Earlier this year, Bain & Company published an article on preparing for the recession. They begin their article with this sobering reality, “With the current expansion quite long by historical standards, the risk of recession rises with each passing month.”
Now, we’re not here to yell, “The sky is falling! The sky is falling!” Because, quite frankly, no one really knows when the next recession will be upon us.
But it is best to be prepared, and it’s even better to get ahead during a recession. “When times are good, that’s the best time to contemplate major changes such as adding a low-cost channel to serve small accounts. Companies that take an aggressive approach to seizing opportunities unique to recessions are more likely to capture outsize gains leading up to, during and in the years following a recession,” Bain highlights in their post.
We also put out a recent Purposeful Banker podcast episode with PrecisionLender CEO, Carl Ryden, and 11:FS CEO, David Brear on this very topic. In the post below, we’ll share the ways your bank can prepare for a recession and come out on top, according to these two pieces.
Separating the Wheat From the Chaff
In the Purposeful Banker episode, Ryden states that a downturn is the time to see which banks are set up for success. Typically, when things are going well in the market, everyone does well - a rising tide lifts all boats. But when things aren’t going so well, the wheat can be separated from the chaff. This gives your bank the unique opportunity to see who doesn’t have what’s needed in place, and to use that time to gain market share.
Bain states, “Some 86% of companies that create a plan well in advance focus on using the downturn to gain market share, compared with only 50% of companies that create their plan shortly after the recession hits.”
To Gain Market Share, You Must Be Prepared
But how? Preparation starts with prudence and strategy.
Ryden says moving to lower cost origination channels and digitizing the bank are all steps to take in order to have a strategic advantage. But you also must take the time to ask, “How do we do this? How’s it going to help us make up ground on our competition? How’s it going to help us better serve our customers?” In discovering the answers to these questions, you’ll also be able to build loyalty and a brand. That’s where you’ll take share and lock it in from your competition, according to Ryden.
Brear expressed a similar sentiment. “The idea of preparing for this ‘imminent doom,’ can be used as a good catalyst for people getting together and really delivering on the types of things that add value to consumers,” he said. “Fundamentally, it’s also about getting their back office in order for structuring, cost efficiency and repeatability when it comes to processes.”
Regardless of what happens in the coming months, these are all areas a bank should focus on, recession or not. “In a changing world, those who add the most value to consumers have the most likelihood of survival and thriving,” Brear said.
Bain’s article lists three principles for preparing for a recession, which follow a similar sentiment to what Ryden and Brear express.
Here’s what Bain suggests:
- Align your resources with market opportunity. “Sales capacity tends to get rusted in place, and when markets move quickly, the return on cost of sales inevitably starts to flatten. So commercial executives must align their sales capacity with the growth opportunities in the market,” they say.
- Home in on the small details of daily execution. “Small behaviors—from trimming administrative tasks in order to spend time with customers, to streamlining the number of people who attend a sales pitch, to putting controls around discounting in order to limit price leakage and earn that last dollar of price—add up to big results.”
- Get the back of your house in order. “A lean, nimble commercial operations group keeps the trains running on time, feeds insightful data and analytics to the front line, and supports fast decision-making by sales management.”
What About Your Sales Teams?
How should banks handle their sales teams during a downturn, especially given that they are used to operating in a low rate, highly competitive market?
Here are a few of Bain’s suggestions:
- Understand your potential market and where the opportunity is. “With the market opportunity defined, sales executives can better focus their resources.”
- Know which deals are profitable and when to walk away. “… [Most sales teams] don’t have a quantified view of profitability by customer, product line and transaction.” Those teams end up spending far too much time with deals that don’t move the needle.
- Take the time to understand and reinforce what your best relationship managers are doing and then replicate those tactics across the team. We’ve done some of our own research on what makes the top RMs better than the rest. You can check them out in this report: Measuring RM Performance: Proving Impact & Dispelling Myths.
Want to Prepare Your Bank?
Request a demo of PrecisionLender. One of our experts will walk you through how you can be prepared for the next recession and how PrecisionLender can help your bank identify profitable deals, as well as multiple ways to improve the return you’re getting.
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