engaging more effectively with soho and small business

Engaging More Effectively With SOHO and Micro Businesses

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Research Addendum to:The ath Power Small Business Banking Study™

By Michael J. McEvoy, Managing Director

http://www.athpower.com


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Engaging More Effectively with SOHO and Micro Businesses

The ath Power Small Business Banking Study™

This confidential business summary document has been prepared by ath Power Consulting Corporation and is furnished for informational purposes only. The recipient agrees not to reproduce it in whole or in part, not to use it for any other purpose, and not to disclose any of its contents to third parties without written permission of ath Power Consulting Corporation. © 2012 ath Power Consulting Corporation.

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Key Takeaways

• Many SBOs in the micro business / sole proprietor segment view a significant proportion of the services provided by banks as largely irrelevant to their business needs

• The segment is largely underserved by banks, with fewer than 1 in 3 SBOs assigned a relationship manager (RM) and only minimal contact with many who are assigned an RM

• Almost 2 out of 3 of these SB customers often use their personal checking accounts for business purposes, while almost one-half fund business purchases with their personal credit card

• Fewer than 1 in 5 small business customers are ‘very satisfied’ and almost one-half are ‘neutral’ on the question of whether their bank understands their needs and challenges

• Distinguishing between SB offerings of competing banks is a challenge for business owners: almost 75 per cent of those surveyed considered their banks’ product and services offerings as ‘somewhat similar’ or ‘very similar’ to those of other banks

• A collection of ‘best-of-breed’ tools, provided as a service bundle that would help the business owner manage and grow their business, would appeal to a majority of SBOs

• Providing online webinars / workshops would allow for a deeper engagement with the SBO with obvious potential for enhanced loyalty and retention

• A majority of SBOs see their bank as a credible provider of non-traditional services such as those envisaged in this paper, and more than 1 in 4 would consider switching to a bank which offered them

• By proving to SBOs they truly understand their needs and are motivated to serve them, banks will likely improve loyalty and retention, while in the process attracting new customers away from competitors unwilling to let go of dated business models.


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Q. When you were first opening these accounts, through what sources did you learn about the bank’s business products and services?

Introduction The ‘Disconnect’ With Owners of Small Businesses

U.S. banks have traditionally struggled to serve smaller businesses (defined here as businesses with annual revenue of under

$400,000) and the experience of the past 4-5 years has, if anything, witnessed an even greater ‘disconnect’ between banks and

small business customers in this segment – typically sole proprietorships, micro-businesses and start-ups. Although large in

number, these smaller businesses provide a formidable challenge to banks seeking to serve them profitably, efficiently and

with relevant products and services. The segment is therefore often underserved or largely neglected by banks and other

financial institutions.

Despite the fact that visits to the branch are at the core of the small business relationship from inception (Figure 1) and continue

to be the most important means for business owners to learn what the bank has to offer them (Figure 2), banks do not fully

leverage the opportunity to meet with small business owners (SBOs) when business customers visit the branch.

FIGURE 1


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What I Want In a Bank:

“Someone to listen to our needs and help us reach our goals.”

- Small Business Owner (Technology Company)

n=567

Q. What is the primary way you learn about the products and services that a bank can offer your business?

FIGURE 2


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Banks provide fewer than 1 in 3 SBOs with a business relationship manager (Figure 3) and even when they do, many business owners report only minimal contact with their assigned banker (Figure 4). There is clearly room for improvement in the level of engagement with business customers. The economics of small business banking may not allow for individual attention to most SBOs on an on-going basis, but there appears a clear need for the relationship between owners of smaller businesses and their bank to assume a different form from today’s model.

FIGURE 3

n=166

Q. Approximately how often have you met with your business relationship manager?

n=568

Q. Do you have a business relationship manager assigned to you for your business banking needs?

FIGURE 4


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‘Irrelevant Products’

A source of the ‘disconnect’ mentioned earlier are the products and services offered by banks and their relevancy to the small business customer. Most SBOs have little need for more specialized services such as cash management, tax, payroll or merchant services (Figure 5) – yet many bankers choose to promote them to their small business customers without learning enough about the business, its stage of development or its current needs. Indeed, many SBOs view such specialized services as largely irrelevant to their business needs (Figure 6).

FIGURE 5 FIGURE 6

Q. PLEASE INDICATE WHETHER OR NOT YOUR BANK OFFERS EACH OF THE FOLLOW-ING BUSINESS ACCOUNTS OR SERVICES AND IF YOU USE IT.

Q. How relevant do you feel that these products and services are

for managing and growing your business?


What I Want In a Bank: “A bank that is sincerely interested in me/my business as a customer!” - Small Business Owner (Real Estate)

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Use of Personal Accounts for Business

Even basic business banking products are shunned by some business owners, as they choose instead to use their personal

banking products for checking, debit and credit card business needs. Our study finds that almost 2 out of 3 SB customers often

use their personal checking accounts for business purposes, while almost one-half fund business purchases with their personal

credit card (Figure 7). The use of personal banking products for business purposes occurs even when the SBO holds a business

product equivalent: for instance, 42% of SBOs who use their personal DDA for their business also have a business checking

account. Some business owners may fail to see any real difference between the retail offering and the business equivalent

– other than the fact that fees associated with business accounts can be significantly higher. While the difference between

certain personal and business products may be blurred for some SBOs, distinguishing between SB offerings of competing

banks is an even greater challenge: almost 75 per cent of those surveyed considered their banks’ product and services offerings

as ‘somewhat similar’ or ‘very similar’ to those of other banks (Figure 8).

FIGURE 7 FIGURE 8

Q. Which, if any, of the following personal banking accounts do you

often use for your business (e.g. for business purchases)?

Q. How similar are the products and services offered by your bank

to those offered by other banks you know of?


What I Want In a Bank:

“Assistance in achieving my goals.” - Small Business Owner (Therapist)

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Overall, it appears that many business owners are

underwhelmed by the products and services on offer at

their particular bank. SBOs view many of the products

offered as having little relevance for managing and growing

their business. They also see little to differentiate one bank

over another. However, business owners indicate that they

would respond positively if their bank were to make an

effort to provide solutions that were better aligned with

their actual business needs: a strong majority, 4 out of 5,

say they would view their bank more positively, as a result

(Figure 9) .

Unsurprisingly, in managing their business’s finances,

many SBOs rely on simple tools like spreadsheets, word

processing programs or personal financial software such as

Intuit’s Quicken. Less than one in four use business-grade

tools (e.g. Intuit’s Quickbooks) to manage their business

finances (Figure 10). The learning curve and associated

cost involved in licensing such tools likely deter some

owners of smaller businesses from venturing beyond more

familiar options, such as spreadsheets. Almost 1 in 3 rely

on online banking account access as their primary means

of managing/monitoring their business finances.

Overall, it appears that many business owners are underwhelmed by the products and services on offer at their particular bank.

Non-Traditional Services: Opportunities For Banks To ‘Reset” Relationship With SBO

Q. If your bank actively promoted wider business tools specifically

designed to meet your needs and challenges, how would that

impact your perception of the bank?

Q. What do you currently use to manage or monitor your businesses

finances? Select the one below that you use most often.


FIGURE 9

FIGURE 100

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FIGURE 11

Q. Please indicate how useful it would be to you if your bank offered the following to help you better manage and grow your business.

Tools For Business

More broadly, our research suggests there may be opportunities for banks to expand their relationship with small businesses by

providing services that help owners manage and develop their business. Examples may include tools for supporting day-to-day

tasks, such as generating invoices or creating legal documents or managing the finances of the business. Other types of tools

may be provided to help business owners tap into technologies for uncovering efficiencies (e.g. automated credit monitoring

of customers) or expanding markets served (e.g. tools for developing a Web presence). Of interest to banks – given the earlier

observation that SBOs would view their banks more favorably if they provided relevant business tools (Figure 9) – is that these

types of “tools” or “services” appear likely to appeal to the small business segment.

Online Webinars/WorkshopsA formidable hurdle for some may be the time and effort involved in learning to use a particular tool. The challenge likely helps

explain the fact that less than one-quarter of SBOs utilize professional financial management tools in managing their business

finances. A possible solution may be to provide basic training, to get customers started, through online webinars or workshops

for SBOs in the use of the bundled tools.

An additional benefit to the bank for providing online webinars / workshops is that they would also allow for a deeper engagement

with the SBO with obvious potential for enhanced loyalty and retention. This may help address an important issue identified

earlier: the current lack of engagement with most SBOs, with few business owners assigned a relationship manager (RM) and

infrequent contact with the RM even when there is one assigned.


FIGURE 12 FIGURE 13

Q. Do you see your bank as a credible provider of these kinds of

service offerings?

Q. If another bank offered you services aimed at helping you to

manage and grow your business, such as those mentioned above,

would you consider switching banks?

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Customer Appeal

It is legitimate to question whether small businesses would be receptive to the concept of banks providing these types of bundled

services. In fact, a majority of SBOs see their bank as a credible provider of such non-traditional services (Figure 12) and more than

1 in 4 would consider switching to a bank which offered them (Figure 13). There may be an added benefit, too: the customer

experience for SBOs visiting a branch would likely improve if discussion with bankers were more focused on the business and less

on selling traditional bank products.

Being able to offer non-banking value-added services that support the business would help free the banker to develop a more

friendly, trusting relationship with the business owner than may be possible under the current business model. In addition, banks

may find themselves attracting more of the personal accounts of business owners if they provide improved offerings that truly

speak to the needs of the business owner.


12This confidential business summary document has been prepared by ath Power Consulting Corporation and is furnished for informational purposes only. The recipient agrees not to reproduce it in whole or in part, not to use it for any other purpose, and not to disclose any of its contents to third parties without written permission of ath Power Consulting Corporation. © 2012 ath Power Consulting Corporation.

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We believe that the approach outlined in this paper – of introducing bundled service offerings that go beyond traditional bank products and services – is worthy of consideration. By proving to SBOs they truly understand their needs and are motivated

to serve them, banks will likely improve loyalty and retention, while in the process attract new customers away from competitors unwilling to let go of dated business models.

Conclusion


This paper is a research addendum to The ath Power Small Business Banking Study™, an annual report that provides a detailed assessment of the sales and service processes, product and service offerings, delivery methods and customer experiences of the nation’s premier institutions within the Small Business banking target market. To find out more about this one-of-a-kind market study, please contact Peter Johnsmeyer at +1.978.474.6464, extension 106 or via email at [email protected].

Explanatory Notes:

1. This paper is focused on small businesses with revenue of less than $400,000. All discussion of ‘small business’ is referring to this SB segment.

2. Sample size throughout is 570 unless otherwise noted.

3. This study was conducted among a representative nationwide sample of U.S. Small Business Owners during October 2012.

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engaging more effectively with soho and small business

Economy & Finance