Everyone knows who hit the most home runs in a single season … kind of. Depending on your age and the purity of your baseball life, the established home run leader is either Babe Ruth (154 games), Roger Maris (162 games), or Bobby Bonds (73 home runs with likely steroid use). Most fans probably know or guess that the all-time singles leader is the somewhat infamous Pete Rose, however, only the most dedicated fan will remember that Ichiro Suzuki holds the season single hit record with 225.
Other than that we are the beginning of the baseball season, why this digression? Because, despite most bankers’ desire for a secret sauce that will solve their small business problems and the willingness of technology salespeople and consultants (not moi) to offer “the answer” (that is, a home run solution), small business banking and banking overall involves a game of singles. The great bank players know this and focus on multiple related improvements rather than taking the big swing that usually results in a miss. (OK, I will now stop with the baseball metaphors.)
A bank’s success in the small business space requires decisions in a myriad of areas that together add up to a sustainable competitive position:
* Definition. I have worked at banks in which the head of small business could not concisely tell me the parameters of his marketing focus. Either the bank kept changing its definition or it operated without one, not a likely prescription for success. BTW, if the definition focuses on loan size, that bank is probably not pursuing the segment with the holistic (business, owner, and employee) approach required to maximize returns.
* Communication, Consistency, and Discipline. One of the reasons for poor banker productivity results from the banker pursuing deals that are unacceptable to the bank from a risk or structuring perspective. In some cases the credit people have failed to communicate the specifics of their risk appetite and the necessary criteria for a deal’s acceptance to the bankers. In other cases the banker is ignoring reality and hoping he can sneak a deal through. The “rules” need to be communicated and, then enforced with consistency. Neither the banker nor credit should surprise their internal partners.
* A Centered Pendulum. I have often recounted the story told to me by a senior credit officer who talked about the tendency of banks to operate like a pendulum that swings too far toward an emphasis on sales and then swings too far to credit. Before the downturn of the last decade the swing to the sales side was apparent; credit people were often beaten down by “masters of the universe”, even if that universe consisted of a Miami suburb. The pendulum has now swung in the other direction, encouraged by regulators who are focused on preventing the last crisis.
* People. Managers continue to complain about the capabilities of a significant portion of their small business bankers, often stressing their mediocre sales skills and lack of proactivity. The good players will not tolerate this level of performance, but, too often, banks allow their paternalism and the tenure of their employees to cloud their decision-making.
* Products. Remarkably, to this day, most bank small business groups remain loan focused despite the limited risk appetite of most banks and the limited appetite for borrowing of most customers. Since forever, the majority of small businesses have been non-borrowers; since forever, the majority of small business bankers focus on loans. Fee generating products are important now and will only be more important going forward.
* Branch Focus. Most banks continue to struggle with branch performance related to small businesses. There are sizeable banks in which some branches generate zero small business loans annually. You almost need to try to accomplish that low level of performance. Branches have to be part of success with small businesses.
* Compensation. Compensation at risk (bonuses and incentives) often drives top performance. However, I know one relatively large bank in which blowing through sales goals will increase after tax compensation by … maybe 5%. So why bother to go through the pain and discomfort of selling for so little reward?
* Working with Product Partners. Bankers can recount negative stories of working with outside partners in which the effort did not pay off. However, increasingly, leveraging partner capabilities, in lending, technology, and other areas, offers great value to banks in meeting the needs of current customers and in broadening a bank’s marketing focus to capture new targets. Working with outside players may be particularly important in meeting the small business credit needs of Gen X, Gen Y, and Millennials, many of which are not bank-ready credits.
* Analytics and Big Data. As a late convert to appreciating the value of applying complex analytics to small business, I understand the value this analysis can bring to small business groups. However, I also understand that unless the areas outlined above are also addressed, Big Data will turn into a big and expensive failure. Big Data facilitates success once the foundation has been established.
Getting one of the above areas perfectly right is simply not enough to generate small business success. However, combining ingredients like those above in fact can create the ever-elusive secret sauce. Despite what I have suggested above, there is in fact a secret sauce, a home run. It consists of a positive, proactive, market-oriented culture reinforced by internal trust across the bank. And, with a lot of work most banks can achieve that goal. But, first, at a minimum, they need to address the areas mentioned above. Most will fail to do so.