Jeff Judy

Jeff's Thoughts - May 16, 2018

Educate Your Entrepreneurs

You are constantly on the lookout for new customers to add to your commercial credit portfolio, businesses in your market that can share a mutually beneficial relationship with you for years to come. But there are only two sources of new customers, and neither of them is easy to cultivate.

On the one hand, there are the established businesses in your community. On the plus side, they have a track record. They have been around long enough to build some success. And they have lots of information you can analyze to assess their creditworthiness, to identify risks and opportunities, and to structure sound agreements with them.

On the minus side, if they are not already with you, it can take a lot of work to pry them away from their current sources of credit for their businesses. That's a long process that takes patience and skill.

The other source of new customers is new or young businesses, where people are more or less in startup mode. They may not offer the immediate returns of larger, more established businesses. But the upside of some of them, as they grow over the years, can be significant.

And if you are a valued advisor and partner in their early years, you earn their loyalty. That means that as their businesses mature, it become almost impossible for your rivals to pry them away from you.

The challenge is that these new businesses are being developed in many different ways, compared to even a couple of decades ago. We are all familiar with, and comfortable with, the business owner who goes to a four-year college, gets a business degrees of some kind, and either has an MBA or has an MBA-trained player on their team.

That's all very nice, but if you only look for those kinds of entrepreneurs, you won't grow your portfolio very much.

In an article in ICBA Independent Banker ("The community bank as community college"), William Atkinson looks at some recent surveys around small business. In one from CNBC and SurveyMonkey, he notes the finding that 56% of independent business owners did not graduate from college! That means that even if you have a great association with the business department at your local college, you are missing a lot of opportunities.

Atkinson also reports that a very large survey of millennials, conducted by the Small Business Development Centers and the Center for Generational Kinetics, shows that many millennials would like to start a business, but have no idea how to start or run one. More importantly, they don't know where to go for help.

That means that if you can find a way to, first, get their attention and second, give them some basics about the financial aspects of running a business, you can both help create new small businesses in your market and earn the gratitude of their owners. But just showing up at business events or holding a seminar at the local community college will not reach the people you're trying to entice into entrepreneurship.

Look for ways to become more visible outside the usual places. Offer a seminar, not in your community college, but in the community education arm (adult night classes) of your local school district, or through your local library. Don't call it, "Banking for Small Business". Call it, "How to Avoid the 5 Common Financial Mistakes that Will Hurt Your New Business," or something equally provocative. And do some advertising to promote it, not in business magazines, but in everyday media. If you have a smaller local newspaper, you may be able to contribute an occasional article on business matters.

Naturally, you will want to connect with local services -- legal, accounting, insurance, and more -- that cater to small businesses, especially if they will take a similarly broad approach to reaching these young entrepreneurs. Host some of their activities: Atkinson describes how Five Star Bank in Sacramento allows a Small Business Development Center counselor to hold office hours on their premises. After all, as customers use apps and on-line portals and ATMS, many of our institutions have space in their buildings that is under-used. Use it to get new and potential business owners accustomed to being in your space, and being around your people.

Besides earning their loyalty, finding ways to connect with entrepreneurs in your community helps them avoid mistakes and build stronger businesses. That shortens the time it takes for you to earn a decent return on these relationships.

Educating customers is always a good practice. But finding people who don't know they need you takes effort and creativity. Over the long haul, that effort and creativity will be amply repaid.