CEOs in a Tough Industry – Commercial Banking

Think you’re in a tough market? Try commercial banking, where the fundamentals are as ugly as they’ve been in decades. What are savvy banking pros doing to respond to this hostile environment? What lessons can we all learn from them? I talked to Chris Hurn, CEO and Cofounder of Mercantile Capital Corporation; and Drew White, CFO of Sageworks, Inc.

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Chris got a degree in finance, went to GE Capital for a while, and learned a lot about commercial lending and commercial real estate. He then spent two years as a management consulting, traveling a great deal, and then a friend encouraged him to get back into commercial lending.

Eight years later, Mercantile Capital is a fast growing firm — in fact they grew 15% between 2008 and 2009.  Part of the reason is that Chris chose to create a firm that meets his own needs.

One trick has been to pick a niche and dominate it.  Others have engaged in mission creep, and become generalists — most banks have done this, trying to be all things to all people, and their staffs have to juggle dozens of products.

Chris chose instead to focus on small business owners and entrepreneurs who want to own their own buildings.

This focus is highly aspirational.  While there’s nothing aspirational about changing your checking account, there is a lot that’s aspirational about being a small business owner and owning the building you operate out of — being your own landlord and paying rent to yourself.

Chris’ firm has developed a national reputation as experts in the SBA 504 loan.  This is actually a safer and more profitable strategy than generalizing.

Competitors have shrunk dramatically, so the bad economy has provided him with a big growth opportunity.  Plus, with property prices down and interest rates low, his firm is well positioned.

How do we take lessons from Chris’ experiences?

  • Competitors have scaled back — use that as an opportunity to push harder.
  • Focus on customers and understanding their needs intimately.  Define one or more niches to understand and dominate.
  • Even if you think you know, go back and re-confirm customer needs and how your product fits.  Articulate the “reason behind the reason” why clients come to you.
  • Be humble and constantly ask questions.
  • Maintain a relentless focus on the basics of good business.
Clients tell Chris that he’s the only one who talks about lending using the language that the clients use themselves — they are in business to fulfill entrepreneurial dreams.
By speaking the language of the clients, Chris builds an entirely different client experiences.
Another thing Chris is doing is using his web site to draw people in and self-identify as potential clients.  He gets 53 leads a day — that is, they come to the site and either ask for a free report, sign up for a newsletter or even fill out an application.
Chris even has different, specialized web sites — one just for day-care firms, one for hotels, and one for restaurants that might want loans.  He also has increased his direct mail, because his competitors have pulled back and he’s able to target those mailings to be very cost-effective.
My second guest was Drew White, CFO of Sageworks, Inc.  Sageworks specializes in the financial analysis of privately held companies, and provides a suite of tools to help bankers do a better job managing their loans and even to add value to their client relationships.
Sageworks provides an expert system that interprets financial statements into narrative English.  It’s deployed as Software as a Service — like — and lets CPAs and Accountants help business owners really understand their own data.
More interestingly, Sageworks hosts the central data store for thousands of accounting firms and thus the financial  data from thousands of privately owned firms.
A bank in Tennessee saw one of these reports and started using the Sageworks product as a way of differentiating themselves.  It also became a way for banks to understand what market segments need what sort of banking products.
The Sageworks data outperforms the government data in two ways — it’s available in real time (rather than several months late) and is based on 100% of participating firms (rather than the 5% of firms who return government surveys).
Sageworks is succeeding because they took the trouble to bridge a gap that most of us have assumed was un-bridgeable — the gap between the arcana of financial statements, and what normal folks can grasp easily.
What lesson should we take away?  Look for the gap that nobody thinks can be bridged, and bridge it.  Look for the problem that everybody just puts up with, and stop putting up with it.
Another lesson is to find the vendor who provides a huge value add, and white label it — for a very small dollar amount I can start providing huge value to my clients, or provide a free report as a way to warm up a relationship, or provide a smaller service to sell as a way to begin creating a longer and deeper relationship.
By providing this as an integrated service, I can “jump to the head of the line” — I am no longer providing a commodity.  I’m not competing on price, instead I’m competing on value add.
My takeaway from this interview is that commercial bankers are facing huge opportunities for growth and differentiation.  And if bankers can thrive in this market, anybody can.
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