How business owners really see their business

Fundamentally misunderstanding this is leaving the door wide open to challenger banking in the small business market

“Big businesses are totally, hopelessly clueless about small businesses” says Robert Craven author of Kick Start Your Business.

It’s a startling claim and also one that most CEOs of private business would recognise and agree with

In a recent survey 74% of private business CEOs believed their corporate suppliers neither understood nor cared about their business

How can this situation be allowed to persist? It’s not as if the Big Five banks are secure in the small business market. Whilst they still control 90% of the SME loan book this is starting to change. And change fast. In the past year or so five challenger banks have listed on the London Stock Exchange alone raising over £350m of new capital.

Small potatoes perhaps but their growth in a market the dominant players really should have sewed up is remarkable – and accelerating. According to KPMG the challenger banks have grown their loan books annually 8.2% between 2012 and 2014. This compares to an annual negative 2.9% for the Big Five. Aldermore, for example, has seen a compound annual growth rate in net loans of 61%.

How far are these facts connected? Is the growth of the challenger bank in owner-managed businesses really because they are seen to understand the sector better? The challengers seem to believe so.

The Head of one challenger bank reports their 700% growth wholly down to their ‘relationship approach’ and not product or price.

So why are the Big Five seen to be ‘hopelessly clueless’ about their key customers? Big banks have focused too much on training their teams on technical, ‘product’ skills and too little on understanding the emotional and commercial realities of running a small business. The reason 74% of CEOs think their bank doesn’t understand them is that their relationship manager has never been trained to understand small business; and the reason the CEOS think they don’t care is because they have never been trained in empathetic skills. It’s telling that one Challenger Banks exclusively recruits ‘good listeners who are patient’ rather than ‘good bankers’.

So, what do relationship managers need to understand about their customers to transform this dire situation?

Firstly, they need to reprogramme how they think. The old ‘it’s my baby’ adage is a cliché. But it’s also true; and grounded in solid neuroscience. Banking attracts and rewards people who are comfortable in the logical certainties of data and empirical thought; they operate most comfortably in their ‘thinking’ cerebral cortex. Most entrepreneurs function best in their ‘feeling’ limbic brain relying more on intuition than logic. That’s one reason that most business owners have a far more profound emotional connection with their business than a corporate manager can easily fathom. And yet understanding that limbic, emotional connection with the business is key to forming a trusted relationship. And that understanding can be taught.

Secondly, they need to understand that not all businesses are the same and that the turnover of a business is a very poor indicator of its commercial needs. All businesses are an emotional journey and the feelings and energy of the owners at each stage are a far better indicator of what the business needs than the business size. Understanding lifecycle stage and thereby predicting accurately what the business needs now and in the near future is a skill that can be taught.

Finally, they need to understand that, whilst, the bank may see the business as a bundle of financial KPIs (and most of these sit in the P&L), the entrepreneur at his or best is instinctively focused on a set of intangible assets that drive these financial numbers. CEOs that obsess with P&L outcomes get far less growth and value than those who focus on source ‘assets’. Relationship managers who have the commercial acumen and confidence to engage CEOs at this profoundly strategic level and challenge their assumptions about what their business could achieve will offer transformative value. This commercial acumen can be taught.

600 banking managers who had learnt these three skills, 94% reported winning immediate new business from existing customers

This is not a theoretical idea. In research of 600 banking managers who had learnt these three skills, 94% reported winning immediate new business from existing customers  business that their previous lack of understanding of the customer had not allowed them to even be aware of.

If it is true that the Big Five are seen as ‘totally, hopelessly clueless about small businesses’ and this is even partly responsible for leaving the door open for challenger banks, there is an urgent imperative to address the problem. And it has been demonstrably proven that this can be achieved through some simple business training of relationship teams in just three core skills.

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