Executive Summary: To succeed in business banking, banks must address the multiple internal challenges that block progress. The relatively few players with the discipline and stamina to do so will reap significant economic benefits; those with a half-hearted approach are destined to experience continued frustration with this segment.

 

 

In our last newsletter, we outlined some factors that result in banks failing in their small business efforts: responsibility without authority for the small business head, outsized expectations by senior management, poor execution, poor sales management, and mediocre product knowledge, among others.

 

While the challenges are substantial, bank management can forge a path to sustainable growth and profitability in the small business space. What actions does management need to take?

 

Some of the main ones:

 

* Break internal silos to provide a holistic approach to this segment
* Create business owners not business bankers
* Demand strong sales management procedures
* Commit to a multi-year priority
* Strip away administration
* Pay for performance

 

Break internal silos to provide a holistic approach to this segment.

Despite the economics of the business and the broader needs of most business owners, many bankers remain lenders first and foremost. Allowing that emphasis to continue results in a bank missing many opportunities and capturing only a relatively small portion of the segment’s potential revenue.

 

Holistic sounds like yet another buzzword, but it expresses the need for banks to provide services to both a small business, its owner, and, in many cases, its employees. Most banks allow internal organizational silos and narrow P&Ls to limit what their business bankers provide to customers. In other cases, bankers have said to us: “I do not see any additional cross sell opportunities in my portfolio.” Usually when we hear that comment, it is a sign that the banker has just scratched the surface of opportunity.

 

Create business owners not business bankers.

In many cases the trusted advisors to small businesses are, in fact, small business owners themselves. Accountants, financial advisors, lawyers, all often operate their own practices and/or businesses. Conversely, bankers are employees of, oftentimes, huge corporations. What a few banks are beginning to do is to allow the banker to operate as something akin to an independent professional rather than as a member of the bank bureaucracy.

 

These business bankers build a portfolio of accounts, provide solutions in multiple areas (loans, cash management, investments, and private banking), and serve as the bank’s point person for all its capabilities. Lending decisions are made independently from this banker, and the nature of his business is such that lending is only one piece of what he offers. Think Merrill Lynch or Raymond James broker rather than traditional banker. Of course, there are lots of issues with establishing this role, but, if managed effectively, the payoff to the bank can be extremely attractive.

 

Business owners will only develop from bankers if they more proactively take training into their own hands. Much bank training today centers on compliance and CYA related topics, not business development.

 

Demand strong sales management procedures.

Many sales managers in business banking groups are failing to encourage a rigorous and consistent approach to sales. In these cases they spend more time on internal meetings than customer-related events. They need to be “singing from the same hymnal,” in order to build a sales culture, but in many cases even their own job roles and responsibilities are inconsistent.

 

Commit to a multi-year priority.

Neither Rome nor small business efforts were born in a day. While a rethought approach to this segment can begin to show results in a relatively short time, changing a bank’s external reputation and internal culture can take some time. Business banking is an area that demands management stick with its initial efforts in order to gain significant sustainable benefits. This is one area, among others, where senior management often appears to nod its head in agreement but then forgets what it agreed to.

 

Strip away administration.

We have met with bankers who appear deluged with administrative requests from different areas of the bank. Each request may be important and take a limited amount of time but when added together they suck away the banker’s time to work with current and new customers.

 

Yes, the regulatory burden is greater than ever before, but the line banker must be spared from as much of it as possible. The alternative is reduced revenue, poor results, and a mediocre business banking effort. Instead, all admin-related requests should be centralized and screened before they go to the banker. In some cases, the credit department or another area may be able to provide the information centrally. In other cases, an account administrator or analyst can fulfill the request. Only as a last resort should the sales banker’s time be reduced. Yet today, we find many business bankers spending no more than 20 percent of their time (if that) on sales related activities.

 

Pay for performance.

The business banker position we envision attracts a self-starter who will very much expect to be paid for his/her strong results, based upon revenues and profitability. These bankers expect to benefit financially from their success. If your bank has small business bankers who are happy to rely on their salaries, you have the wrong business bankers for achieving real success with this segment.

 

Concluding thought.

Recently, a colleague told of a bank meeting in which his client, a top executive, said that his senior management had failed in its focus on and dedication to its business banking effort. That is always a difficult admission for bankers to make. Nonetheless, such an admission can serve as important step in rebuilding the business banking effort with increased energy, commitment, and focus. The good news is that the likely return is more than worth the effort.