Finding the Best Path for Growth: Strategies for Credit Unions Big and Small
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John Dearing is Partner and Managing Director of Capstone Strategic, Inc., one of the leading advisory firms helping credit unions grow through proactive, strategic growth programs. The company has helped numerous credit union and CUSO leaders develop, evaluate, and implement initiatives for building their organizations. John spoke at our Annual Convention a few weeks ago on that topic—“Finding the Best Path for Growth: Strategies for Credit Unions”—and his presentation was so well-received we wanted to offer it to our entire membership as a free webinar, coming up on Thursday, December 7 at 10 AM EST.

We caught up with John this week to get a preview of the topic.

1. The assumption behind your topic – thinking about credit union growth strategies – is that a credit union has a growth mentality. But not all do. When is it appropriate to plan for growth, and when is “steady-state” the optimal path?

You’ve probably heard the expression: “Grow or die.” In my experience, it is very difficult to remain stagnant, and most organizations are either growing or in decline, whether or not they realize it. It’s always important to consider your next step, even when your credit union is in a strong position. If you wait until you are in distress, it may be too late. Far too often leaders find themselves slipping into what we call a “do-nothing strategy,” and unfortunately, falling into business as usual by default is rarely a strategy for long-term growth. That’s not to say you should never stay the course. At times, executing your current strategy may be your best option, but that decision should be made in the context of examining all your options for growth and after careful deliberation.

2. What options for growth should credit unions consider?

We encourage all credit union leaders to examine their five options for growth:

Organic – This is the option most are used to and includes adding new products and services and opening new branches.

Exit – Although it might seem counterintuitive, exiting can allow an organization to refocus on long-term growth.

Minimize costs – Minimizing costs doesn’t mean your solution is the lowest costs. Instead it might mean aggregating for scale with vendors so you can reduce costs on the back-end while still providing a superior service for members.

Do nothing – As I alluded to before, there are times when staying the course can be appropriate, but this option should be carefully considered from a strategic viewpoint.

External – Partnering with an outside organization through collaborations, joint ventures, CUSO investments, and strategic acquisitions.

The important thing is to examine each of the five options in context of the others, so you can make an informed decision about your next steps.

3. Inorganic growth from mergers is not viewed as a positive by some – help us understand the conditions under which it is a win-win outcome. What are the advantages of mergers?

When we speak about mergers and acquisitions (M&A), we are not simply speaking of consolidations between two credit unions. We also mean all forms of growth with an organization outside of your own. This includes joint ventures, collaborations, strategic partnerships, CUSO investments, licensing agreements, etc. When you frame-in from this perspective, this is in fact at the very heart of the credit union movement – collaboration between two entities in order to achieve a win-win outcome that brings value to members. Some of the advantages of external growth are bringing a solution more quickly than you could create on your own, leveraging economies of scale, thinking outside the box, bringing expertise and talent where you need to fill in the gaps. For example, you may partner with a CUSO offering mobile banking if your credit union does not have the expertise in-house.  

4. Which asset sizes are seeing the most in terms of merger activity today? Has that trend changed over time?

What you really see over time is the number of credit unions shrinking and there are more, larger credit unions than there were 20 years ago. We just reached a tipping point where there are fewer than 6,000 credit unions in the US. I don’t say this to scare anyone, but simply to keep you informed. The truth is you may not be able to control these market dynamics like consolidation, regulatory pressure, the cost of compliance, etc. What you can control is your own actions. A challenge is simply an opportunity for those who are willing to act.

5. It was great to see more credit unions acquiring banks – is there anything we can do to help that process along?

The number one thing is to get credit unions thinking outside the box when it comes to strategic growth. Buying a bank is simply a creative tactic that credit unions are using to execute their strategic growth plans. What’s most important is for credit unions to continually embrace innovative vehicles for growth like credit union/bank mergers and other forms of external growth. Discussing these topics at the NJCUL Convention and other educational sessions is a step in the right direction so credit union leaders can bring these new ideas back to their organizations.

6. I agree that CUSOs represent a great opportunity – but they also come with risk. Risk of execution, risk of capital, and more. What should a credit union do when assessing CUSO opportunities to minimize risk and maximize reward?

Without taking any risk, how can your organization grow? On the flip side, there is also a risk associated with taking no action – even though you might not see it now, the costs down the road for doing nothing, especially in an industry filled with change, can be disastrous.

Every credit union’s risk profile is different. Some might decide to spread their risk by investing in multiple CUSOs while others might decide to invest in just one CUSO. Others might determine CUSO investment is not the right strategy for them.

Regardless of your risk profile, the best way to minimize risk while maximizing reward is to have a carefully laid out plan that is aligned with your growth strategy for your credit union. A CUSO investment strategy should go hand-in-hand with a credit union’s organic growth efforts and should help the organization accomplish its goals. Using tools to benchmark opportunities against measurable criteria will also help leaders objectively evaluate opportunities and avoid making the mistake of justifying bad opportunities or getting swept away by excitement.

7. When you look at all of these options – how should a credit union organize its thinking about strategic planning for opportunities?

We like to use a tool called the Opportunity Matrix, which is a two-by-two grid: The vertical axis is for products and services, while the horizontal axis is for markets and members. The grid assesses both existing and future demand. There are four quadrants in the opportunity matrix:

1. Consolidation: selling more of the same products to the same market

2. Distribution: selling the same products to new markets

3. Breadth: selling new products to your existing market

4. Diversification: selling new products to new markets

The Opportunity Matrix helps you understand where your credit union stands today and how to position it strategically for future growth.

8. How do you develop criteria specific to the growth strategies of a credit union?

The first place to start is to identify the characteristics of your ideal opportunity and to develop measurable, objective metrics. For example, asset size, number of members served, and specific geographic markets. Next, you should prioritize which of these factors are most important to you because not all criteria are created equally. Think about buying a house – is location or paint color more important to you? The last step is to refine through examples once you begin searching for opportunities.

9. Is this something that only larger credit unions can do?

External growth is not only for large credit unions. Contrary to popular belief, you don’t have to “go big or go home” to successfully grow your credit union through strategic M&A. A small, well-executed acquisition that targets a specific need can sometimes be more powerful than a multi-billion-dollar consolidation. Smaller credit unions can – and have – grown through external growth. A carefully planned, small, strategic deal can exponentially grow your credit union and help you reach your goals. Meaningful transactions are those that help your organization become increasingly focused and effective.


To learn more about strategic growth for credit unions, join NJCUL and John Dearing for a free webinar on December 7. Click here to register.