If you allowed your clients to decide how much to pay you, what sort of fee would you receive? It's a question that risk management firm Noah's Rule tackles every day.
"We let our client decide how much they should pay us," co-founder Sean Russo says. "The client determines the fee and it's entirely up to them to determine whether we have added value to their company."
"You're only as good as your last job, and when we first started we didn't honestly think about making a lot of money straight away. We just explained how we did things, and people really took to it."
Russo struck upon the model about 18 months after establishing the business in 2004.
The company charged by the hour for the first 18 months of the business, but Russo and his colleagues quickly discovered they weren't able to sustain the business for the amount they were charging.
"For a year and a half, we didn't pay ourselves. Any revenue we earned went back into the company to help us market, and to pay the lady who helped us in the office. We just spent that time establishing our name, and getting work by wordof-mouth."
"But we needed to charge more, and we didn't know how to do that initially. But when we had established a track record we wrote a letter to all our clients saying "we're not charging enough for our services". That's when we introduced this fee the client decides upon. We charge a fixed fee, then they pay another fee that is up their discretion. It's been incredibly successful."
The company recorded $2.6 million in revenue for 2007-08 with 5% growth in 2008-09 to reach $2.73 million.
Going solo
After working at Rothschild for 20 years, Russo decided to leave the bank and start a dedicated risk management firm to fill a gap he believed was existent in the market. He says while several banks dabble in risk management, Noah's Rule is able to offer a better service and is more honest in doing so.
"In going to a bank they would tell you whatever they think you want to hear, and then offer the product that makes them the most money. That guy at the bank makes money based off commission, and we thought we should take those skills that exist and make them independent."
"We have people in our firm that were working at this bank as well, and I don't believe many organisations have that same level of client understanding as we do."
Russo admits risk management is a traditionally dry area of the financial services sector, but says this helped Noah's Rule achieve success - companies aren't good at managing risk, and no companies yet existed to help them.
"The business really came out of working in banking for 20 years. It became obvious to me that companies, when dealing with foreign exchange transactions, just tend to underestimate the risk in their business. Then when conditions become either extremely bad or good, they can't manage it."
"Particularly in the mining sector, companies were good at managing risk when it came to exploring and finding resources, but didn't know how to manage the risk after that because those skills are not inerrant in that type of business, and I wanted a firm which could offer advice."
Noah's Rule works with firms from a variety of industries, including mining giants to the Australian Rugby Union. When these companies deal with international transactions, particularly importing and exporting large quantities of goods, Noah's Rule assists them in gaining the best price and outcome possible.
"These are companies that you mightn't necessarily associate with large financial risks, but they often have significant transactions that carry large amounts of international exchange risk, regarding different currencies. We often handle their business and run education sessions for their boards."
Establishing a dedicated risk management firm was an unknown for Russo, and he says the unmarked territory made it difficult to make early decisions.
"The biggest challenge was literally that no one else had done this before. My view was that companies did need the service we were offering, but because it was non-existent I wondered if they would recognise they needed it. And would they pay enough for it be worth our while? You get paid well while working at a bank."
Surviving during the downturn
The financial services industry is beginning to recover from the downturn, but Russo says Noah's Law managed to survive by putting more emphasis on its exporting and importing clients.
"It really helped us both ways - the performance of the Aussie dollar. Five years ago it was going higher and broke through 80c, and most of the work then was exporters trying to figure out how to handle that environment. Then it fell, and that stretched importers and we've had many come to us having near death experiences. We get a lot of work from that."
So the company has continued to gain work during crisis, but is Russo concerned about a potential rival emerging in the market?
"I don't want to sound arrogant, but there are people who do parts of what we do, but not all. People may sell software that records derivatives, or make hedging contracts, but they come at more of a "we'll help you understand" angle, rather than actually doing it."
"So there are a few companies that edge in to what we are doing, but they certainly don't do all that we do and really, no one in Australia covers what we do yet."
