Winning Tactics of the Top Commercial RMs, Part 1

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Podcast Transcription

Jim Young: Hi, and welcome to The Purposeful Banker, the podcast brought to you by PrecisionLender, where we discuss the big topics on the minds of today's best bankers.I'm your host, Jim Young, Director of Communications at PrecisionLender.

I'm joined today by Gita Tholleson, an SVP for Client Success here at PrecisionLender. She's a recent addition to our team, having come over from S&P, where she was the Director of Analytics for S&P's commercial loan middle and lower middle markets.

Gita's going to talk to us today about some of the tools and tactics that top commercial relationship managers use to stand out from the competition.

But before we get into that, Gita can you tell us a little bit about the work you did at S&P, and specifically how it informed your learnings about top commercial RMs?

Gita Tholleson: Sure, Jim. My focus at S&P was in driving performance improvement at commercial banks, included with the loan portfolio as well as share of wallet. The approach was to implement information-based tools and tactics to help bankers make more informed pricing decisions, and really the goal being to win business without leaving money on the table.

As part of that effort, I've had the opportunity to work with many banks across the US and Canada and really working on the inside as, almost as an extension of the bank's staff, and through those efforts I've gotten to observe firsthand what makes some bankers more successful than others.

It's remarkable. It's always amazed me how you take one bank that has the exact same tools and information and yet you see some people are able to win business and get great pricing whereas others are less successful at achieving their volume goals and also give up on pricing or fees. J

Jim Young: In the past, Dallas Wells and I have talked about this and written about the Zipfian curves and the Pareto Principle about how, in a lot of cases at banks, 20% of your top RMs are producing 80% of your business. So this is really important stuff to try to tap into what those RMs are doing to really get the lion's share of the business.

Some behind-the-scenes info, Gita has given me a lengthy list of these tactics and tools, and we're going to start going through them in this show, but we're likely going to need another show or two to complete it, so this will be a part one.

First though, let's start off with just the broad concept of knowing the borrower and the competition. That sounds obvious to me, Gita, but I'm guessing it's easier said than done.

Gita Tholleson: Well interestingly enough, there are a lot of tactics that really are not rocket science, yet somehow not every banker consistently employs them, and this is one of them actually. I mean let's start with the easier of those two, which is knowing the competition. I hear from a lot of bankers sometimes an RM has just lost a deal to an aggressive competitor, and they assume that the next deal is going to priced as aggressively, but the competitive climate really does vary quite a bit from one deal to the next.

What the best practice RMs tend to tell me is that they have to look at whether a deal is going to be put out to bid, and if it's really just going to come down to price and terms to win the business, if it's just sort of the low-cost provider is going to win the business, or if it's more of a relationship play.

One of my favorite quotes from the banker is, "If you win a deal on price, you're going to lose it on price." That's just so true. I mean not every deal is put out to bid.

So the question is, is there really direct competition for the business? Even if there is, I mean, who is the competitor? What are your competitive advantages relative to that bank? Maybe it's a larger bank where they're saying that they're getting a lot of pressure from a smaller player, especially now with the fintech initiative having taken off, and so the RM might as the borrower to consider the financial viability of the firm that they're considering doing business with. Or on the flip side, maybe it's a smaller bank who's got some competition from a larger player. They can play the service card and ask the question to the customer, "Do you really want to be calling a 1-800 number, or do you want to have a person that you can speak to to help address your needs?"

It's knowing who the competition is, but knowing what your strengths are relative to that other player. In a lot of cases it's also a matter of understanding directly from the borrower what they may be paying their incumbent bank. That's as simple as just asking the borrower for that information.

By the same token, if the customer cites a lower bid that they may have seen from another bank, ask the customer to see the term sheet. Quite often, the customer will focus on the rate. They'll say, "Well this other bank is offering me X," and there are lots of other details that may be omitted that you'll only know by looking at the term sheet. Just ask about that and get a real good perspective in what the borrower is really facing.

I think, Jim, that also leads to the second part of your question, which was understanding the borrower. I think we all have a tendency to gravitate toward rate or spread in discussions with customers. It certainly doesn't help when the customer approaches us and says, "That other bank is offering me this price." It's natural to assume that price is the number one consideration, but quite often it's not.

One consistent theme that I've heard among the stronger performers is to really probe with the borrower on what's most important. Is it rate or spread? Is it fees? Maybe it's availability. A concern maybe is cashflow and getting an amortization structure that would give them adequate cashflow. It could be guarantees. It could be collateral.

Really the best guidance that I've heard on this topic is find out what's important to the customer and find out the relative priorities. Then you reiterate those priorities back to the customer and say, "Okay. If I can get you X, Y, and Z, do we have a deal?" Then later on if the customer pushes back on pricing or fees say, "Hey remember that conversation we had? We agreed if I could deliver X, Y, and Z, we have a deal." Then you basically move forward from there.

Jim Young: Yeah, and that really plays into the things we talked about a lot with the jobs to be done. The whole Clayton Christensen framework of asking those questions. Get to maybe the job that the customer wants done is they want rate certainty. They just want to know that whatever they're gonna pay is not going to change if the markets change. Or maybe it is they don't want to be paying this out 10 years from now. Or maybe it's they need it immediately and they don't care as much about the rate, but they don't necessarily know those things, as you mentioned, until you as the RM ask those questions and really tease that out.

Another popular thing we see from banking sales advisors and gurus, and this really segues off of this, because if you're doing those things, asking those questions, you're really doing what the sales advisor gurus talk about. That is that RMs need to act like advisors and not like, for lack of a better word, a salesperson. What does it look like? We have a little bit of that, but can you go into a little more depth about what it looks like when an RM is doing this right?

Gita Tholleson: Absolutely. I think the first key to being a trusted advisor is being proactive and reaching out to the customer. You do that on a regular basis, whether it's once a year, twice a year. It's not just pitch your product to them, but to really talk about the business.

A lot of times in reviewing the customer's financials, the RM's identifying a need before the customer has even identified that need. The customer doesn't know what they don't know. Sometimes just talking about the business, you identify some potential for a bank product or service that you can then bring that idea to the customer, and you do it at a time when, as opposed to being one of many banks bidding for a piece of business, you're really alone at the table.

I recall one example where a borrower really just needed to refinance an equipment line, but the banker took a look at the books and saw that this borrower had quite a bit of debt that was becoming due in about a year. So, he proposed a full refinancing package of all of the debt, and by doing that, not only did he save the customer the headache of having to deal with it a year later, but the bank was essentially alone at the table, instead of waiting for the customer to put this deal out to the ... and really by the time the customer approaches the bank with an RFP, it's really too late. At that point, it's just about offering the lowest price or the best terms. Just having that conversation, understanding what's important to the borrower and being proactive is really key. 

Here's one specific example of an RM, which is a little bit unusual, but it turned out to be really a winning strategy. There was one banker I spoke with recently who was providing financial guidance and advice with absolutely nothing in return for the bank. Really developed a lot of trust. It was a case where it was a small boutique hotel. The owner's sister was managing it, and she wanted to branch off and buy her own business, looking to buy a convenience store. Because of the fact that she had no real track record, the RM looked at the deal, just couldn't get comfortable with it, but he said, "I'll still help you out. I'm happy to review whatever other proposals you get." She came back to him and got a deal from the incumbent bank who was financing the brother's hotel and said, "This is a great deal. It's really a fantastic price." He said, "Well let me take a look at the paperwork." He looked at it. He found that this bank had put the brother on as a guarantee. And she said, "Well wait a second. We never talked about that." He told her, "Go back and tell this bank this is not what we agreed to." She went back and did that, and the bank pulled out the guarantee. And just by doing that, and again with this banker not asking for anything in return, he developed that trust with her. 

Two years later when the business was viable, she came right back to him and wanted to do the refinancing with him. So, it's a great example of where you're providing that financial guidance and that support, not really just out there pushing a product. That could really pay off if you're patient enough.

Jim Young: Yeah. I would imagine, and I've seen this unfold as well, that it can be also the case, like you said, anytime you give that advice that is not tied to a direct financial gain for you or your bank, you build that credibility. I would imagine one of the ways you see that play out as well is just by saying to someone, "Actually no. I don't think you should do this deal." Or, "I know you want to take on this loan right now, and that would obviously grow my book etc., but I don't think this is the right time for you to do that." I would imagine that play builds credibility as well.

Gita Tholleson: Oh absolutely. There was one case I recall where a customer came to the bank looking for a very specific financing. I think there was about a $1.5 million they were looking for. The RM looked at the books and looked at what their expenditures had been. He found that even during the peak period, they were only spending about 950K. He said, "You know what, we could right size this line. You really don't need one and a half million. We'll make it a million dollars and by doing that we could get this deal approved, get you good pricing." It's a matter of saying, "Maybe what you're looking for doesn't make sense, but here's what we can do."

I think another great example of that, there was one banker that had a customer doing a lot of equipment purchases. Every single deal he would pretty much put out to bid. He would go back to her and say, "Well this bank is offering me this." There were times when she would say to him, "What? That's a great deal. You should go ahead and take it." And that, in and of itself, established a lot of trust because she wasn't just trying to convince him to do every deal with her bank. She was actually telling him that there was a great deal, go ahead and do it. But she still maintained the relationship and all the ancillary business because she wasn't just trying to push products. She was really being honest and winning his trust.

Jim Young: All right. Next on your list is offering tailored solutions to business challenges. I'm gonna play devil's advocate on this one a little bit. If I'm an RM and I've got a lot of accounts and a lot of irons in the fire, and maybe I'm in a lot of different verticals, how tailored can I really get? Is this an approach that is scalable?

Gita Tholleson: Well, doing the tailored solution is definitely more plausible if it's a larger deal where there's more revenue to be had. On a smaller credit, it might be less about customizing the product offering and more about finding the right product to match the borrower's needs.

As I recall, one deal, it was a restaurant owner that owned several restaurants. They were looking to pursue a growth strategy. With their existing banking relationship, every time they found a potential acquisition, the company would have to go back to their bank, go back and forth with credit, and they felt somewhat handcuffed because they couldn't even make an offer without knowing if the bank was gonna approve the financing. This bank, the one I was speaking with, came up with a hybrid deal, akin to an equipment line, which would essentially fund any future acquisitions as long as the pro rate financials stayed within certain pre-defined parameters. By doing that, the customer was able to be much more nimble in making offers on these potential targets knowing that the financing would be in place. It was definitely an out-of-the-box solution, but it was a case where pricing wasn't even discussed.

Obviously, that was a larger deal where there was so much revenue for the bank that it was worth the effort to maybe tailor the product offering a little bit more. But I've seen even cases where, perhaps on a smaller deal, where you couldn't necessarily justify a complex structure, but the banker has still been able to deliver something that would still feel more tailored to the customer and be something the customer didn't even think they needed, but still sticking within the bank's existing product offering.

I remember one case where a customer was looking to do a short term financing, but after the RM probed on their business plans, he realized that they were projecting pretty rapid growth over the next 10 years. So, he proposed a 10 year loan to help finance that growth. That was a standard product that the bank had to offer. It wasn't really customized per se, but it was a different structure that was much better aligned with the company's goals than what they initially came to the bank with.

Jim Young: Okay. I'm gonna make this one here our final question here because again, as I said, this is a topic that Gita can expound on for a long time. This is gonna be, I think, a topic we return to multiple times in this podcast. But just for today, one more question. It goes, again, a little bit in line with what we were just talking about. What about getting industry specific knowledge? We've seen some banks organize business lines along those verticals, like having a group that sells financial products specifically to healthcare companies. What's your thoughts on that approach?

Gita Tholleson: Well, a lot of banks have industry verticals. That's absolutely been a strategy to win business, as well as to drive revenue and yield. But what's interesting is that while there is some industry verticals that are consistent across the market, so healthcare as you mentioned, or energy, I've seen that no matter what the specialty, banks which have that industry focus do better on both volume and pricing. It seems to be because they're able to leverage their industry knowledge to better understand the borrower's business challenges.

So, really dovetailing off of what we were just talking about, by understanding the business, you can tailor the solution to really address the customer's needs and their business challenges. I've seen even some uncommon industry verticals. One bank had a gaming vertical, but just phenomenal performance results. Even if the bank doesn't have an industry vertical in any particular segment, I have heard some bankers that have achieved virtually the same results by doing some due diligence on the industry. Researching the industry, understanding the business challenges, even making introductions to the customer, and setting themselves apart from the competition by doing that.

One simple example is a manufacturing company where the RM researched the industry and this company's specific business, and realized that they were gonna need to update their equipment, and put in place an equipment line for them. No matter what the industry, if you develop that deep industry knowledge, whether it's through a vertical or through separate analysis, you can absolutely come out ahead.

Jim Young: Okay. Well that'll do it for this week's show. Gita, thanks so much for coming on. I look forward to talking to you more about this topic and others in the future.

Gita Tholleson: My pleasure. Happy to be here.

Jim Young: Just a reminder, if you want to listen to more podcasts or check out more of our content, you can visit our resource page at PrecisionLender.com or you can just head over to the home page to learn more about the company behind this content. Finally, if you like what you've been hearing, make sure to subscribe to the feed in iTunes, Sound Cloud, Google Play or Stitcher. We love to get ratings and feedback on any of those platforms. Until next time, this has been Jim Young for Gita Tholleson, and you've been listening to the Purposeful Banker.

What's Next ...

To learn more about how the best RMs separate themselves from the pack check out "Winning Tactics of the Top Commercial RMs, Part 2"

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