Personal Touch Key with Small Businesses
By Charles Wendel
American Banker, October 1, 2003

If bankers would listen to small-business owners, they would find that service is the key to increasing their share in this market.

For example, at the BAI Small Business Conference in Chicago this year, three entrepreneurs discussed their banks and answered questions from the floor.

One had run a manufacturing company, sold it to a larger company, and now runs a start-up that deals with other small businesses. The second operates an established printing company that generates about $3 million of annual revenue. The third owns a small executive-recruiting firm.

It is fair to say that one owner loved her bank, or, more precisely, her banker. ("I will go wherever he goes.") Another was satisfied, and the third was very unhappy.

The executive recruiter - who was happy with her banker and, by extension, with her bank - said it was because of the attentiveness and professionalism of her relationship manager. She knows that her business does not make the bank a lot of money, but the relationship manager "does not treat me like a microbusiness." She deals with a community bank.

The printing company owner, who was in the process of leaving (or, in her view, being pushed out of) her bank, told a different story. She has owned her company for 12 years and had initially dealt with a small bank until a large bank acquired it. Though she has made all her loan payments and has shown a clear personal commitment to her company, her bank has apparently grown wary of the industry and wants her company out.

As the moderator, I turned the spotlight onto the representatives of some of the top 10 U.S. and Canadian banks. They said they are at a disadvantage in dealing with small businesses but affirmed that they are focusing on developing a community bank's approach to this market.

Our client experience supports this view. Small banks should not count big banks out. For the moment, though, many community banks do have an advantage and should exploit it.

What Customers Think

The comments from these customers, as well as from the bankers in attendance, show that most small-business owners do not expect much from their bankers, and their expectations have declined in recent years. For example, the owner who sold his business said the buyer was a larger player "with deeper pockets." As he paid off his bank loan, he offered to introduce his bank to the larger, more established company, but the bank "never called."

When asked how they defined a relationship with their bank, the panelists did not talk about any products but rather focused on "stability," "being there" when needed, and transparency in decision-making. Each panelist agreed that pricing was less important than other factors in choosing a bank. Free checking did not entice them. As one said, "Nothing is free."

Small-business owners expect the same type of courtesy and directness in their bank relationships that they give to their customers. For example, one panelist said she was upset when her bank suddenly changed its loan requirements within a few days of an equipment loan's expected closing. As a result, she switched to a vendor-financing company. Another speaker commented about banks that demand transparency in the information they receive from their customers but do not usually reciprocate in how they communicate financing decisions.

Tips

What should a small-business banker do to attract and retain more customers? Here are some ideas to consider:

* Do you have the right people? If you see yourself acting primarily as a lender, your effort is doomed to mediocrity. Innovators are hiring nonbankers or those who view banking nontraditionally. Where do you find them? Look to companies with strong reputations in sales and marketing.

* Is your bank organization dysfunctional? Organizational problems are not confined to larger banks. One person should serve both the business and personal banking needs of a given business owner. This is an approach that Merrill Lynch & Co. has pursued with great success. Too many banks try to fit the customer into the banks' structure rather than adapting to meet the customer's needs.

* Are you selling the right products? For most banks the key to small-business success is deposits. Still, too many banks are focusing on loans or products of tertiary value to the bottom line. A bank should have a diverse product line, but it should give priority to deposit products and sell them aggressively.

* Are your branch personnel focused on the right small-business products? Some retail bankers simply have too many products to understand - and they may avoid small-business sales opportunities for that reason. Therefore, a bank's small-business group needs to help train and direct retail bankers' efforts.

* Are you focusing enough on selling to both the owner and the business? My firm, Financial Institutions Consulting, estimates that total revenue from capturing an owner's personal account almost matches that available from the business itself. Too many banks rely too heavily on the individual skills and selling preferences of account officers. That is a mistake; we recommend an institutional, process-based focus on selling to both the individual and the company.

* Do you have a meaningful value proposition to offer the customer? Why should customers bring both their personal and commercial business to you? Convenience or service may be enough, but often a more tangible reason is needed. A pricing concession, such an enhanced interest rate for additional deposits or a reduced charge for additional loans, is one approach that merits consideration.

* Are you trying to be innovative? Well-performing small businesses have multiple financing options. Increasingly, card-based offers are arriving in the mail for amounts up to $100,000, some with 0% teaser rates. The standard working-capital loan has become commoditized. One response might be a product that goes beyond the standardized approach. Several California banks, for example, are starting to offer multiyear lines of credit rather than the typical one-year working-capital loan.

* Is your compensation aligned with your strategy? Some examples: The branch staff should get credit for generating small-business deposits in order to enlist their active support in the deposit generation process. Small-business banking officers need compensation, to push them from loan generation to other higher-margin products.

* Are you being honest with yourself? Senior managers sometimes make a pronouncement about a course of action and believe it accomplished, failing to translate their words into actions. Managers need to consider the degree to which they are guilty of this phenomenon and then do something to correct it.

Bring a group of senior small-business and retail managers together to discuss these topics, possibly using an outsider to run the meeting. The issues raised can become clear priorities for further attention.