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Cover Story from Selling Power Magazine, how Heartland Payment Systems created 84 Millionaires.

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Page 1: Everybody Wins Big!
Page 2: Everybody Wins Big!
Page 3: Everybody Wins Big!

SELLING POWER JUNE 2008

Everybody WinsBIG!How 84 Heartland

Payment Systems

employees became

millionaires overnight

By Lisa Gschwandtner • Photography by Jeff Weiner

to authorize. When purchasing is that fast and easy, it’s no wonder

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A P IECE OF THE P IEThe banks and credit card companies taketheir share of each transaction, of course.But there’s also the telephone companythat transported the call to authorize thepurchase. And the “gateway” company thathooked up the merchant to the telephonesystem. Sometimes an independent salesorganization (ISO) takes a cut. SometimesISOs work with independent contractorsthat charge their own fees. Oh, and thecompany that sold the computer systemthe merchant used to process the paymentalso makes a little off the deal.

According to the experts at HeartlandPayment Systems, an electronics process-ing company based in Princeton, NJ, up toa dozen companies can be involved in col-lecting funds related to a single credit cardtransaction. That’s a lot of hands compet-ing for a slice of the payments pie.

A ‘ CULTURE OF SALES ’Heartland doesn’t use ISOs or indepen-dent contractors or agents. Why? As thecompany’s name might suggest, Heart-land Payment Systems defines value asmore than dollars and cents.

“We have a culture of sales in our com-pany,” says Heartland CEO and founder,Bob Carr, who is proud to proclaim thatHeartland’s commission-only sales struc-ture has held steady since the company’sfounding in 1997.

“We have a sales team that believes it’sgoing to be treated right, just as its cus-tomers are going to be treated right. Thecustomers are the people the team mem-bers go to church with, the people wholive next door, their family members, andtheir friends. They can confidently go outto sell to those people and know that theirpromises are going to be kept.”

This philosophy has made Heartland thesixth largest player in its industry. With2,900 employees, Heartland operates satel-

lite offices in North Olmsted,OH; Frisco,TX;and Phoenix. Its service center in Jefferson-ville, IN, provides 24-hour customer sup-port and technical service. Last year thecompany processed 1.2 billion transactions,working through VISA and MasterCard,and earned $1.3 billion in gross revenue.

FULL D ISCLOSUREAlthough several thousand organizationssell payment processing plans, there are

only about five that also perform the pro-cessing itself. Heartland is unique amongits competitors for both selling a paymentprocessing plan and performing it. It alsooffers merchant customers payroll ser-vices, gift and incentive programs, andpoint-of-sale devices and supplies.

Managing these services can get verycomplex, very quickly. Too often, Carrsays, the electronic payment system oper-

ates at the expense of customers whomust rely on processing services to staycompetitive in their markets.

The hidden charges, markups, and one-size-fits-all service can be the death knellfor the small to midsize businesses (most-ly retail stores, hotels, and restaurants)that make up Heartland’s customer base.

“Our main advantage is that we explainhow the system works to the businessowner, and they appreciate understand-

ing. It’s a very complicated system,” Carrsays. “We fully disclose the way the systemworks, we fully disclose how much moneywe’re making, and we disclose how muchmoney is going to these credit cards andthe banks that issued the cards.”

Even salespeople may not fully graspthe intricacies of the system before theystart hitting the pavement.

“I tell people that they can learn enoughin a week to go out and do a decent job ofmaking a sales call if they have any salesexperience whatsoever,” says Heartland’schief sales officer, Sanford Brown. “Butit’s so complex that, 10 years from now,they won’t know everything there is toknow. They could continue to find newverticals, nuances, and niches to follow.”

Heartland puts so much faith in trans-parency that the company has created aMerchant Bill of Rights, which is postedon the company’s Website at merchant-billofrights.com.

On the site, customers can watch avideo titled, “How to Tell If Your RightsAre Being Violated.” Among the questionsposed: “When Visa and MasterCard feesgo up, does your processor add markupsthat raise your rates even higher?”

WALKING THE TALKThe markup question isn’t just rhetorical.In 2003, when VISA and MasterCard losta hefty lawsuit with the Department of Jus-tice, they decreased their rates. Some pro-cessing companies simply pocketed themoney, but Heartland took the opportuni-ty to pass the savings on to its customers.

“Our agreement with our customers isthat we are going to tell you what we aregoing to charge you. We’re not going tochange the rules in the middle. If our costsgo up because VISA or MasterCard raises itsrates, you’ll have to pay that extra. But if theygo down, we’re going to give you a discount.”

“Our board members thought we had

lost our minds,” says Carr, “But we did it.And it just sort of validated both to ourcustomers and to our salespeople that,hey, these guys really mean it.”

Heartland’s business practices haven’tmade them too popular among competitors.

“They say that we’re taking the profitout of the industry for them,” says Carr.“And I think that’s a good thing. I thinkthat’s what capitalism is all about – havinga better mousetrap.”

JUNE 2008 SELLING POWER

electronic payment processors funnel $3 trillion through their

SEEKING ‘BEST IDEAS’Through Heartland’s Best Idea Award,employees send in ideas, which Carrpersonally vets.“We get a lot of input from our employ-ees through that mechanism,” he says.“Our employees are pretty open. I thinkthey trust us enough that they can tellus the bad news without getting firedbecause they are telling us somethingwe don’t want to hear.”

“There is no fear of retribution if theycome to Bob or to me or to our CFOand say, ‘Hey, this doesn’t seem right.Will you help me understand it better?’”says Brown. “And that’s created a culture, I think, where people act oninformation much quicker when it isbrought to their attention than theywould in a lot of organizations.”

Some of the simplest ideas havemade the best and biggest impacts inthe company. Carr relates, “Somebodyjust today asked if we could pleasetruncate the merchant number on thereceipt. I mean, everybody else in theworld prints the merchant number onthe receipt. That means a smart crookcan take your merchant number, key itinto a terminal, buy a terminal on eBay,and process a bunch of fraudulenttransactions. I’ve been in this business20 years, and it never occurred to me.”

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MAKING MILL IONAIRESOne group that’s not complaining – Heart-land’s sales force, and not just becausethey’re selling services they truly believein. Last year, about 14 of its 1,600 repsmade more money than Carr himself,thanks in part to Heartland’s commission-only sales compensation structure, dubbedthe “signing bonus approach,” which hasnot changed in 14 years.

“The salespeople get paid an upfrontcash signing bonus on the Friday after theinstallation,” he explains. “Then they getpaid a percentage of the profitability everysingle month, beginning on the first dayof processing, through the life of that rela-tionship. So they are incentivized to givegood service to our customers.”

In 1998, Carr vowed to create 100 mil-lionaires out of his sales team. Since thecompany went public, he’s added 84names to the high-rollers list.

“We now have salespeople who arebecoming millionaires just based on thevalue of their monthly residuals, which isvery exciting to me. We measure sales bythe margin added per month. It used to bethat $10,000 was considered to be a greatsales month. Last month, our top sales-person did $80,000.”

That means their commission paymentplan has become an expensive proposition.“We don’t make any money whatsoeveruntil the fourteenth month of a relation-ship. So if a merchant leaves us six monthsafter they start, it is not a good thing for us.But that doesn’t happen often. We havebeen in business long enough now andwe have enough merchants that have beenwith us for more than 14 months that ourprofitability continues to grow.”

Can newly hired salespeople becomemillionaires in the company? Yes, saysCarr, but only after many years of hardwork and successes to get to the upperechelons of the sales force. He admits thatthe bar has been raised since the companywent public. After all, you can only takeyour shares from 30 cents to $25 once.

“At the same time, we have a more com-petitive product,” he says. “We can go afterbigger customers. We have more products.And so we just have some salespeople whoare doing extremely, extremely well.”

ENTREPRENEURIAL SALESPEOPLEWhat kind of reps perform best at Heart-land? The common thread is an entrepre-neurial spirit. Within the Heartland team,chief sales officer Sanford Brown esti-mates that perhaps 20 percent are first-generation immigrants.

“Some of my favorite stories are of thetop sales performers in our company whoused to own their own restaurants or drycleaning stores,” he adds. “Or they weremanagers of restaurants or hotels working80 hours a week. What predicts sales suc-cess in our company is not sales-based,it’s behavioral.

“This may sound a little hokey, but alot of people who come work for us arelooking for the American dream. Theywant an opportunity to be able to do some-thing financially rewarding for an organi-zation that they can feel good about. Andthey want to do so in a way that they arecontributing something meaningful andthat over time they can look at it and say,‘Boy, I see my mark on it.’”

Heartland’s approach to sales makesit unique in an industry that often treatsits sales forces as an afterthought. “Ithink a lot of CEOs think their companyexists because of their great name,” Carrsays. “Maybe that’s true for some com-panies, but when you are providingfinancial services to small-business peo-ple, they want to do business with some-body they can rely on, who gives goodservice and gives them a good value fortheir money. We think we have a verycompetitive product that way.”

FEEDBACK: [email protected]

JUNE 2008 SELLING POWER

REAL-TIME REWARDSAmong thousands of organizations selling processing services, Heartland has broken historic ground in the industry by reaping billions in revenues through organic growth. Carrattributes this growth to Heartland’s relatively young platform, which offers “Main Street,America” merchants the latest technology. By contrast, many Heartland competitors operate with systems built in the 1970s and ’80s.

“We built our platforms starting about five or six years ago. So we’re using client servertechnology instead of mainframes, and that allows us to be cheaper and faster than our competition. Other companies may have been in business for 30 or 40 years, but oursalespeople are out with the lowest price. So our salespeople like that.”

Heartland offers customers real-time reporting, which makes catching mistakes a moreefficient process. Recently, when a Wendy’s clerk accidentally keyed in an $11.11 purchase as $1,111.00, a Heartland controller spied the error and corrected it immediately.

“Sometimes employees will put through credits or returns, defrauding the business,”says Carr. “So, again, the business owner can look at those before they get processed. So we have the only real-time system, we have the only client-server system in the industry, and those are competitive advantages.”

FIGHTING CHALLENGES WITH INNOVATIONHeartland has not escaped unscathedfrom the recent economic downturn.The company missed its fourth-quarterearnings forecast, and its stock dippedto about 59 percent of its initial value.

Like any great competitor, however,Heartland has responded to challengewith innovation. “We’re trying to findways to make our offering unique. Oneis a product we call ‘Express Funds,’”says Carr. “This is a product with whichbusinesses can scan their checks andallow us to overnight-deposit thosefunds to any bank in the country. Itallows us to sell to a much larger groupof businesses than just card payments.That speeds up cash flow and saves[merchants] a trip to the bank.”

Another product is Heartland’s “Campus Card Solution,” which allowscollege students to pay for purchasesusing their cell phones. “What’s great about it is that students alwayshave their cell phones, whereas theymight not have their wallet or purse,”Carr explains. “The reason the community likes it is because wecharge the merchant less to take thiscard than to take a VISA or MasterCard.The merchants pay less, and the money they do pay goes back into thecommunity, to nonprofit organizationsas well as to the cardholder, who gets a cash-back component.”

www.sellingpower.com/june08

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