited two or three days before they commented. Put that aside. The other thing is banks like S&P are not diversified not only in the way that they secure the assets that they have or deposits that they have, but also their customer segmentation is really very uniform, right? If you had a hundred different customer segments with different behavior and different risk profiles, I think you would be much better off. Having said that, I don't know if the regulatory infrastructure or the charters of these banks would allow for having a lot of different types of customer segments. So quite frankly, like, you know, if SVB had been a part of a much larger, you know, much bigger balance sheet financial institution, they may not have had the issues that they had now or they had at this time. But I don't know if that's even liable, to be honest. Dana, do
SPEAKER_01:you have anything to add to that?
SPEAKER_02:So I think, you know, SVB was, I think, somewhat clear on their risk profile and they were trying to diversify. Clearly, they didn't do a very good job of that. But I think that, you know, had they done perhaps a deeper risk assessment or perhaps looked at What percentage of the tech industry is, you know, in that bank? I think that perhaps that they should have put, you know, a governor on that internally. And, you know, Monday morning quarterback is all well and good, but could it have stopped what happened? I'm not sure it could have. But I think, you know, everyone can look, you know, listen, we can all look back and say, hey, you should have done a little bit better. little bit harder risk analysis, but I don't think the outcome would have changed, quite honestly, given how focused they were on the tech industry.
SPEAKER_01:Yeah. I guess my summary comment here is kind of related to some things that you mentioned, Dana. Value creation and quite honestly, preservation can come from anywhere. So particularly for finance teams out there, pay extra close attention to a second bank or just how you're evaluating your bank. And all of us need to keep scanning that environment constantly for any kind of threats, not just opportunities. Yeah. Fascinating. Fascinating. Okay. Why don't we move on to tipping? I love this topic because we all face tipping decisions regularly and the whole approach to tipping right now feels disparate and quite honestly out of control. And I see definite generational and technology aspects going on here as well. The touchscreens are everywhere, prompting a tip decision before services have even been rendered. And we're also starting to see We've been asked for a while now to tip on things that we never tipped on before. So-called tipflation has been on top of rising prices as well. I did a little math on the cost of a bowl of noodles at this place that we like to go. The cost plus the suggested minimum tip on the screen when you place your order at the counter is now something like 20%, 25% higher than it was a year ago for the same bowl of noodles. So quite honestly, we just don't go as much. What's happening here? And more importantly, what impact does this have in value creation now and in the future? Dana, why don't you take that, please?
SPEAKER_02:Sure. So I'll obviously address this from a personal perspective, not from a company's perspective. But personally, I am so guilty of this, but in a very select sort of way. So I absolutely agree with you on the bowl of noodles. There are times now Now, where you're going to pay for something and you're like, oh, am I supposed to tip? Wait a minute. Why is the box there? Is everyone else tipping? Should I be doing something differently? I think I, too, get caught off guard a lot about this at various points in time. I think the other side of this is anywhere you go where you pay with a credit card in a restaurant, at least in this area, there's a 3% to 5% fee. If you pay with cash, it's less. You know, I look at it from the perspective of a COVID lens. So, you know, Instacart, which is one of my absolute favorite software, because if you remember, I'm the one that hates to go into the supermarket and talk to people.
SPEAKER_01:You've made that clear in the past. Yes.
SPEAKER_02:Yeah. So Instacart, you know, without Instacart, I don't think a lot of people would have gotten through COVID. You know, anyone who works in a restaurant or a hotel, I will tip heavily because you know it's all about making sure they're earning a fair wage and you know those are the people that didn't have work for a couple years or you know have lost their jobs whatever the case may be so I personally am trying to help you know compensate for that a little bit in the past and at some point I have to stop doing that but I would say to your point about the noodles I do get a little frustrated at certain points when you go somewhere and you know, is it going to be, you know, next tomorrow, am I going to go to the dry cleaners? And are they going to ask me if I want a tip? And I'll be like, Oh, my God, what do I
SPEAKER_01:do? Exactly,
SPEAKER_02:exactly. It does. And, you know, I get very upset at certain things. So it's a it's a one by one process. But I do find that there are times where it will irritate me as a consumer. And that will make a decision, I will make a decision either not to go there or flat out will screw you I'm not going to tip you because I've never tipped you in the past and the service hasn't required a tip. And in theory, you may or may not have been affected by COVID. So forget it. I'm not hitting that button.
SPEAKER_01:But don't you think at some point there could be blowback on these places that we're paying tips to and maybe even these cash apps, these restaurant management apps?
SPEAKER_02:Possibly. But then again, I go back to Sami's comments. It's what we're will the market bear? And if people are willing to do that, then, you know, which side is the majority? Is it the no-tippers or is it the tippers? And does that sort of carry you through? You know, you're sort of, you know, your friends are saying, well, what do you mean you didn't hit the button? You have to hit the button. And then you sort of get guilted into hitting the button because, oh my God, you know, I'm going to go and my friends are going to yell at me because I didn't hit the button.
SPEAKER_01:Yeah.
SPEAKER_02:I think it's a little, it's a mix bag. I don't know where it's going to come out, and I'm probably not helping folks by doing it in restaurants, on Instacart, and in hotels, but I have a very distinct purpose from my personal perspective to help those specific people that got hurt in COVID.
SPEAKER_01:Okay, interesting. So, Sami, what's in your mind about tipping?
SPEAKER_00:Okay, so I agree with Dana. I actually liked the tip and I like tipping at a restaurant or at a hotel, but there are a few things that just, you know, bother me. One of them is pre-tipping versus post-tipping, right? If I'm at the counter buying coffee, even before my coffee is delivered on that app, you know, it tells me, just give me 15% or 12% or whatever, that annoys me a lot. So in that case, I usually... uh get a little less uh generous let's say with the tip because you're asking me to tip for something which is supposed to be this discretionary in nature i have not even received the service yet i don't even know if i liked the service uh it's supposed to be an appreciation for something that was um you know like something that I appreciate, right? So it kind of loses its original meaning. The other thing that I think changes the whole tipping equation quite a bit is the delivery services, because we've added yet another layer to the supply chain of a lot of the things that we tip, right? If you go to a restaurant and you're at the restaurant, you do the tipping, that tip goes to one group of people. But if I have that same food delivered by GrabHub or Instacart or Uber Eats, there is yet one more person in between. And of course, that compounds the whole tipping impact, right? So I don't like built-in tips. I don't like to be forced to tip. I like to tip after the fact for service that has been delivered to my satisfaction. But at the same time, post-COVID, I'm in favor of generous tipping for things that have been delivered.
SPEAKER_01:Yeah, I don't disagree with both of your points. I think that a couple of things that come to mind for me, though, is in many respects, we are in post-COVID now. So not that we have to go back to the same way that things were before, but I don't– there's a fascinating article in I think it's New York Magazine about the screens that are pushed in front of people's faces constantly now. And those are usually pre-service where you're asking people, to make a decision. It feels like there's too much control at that point. And at this noodle place, which we love and we still do go to, just not as much, you can actually change the percent. I think they start theirs at 18 and it goes up to 25%. You can actually change it. Or you can say no tip and just leave some cash in a jar. So I'm looking for those little adjustments because I don't like the screen sort of pressuring me to make a decision. And apparently, according to this article, there's a generational aspect where people under 30, they're afraid to change or say, I'm going to leave cash instead. So I feel like it's a little bit too controlled by the technology right now. The other thing is the underlying economics. I this tipping stuff is on top of that. My example of the noodles costing 20%, 25% more just because of the combination of those two things. It feels like it's out of control. I sense in the news there's more concern about it and it's going to be interesting to see where this goes. One of my ideas, not to belabor this too much, is what if we could disaggregate the tipping from the the point of purchase. So right now, more and more, we're asked to make that decision all upfront before the service is rendered. If there was an app, for example, not that we need another app, guys, but if there was an app that a QR code or something at the table that you scan and it's a separate review and a separate tip percentage up to you after you've had your meal, after you've had your experience, and that goes to the restaurant, something like that versus the way it's being, I feel, jammed down our throats right now. I think there could be blowback to these cash comps. I really do. If anger wells enough, people are just going to start hitting zero and maybe leaving cash or something. It's a potential ramification to these companies. So from a value creation perspective, I think the anger is growing a little bit. So anyway, those are my perspectives. Any closing thoughts?
SPEAKER_00:By the way, I'm all in favor of leaving cash tips whenever possible. I
SPEAKER_01:like the jars. I think that helps actually.
SPEAKER_00:Yeah.
SPEAKER_02:And I think also, you know, they see you doing it and quite honestly living through the collapse of Lehman and then the collapse of Silicon Valley bank. I've gone back to, you know, old school cash where I actually keep more cash for things like that. Because I think people appreciate the cash more because you can see the transaction. I know that sounds a bit old school, but.
SPEAKER_01:Well, I don't think it is. There's an ice cream place near us and we always leave a buck or two after buying an ice cream there. And even one time, I think I left 50 cents because it's all I had and I made up for it next time, but they were grateful and they said, thank you. That kind of thing keeps me coming back versus a screen that starts at 20% for something where services haven't been rendered yet. So I think that I'm hoping the tide is getting ready to shift a little bit where we're demanding some service. It's not just some perfunctory thing because it's on a screen in front of us. But we'll keep our eye on this one. It's interesting. Well, I am going to say that you both have earned a 25% tip from me today for a job well done. I hope you consider that generous. Did you have a good time?
SPEAKER_02:Did you hit the app on that?
SPEAKER_01:Yeah. I'll do that next. Thank you. That was very generous of you. Much appreciated. All right. Well, same here. And to our listeners, keep scanning for those value creation opportunities and we'll see you next time. Thank you.
