Most middle market banking groups are failing to achieve their potential in the middle market.

As banks struggle to generate new revenue and grow, more are increasing their focus on middle market companies (typically $10 million to $100 million in revenues) because they are attractive clients for lending, fee generating products, and cross-selling both to companies and their owners and employees. However, insufficient market differentiation, dysfunctional organizations, overstaffing or the wrong staff, and a poor sales management process, all combine to limit bank  performance in this segment.

At least six factors are critical for bank success in this space. Operating without a coordinated  emphasis on these areas places a bank at a competitive disadvantage and results in poor productivity and mediocre returns.

Bank commitment and consistency. The great middle market banks such as Comerica, BB&T, City National, Silicon Valley Bank, Wells Fargo, and J.P. Morgan Chase have focused consistently on the middle market for many years, developing strong reputations and creating barriers to entry for new players that need to demonstrate their commitment to this segment.

J.P. Morgan Chase and its predecessor banks have focused on this segment for at least 40 years. Chase has established a clear approach to this business, knows where it wants to play and where it does not, and has limited (but certainly not eliminated) the internal frictions and conflicts that alienate customers. They have accomplished this by consistently reviewing their approach and adjusting it when necessary for market or competitive reasons. By comparison, another large money center bank we know has been in and out of this market at least six times during that period, undercutting its credibility and limiting its market impact; middle market customers have long memories.

Until recently, managers of middle market groups instructed their bankers to concentrate on credit quality and portfolio monitoring rather than new business, an appropriate focus given the downturn in the economy. Now, these same bankers have been assigned growth goals and sales targets, oftentimes without being given the tools and structure to succeed.

Diffentiating expertise and client experience. Being a generalist lender often condemns a bank to subpar returns, intense competitive pressures, and frustrated customers. The middle market requires banks to develop expertise in several areas usually, but not always, industry-based.  In our experience, we have seen banks focus on more traditional areas such as health care and transportation as well as unusual targets such as check cashers, vineyards, independent film production, and churches. Each bank needs to determine the handful of industries in which it has the interest and capability to specialize; this is an instance in which one size definitely does not fit all.

Developing an expertise builds a market reputation, draws potential customers to the bank, and often allows for some premium pricing, whether on the loan or fee side. It supports the relationship-banking concept in a concrete way that customers appreciate. Yes, you can differentiate yourself by customer service, but that is an increasingly difficult strategy to defend.

Once an expertise-based differentiation strategy is chosen, banks must deliver it consistently and predictably. (This is how ‘brand’ is delivered to the street.) Many middle market bankers have long viewed themselves as artists or independent professionals whose highly personalized work, unlike bankers in other business lines or other professionals, is not subject to standardized checklists, consistent expectations, and targeted performance metrics. Increasingly, management is rejecting this attitude, forcing greater internal discipline.

Slowly, banks are beginning to understand that “client experience” is the extension of strategy, value proposition, and expertise and that “client experience” can and should be defined in middle market banking  just as it can be defined in wealth management or other professional services environments.  This is not a new concept. In earlier times, IBM sales people or J.P. Morgan or Chase Manhattan Bank corporate bankers delivered unique and recognizable client experiences through the people they hired, attitudes, clothing, tangibles such as stationery, and work methods as well as their products and services.  Since long-lasting product differentiation is increasingly difficult, differentiation based on experience becomes significantly more important.

RM job definition.   In effect, many middle market bankers design their own jobs and their own methods with some deciding to concentrate on account maintenance and others on credit monitoring.  Oftentimes sales and marketing fall to the wayside; in the words of one relationship manager (RM), “Selling is what I do after I do everything else.”

The best middle market banks have long recognized the need to introduce consistency and discipline to this business line.  They have reengineered the RM job itself to shift credit responsibility to risk specialists and reduce or shift administivia to others, allowing their bankers to focus 60% or more of their time (vs. a more typical 40% or less) on customer sales and solution development.  They have introduced standard processes and score cards that include specific sales, production, risk management, and other elements that direct RMs to focus their efforts on activities that provide substantial customer value.

The best middle market banks have also focused on RM portfolio composition and consistency. Every time we have analyzed middle market portfolios we find that a substantial percentage of companies the RMs manage are in reality small businesses. While RMs offer multiple reasons to justify why these accounts should remain with them (for example, the close relationship they have or the businesses potential)  in most cases, the bank can transfer these clients to the small business group, freeing up RM time for new sales and cross-sell and , if done correctly, reducing the cost to serve those customers.

Sales management. Bank effectiveness in the middle market requires at least as much emphasis on Team Leaders as on RMs. Too often, Team Leaders are more bureaucrats than sales leaders and coaches, communicating the wrong priorities to the RMs. When sales performance lags, senior leaders typically blame, train, or fire relationship managers rather than examining team leaders who should be responsible for leading, coaching, and developing their team members and team leader job design.

In contrast, at one well-performing bank, Team Leaders see themselves as “protectors “ of RMs, working to remove as many compliance and other time consuming tasks from them as possible so that they can focus on being with customers and prospects. In addition, they attend multiple sales calls, review and refocus RM activities, assist in closing deals, and eliminate internal barriers to sales success.

Bank sales management processes must also engage marketing, cash management, wealth management, and other areas. Today’s environment of slow growth and the need to steal share from other banks demands presenting a bank’s total capabilities and generating as much revenue as possible from each customer. RMs with specialist input need to diagnose their portfolios to set cross-sell goals that can only be achieved with the close involvement of other bank groups. Once set, goals need to be revisited both to celebrate and communicate successes (that is, internal best practices) and to reevaluate and refine approaches that are not providing the intended results.

Performance incentives. Compensation remains an area that is ripe for innovation and rethinking, although little of either has occurred in recent decades.  When banks use performance-based variable compensation, they often base too much of the variable compensation on current year revenue or production (because it’s easier to measure than multi-year or lifetime value) and too much of the total compensation is salary-based with incentives/bonuses usually being either a small percentage of the overall package or determined subjectively. Further, the difference between ‘high performers’ compensation and ‘middle’ or ‘low’ performers compensation is not sufficiently large.

At the cutting edge, a few banks we know are integrating client satisfaction or client loyalty measures – taken directly or through research firms engaged for the purpose – into bonus or incentive compensation decisions. Others are increasing their emphasis on team leaders’ assessments of relationship managers’ adherence to and effectiveness with their banks’ prescribed sales or relationship management methodology.

Execution.  How frequently does your bank follow-up on and effectively implement the decisions management has agreed to?  Too often, banks slip back into old habits. Middle managers fail to do the hard work of setting direction, leading, and shaping activities.  Bankers, rather than embracing change and improved approaches, hope that “these too shall pass” and yearn to return to their own ways. Management cannot allow that to happen.

The best Middle Market groups have, like other well-managed organizations, developed habits of  clarity, commitment to mission, accountability, and consequences.  They establish formal or informal limits to what is expected and acceptable. They take the view that, while individuals’ drive, expertise, and self-expression are critical to success, individuals’ skills and preferences must align with institutional strategy and process. They groom and promote managers capable of leading, directing, and coaching team members to ‘go with the program,’ execute reliably, learn from mistakes and variances, and improve productivity and performance.   They encourage those who adapt and change; they discourage or release those who don’t.

Banks wishing to improve their middle market performance should begin by determining the current status of their approach across multiple areas. This type of report card sets priorities for future focus and change. Some areas to consider include:

• What is the RM’s role and responsibilities?
• How much time is the RM spending on sales and customer activities versus non-revenue activities such as compliance? How closely should the RM be involved in credit decisioning? Does consistency exist across the footprint or are bankers emphasizing different activities?
• What percentage of wallet share are you capturing? Why is share being lost to other banks?
• Do you have a rigorous sales management process?
• Does the Team Leader focus on sale management or other areas?

Frank assessment of current practices allows a bank to understand its performance gaps and gain internal consensus on required changes and the key stakeholders that need to be involved. In some cases, banks will have to face some harsh facts, for example, that they must dramatically redesign current roles or change personnel. But the alternative to doing so is lower productivity, mediocre returns, and increased competitive inroads into what should be a high-priority customer base.

Strategy #1: Attract the Right Customers

Line salespeople have the greatest opportunity of anyone in the bank to attract the right small business customers.  The key is to establish criteria around what types of businesses you want to go after (or in the case of existing small business customers, keep).  What businesses are a good fit for the products and services you offer?  Who will benefit most from the value you provide? Answer these questions then identify and pursue the prospects that fit the criteria.  Referrals are invaluable in this process.  If you can, get introduced by someone the prospect knows and respects.

Strategy #2: On-Board Small Business Customers Thoroughly  

Once you’ve got the right customers, dig in and really learn what makes them tick—their goals and strategies, plans for the future, challenges they face, etc.  Offer sticky products (e.g. online bill payment) where the customer can use them.  Continue the dialogue with post-opening follow-up.  Here’s a 3 – 6 – 3 on-boarding plan to consider:

• Day 3 – contact the customer to thank them for their business, ask about their experience, and introduce a second contact, such as a sales assistant, within the bank.
• Week 6 – the sales assistant contacts the customer to answer operational questions, correct minor problems (if any), and continue a discussion around something that was brought up in the original conversation.
• Month 3 – the relationship manager visits the customer to learn how problems and questions have been handled, discuss future visits and communications plans, and continue previous discussions.

After the three-month mark, it’s important to continue to building trust and demonstrating interest and enthusiasm.  Continue calling four to six times a year and be a valuable resource by bringing ideas, insights, and information on how small business customers can run their businesses better.  Look beyond just their businesses and expand your conversations to include the owners, their families, and their employees.

Strategy #3: Give Them Reasons to Stay

This is an extension of strategy #2.  Small business customers will want to stay with you and your bank when they are delighted, perceive they are getting value, feel bonded to you, and are engaged with you.  Delight them by knowing what they expect from their banking relationship and going beyond that expectation.  Develop a strategy for this and execute it consistently.  Add value to the relationship by engaging them in strategic dialogue and helping them to build their businesses proactively.  Bond with your small business customers through shared activities (e.g. school, civic, sports) and shared friends and networks.  And finally, engage with them emotionally by aligning yourself with your customers’ core values and beliefs (e.g. environmental consciousness, community, family, ethics, etc.)

Strategy #4:  Quickly Fix Problems

Your goal should be to solve your small business customers’ problems in one day or less and each problem should be solved by one person from the bank.  If it can’t be solved within a day, be sure to share progress reports.  Keep your customers in the loop; don’t leave them hanging for days wondering what’s going on.  Throughout the process, always provide high levels of personal interaction.

Why Small Business Customers Stay

According to the JD Power and Associates 2010 U.S. Small Business Banking Satisfaction Study^sm, small business banking satisfaction is highest among customers who believe they have a collaborative relationship with their bank.  Critical components of a collaborative relationship include assignment of an account manager who fully understands the customer’s business, ongoing communication, and easy and convenient access to the bank through branches and online channels.  By employing the four strategies outlined here, you’ll increase your chances of retaining your most valuable, profitable small business customers for years to come.

Nick Miller, president of Clarity Advantage, helps banks generate more profitable relationships faster with small and medium-sized companies, their owners, and employees. Clarity consulting, communications, sales tools and training help banks recruit and deploy sales team members, choose their best business and consumer prospects and clients, then approach, engage, sell, expand, and retain relationships. Clarity also assists banks with consumer sales and cash management sales. Clarity clients have posted increases in household penetration, cross-sells, deposit volume, and loan volume. Visit Clarity’s website at http://www.clarityadvantage.com where you can subscribe to “The Weekly Sales Thought,” a free eNewsletter and podcast focused on business-to-business selling and sales management.

Collaborate on prospects’ concerns rather than overcoming objections for win-win negotiations.

Here’s how:

• Ask questions to help prospects see how to move forward on their own terms.
• Ask prospects to look at their challenges in different ways and to consider issues they may not have anticipated.
• Help prospects to figure out what combinations of strategies could work in solving their challenges.

Want more negotiating tips like these?  Check out our August 16, 2011 live webinar – Negotiating the Fees You Deserve.  It’s part of Clarity Advantage’s Deep Diving into Sales Techniques summer webinar series.  Coaching material for sales managers.  Actionable tips and strategies for sales people.  No charge.  Find out more here.

Standardize your proposal development process and close more deals at higher margins.

Here’s how:

• Forget product features; customers want to know about the benefits.
• Focus on the value you offer through your products and your process for working with customers.
• Communicate your value effectively with:
  • Evidence that your bank clearly understands the customer’s objectives, business needs, problems, and goals.
  • A clear recommendation for a solution that will solve their problems.
  • A clear statement of the economic value that your solution will create for the customer.
  • Evidence that you and your bank are competent to deliver the solution on time and on budget.
    

Want more tips like these?  Check out our August 16, 2011 live webinar – Negotiating the Fees You Deserve.  It’s part of Clarity Advantage’s Deep Diving into Sales Techniques summer webinar series.  Coaching material for sales managers.  Actionable tips and strategies for sales people. No charge.  Find out more here.

Good negotiating outcomes begin with and depend on value-oriented discovery and selling.

To increase negotiation results:

• Ask more questions to identify client problems and challenges correctly.
• Understand customers’ perceptions and priorities around value and how much your solution could benefit them in terms of saving time and money.
• Negotiate for the best outcome rather than concede on price at a customer’s first objection.

Want more negotiating tips like these?  Check out our August 16, 2011 live webinar – Negotiating the Fees You Deserve.  It’s part of Clarity Advantage’s Deep Diving into Sales Techniques summer webinar series.  Coaching material for sales managers.  Actionable tips and strategies for sales people.  No charge.  Find out more here.

Begin your proposal process with a bank-wide effort to identify, quantify, and document the value you offer.

Here’s how:

• Link product details to customer challenges - you need to understand how and when your bank’s products solve customer operations challenges and the value the products create when implemented.
• Gather customer success stories – you must be able to describe challenges that similar companies face and demonstrate how your bank has helped them generate good outcomes.
• Build a database to store the information you’ve collected – you can tap into these resources to see the value you’ve created for others and how fast they generated the value.

Want more tips on positioning value?  Check out our July 19, 2011 live webinar – Selling the Value of Bank Solutions.  It’s part of Clarity Advantage’s Deep Diving into Sales Techniques summer webinar series.  Coaching material for sales managers.  Actionable tips and strategies for sales people.  No charge.  Find out more here.

The solution: spend time building up the value side before you start negotiating.

Here’s how:

• Correctly identify the client’s problems.
• Clarify the implications of those problems for the client.
• Know what additional costs, delays, or lost revenues are at stake.
• Know how much the bank’s solution could save the client.

When you have thoroughly explored the value side, then, when negotiation begins, you are in a position to start high on price because the perception of value is high.  If you fail to build a compelling value before offering a price concession, you’ve adopted a risky and potentially expensive strategy.

Want more tips on positioning value?  Check out our July 19, 2011 live webinar – Selling the Value of Bank Solutions.  It’s part of Clarity Advantage’s Deep Diving into Sales Techniques summer webinar series.  Coaching material for sales managers.  Actionable tips and strategies for sales people.  No charge.  Find out more here.

When branch staff and business bankers engage prospects around the challenges they face, there are three key benefits:

1. The prospect feels the banker’s interest.
2. The banker is in a better position to advise the prospect or recommend.
3. The prospect would rarely think of leaving the bank for the services of another provider who doesn’t really know them.

Here’s a questioning strategy to help you engage prospects:

• Begin with a focus question—What are your most important goals for next year?
• Move to specifics—How are you planning to <<pick one of the goals>>?  What are the most important challenges you’ll face as you do that?  What sorts of issues are you expecting to face as you address the challenges?  What approaches will you take to address these issues?
• Use follow-up questions—What will happen if you’re not fully able to address those challenges?  What resources do you have internally?  At what point will you need to consider outside resources to support you?

Want more prospecting tips like these?  Check out our June 28, 2011 live webinar – First Calls on Prospects.  It’s part of Clarity Advantage’s Deep Diving into Sales Techniques summer webinar series.  Coaching material for sales managers.  Actionable tips and strategies for sales people.  No charge.  Find out more here.

Proper preparation gives sales people the perspective needed to establish credibility and earn the opportunity for additional conversation.

How to prep?  Do some online research.  It can go a long way in enlightening a sales person on how the business he/she is calling on works.

Spend 30 – 60 minutes finding out about:

• The business concept—What’s the basic idea of the business?  What products or services are offered?  What value do they create for customers?  What types of customers are attracted to the business?
• The business drivers—How does the business make money?
• Current trends—What’s changing in the industry that’s causing money-making challenges or offering better opportunities?

Want more prospecting tips like these?  Check out our June 28, 2011 live webinar – First Calls on Prospects.  It’s part of Clarity Advantage’s Deep Diving into Sales Techniques summer webinar series.  Coaching material for sales managers.  Actionable tips and strategies for sales people.  No charge.  Find out more here.

Three points of advice for bankers:

• Find out something about the prospect – concerns, recent decisions or actions, anything that provides a clue to their thinking.  Use it to form a “warm-up” sentence like: “I’ve heard you’re planning to build a new building this year.”
• Play to the dark side – raise fear, uncertainty, and doubt.  Example: “We see interest rates rising in the next six months.  We think companies should fix rates now to avoid paying extra interest expense.”
• Ask a question – “We’ve been able to help other companies address this challenge.  I’m wondering whether you’d like to talk about how we might do the same for you starting in the next 30 days.”

Want more prospecting tips like these?  Check out our June 28, 2011 live webinar – First Calls on Prospects.  It’s part of Clarity Advantage’s Deep Diving into Sales Techniques summer webinar series.  Coaching material for sales managers.  Actionable tips and strategies for sales people.  All free.  Find out more here.