Next month, I am speaking at a small business banking conference on the topic “Why Banks Can’t Deliver What Small Businesses Want.” The fact is that many small businesses believe that their banks fail to provide them with anything but the most rudimentary services. Banks claim that they love and appreciate small businesses; most small businesses don’t buy it.
Several factors can result in a bank’s failure with the business segment:
Poor definition of success: what are banks selling?
Banks need to ask themselves critically, why should a business customer deal with them? All banks stress good service, whether they offer it or not. Some emphasize low loan rates, a short-term approach that is probably not sustainable.
What makes your bank attractive to small business? You do not need to do any third party research to arrive at most of the key attributes that are important to businesses: responsiveness when there are issues to be resolved; transparency and clear communication in credit-related areas; a proactive banker who learns about a company and, thereby, presents relevant ideas for the company’s use; competitive pricing; and a sense that the bank has a commitment to the company. Offer all that and you can succeed.
All too often, bankers delude themselves into believing that they operate in a business friendly way when in fact they do not. One of the most refreshing and honest comments made to me by a senior banker was when he stated, “We are nowhere in business banking.” That admission meant that he possessed awareness of what was required and recognized that his bank needed to fill significant gaps.
Mediocre sales effort.
Even many banks with a “value proposition” to offer customers continue to skirt around a fundamental issue: they are terrible at selling. Remarkably, we have even heard one senior banker recently say that selling is something his bank would rather not do, if it had the option. Sorry. Welcome to reality.
Despite all the time and dollars spent on sales and product training, in many cases sales cultures continue to elude banks. Why? First, banks continue to operate with an inadequate sales process. Consistency and rigor should be the watchwords; with few exceptions, all business bankers should follow the same sales process, period. They need to prepare for the call, summarize the call, set ticklers for further action, develop account plans for current clients, etc. Business banking is not an art, but some bankers try to portray it as such.
Beyond the poor sales structure is perhaps an even more basic problem, namely, poor sale staffs. Few of today’s 40 or 50 year olds became bankers because they wanted to sell. Instead, they may have been drawn to banking because they liked conducting analysis or performing customer service. People with a dominant sales gene headed toward brokerage or industrial sales but not banking. Therefore, many banks are saddled with employees who are tasked with selling but really do not want to do it. Given the natural inclination of these bankers, all the training in the world will have marginal impact.
One fundamental reason that so many commercial bankers spend only 10-20 percent of their time selling is that they do not want to spend any more time selling. Yes, they hide behind administrative and compliance requirements, but in many cases they are using this as an excuse.
Bluntly, an aging workforce is another problem. I have previously told the story of a “mature” banker with whom I was discussing the interest of his bank in stepping up its sales effort and increasing the sales intensity of his job. He listened, leaned back, and offered his frank view of this idea: “I’m an old dog and old dogs like to sit on the porch.” Understandable, but not great for the sales effort.
A lack of process and an oftentimes mediocre sales staff are compounded by sales team leaders who are neither sales persons nor leaders. Too many team leaders obtained their positions by tenure rather than accomplishment. Further, a good sales person is not necessarily a good sales manager. Sales team leaders have to embody the culture of the institution and drive the sales process. They are mentors to their people and play a key role in an individual banker’s development. However, at some banks they are simply bureaucrats.
Basically, the above means that many banks need to go through a process of upgrading personnel to better meet customer requirements and competitive challenges.
Internal bureaucracy and silo mentality destroys relationship opportunities.
FIC emphasizes the need to focus on the entirety of the small business relationship. This encompasses not only a company but the owners and employees. This holistic approach is required to maximize relationship earnings and is now even more important, given the low growth and low interest rate environment in which we are operating. Internal organizational silos and silo-oriented P&Ls often constrain cross-business cooperation.
Talk not commitment: limited senior management interest.
Despite the talk, many bank managers do not really understand, appreciate, and /or respect small businesses. In a sense these companies fail to fit into a typical organizational box and, therefore, are more difficult for some bankers to understand.
Multi-year not multi-month road to success.
It takes time to establish a bank with the business community. While initial indications of success can be seen relatively quickly, the impact of a strong effort can take one-two years to reach the bottom line. The best small business banks focus on execution day in and day out. However, many banks are notoriously bad at execution. Execution is hard; it takes persistence and patience. It requires managers to adapt and change course in light of business realities. Too often adaptation and change are also banker weak spots.
Concluding thought.
Establishing a framework for success with this segment requires self-examination to determine gaps that the bank must address, whether those gaps consist of products, people, or management structure. Next time we will focus on some of the steps that banks need to take to position themselves successfully in this space.