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Small-business owners are worried. In a survey taken during the summer of 2009, J.D. Powers and Associates found that nearly half of small businesses had become more negative in their outlook as a result of the economic downturn. This is confirmed by an October 2009 Market Pulse report from Greenwich Associates which found that 46 percent of small businesses said their financial condition had deteriorated within the past year. Only one in five businesses reported any improvement. And while none of this may come as a surprise, it should be a concern to banks and credit unions, because this bearish view is casting a long shadow over financial services providers. “When small-business owners are the least satisfied, they are the most likely to change providers,” says Jim Marous, marketing services director for Harland Clarke. According to J.D. Powers and Associates, small businesses with sales of less than $1 million are increasingly at risk of switching financial services providers, up in the past year from 10 percent to 13 percent. Greenwich Associates reported that nearly one in two small businesses are either actively seeking a new financial institution or would consider making a change if presented with a compelling offer. Compare this with pre-recession January 2007, when fewer than one in three small-business owners were considering a new provider.

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Almost half of small businesses are either actively seeking a new provider or would consider changing if presented with a compelling offer. “When small-business owners are the least satisfied, they are the most likely to change providers,” says Jim Marous, marketing services director for Harland Clarke. According to J.D. Powers and Associates, small businesses with sales of less than $1 million are increasingly at risk of switching financial services providers, up in the past year from 10 percent to 13 percent. Greenwich Associates reported that nearly one in two small businesses are either actively seeking a new financial institution or would consider making a change if presented with a compelling offer. Compare this with pre-recession January 2007, when fewer than one in three small-business owners were considering a new provider.

“Because entrepreneurs are becoming increasingly concerned about the survival of their companies, they need more support than ever before,” says Marous. The bad news is that banks and credit unions are currently in danger of losing their trusted adviser status; the good news is that financial institutions now have a chance to become better advisers. According to Marous, “The opportunity to acquire and grow small-business accounts has never been this promising.”

Wanted: A Long-Term Commitment

He notes that small-business owners sometimes find financial products difficult to understand and are frustrated when they cannot get clear information from their financial institution. The Greenwich Associates report found that a whopping 70 percent said financial institutions were not meeting the needs of credit-worthy borrowers. No wonder 87 percent of these business account holders agree that financial services companies are facing a crisis of trust. Far and away, sub-par service was the most common reason cited by the four in 10 small-business owners who switched financial institutions, according to the Raddon Financial Group's Small Business National Research survey. Competitive fees and rates, while important, ranked a distant second and third, cited by 28 percent and 21 percent of respondents, respectively. Owners of small companies are more concerned with long-term relationships that demonstrate a commitment to their accounts, notes Greenwich Associates.

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Small businesses that switch financial service providers do so for service reasons. The pie chart above shows that 14% switched providers. The bar chart below shows that 41% leave due to sub-par service.“Research shows that small-business account holders visit a branch at least twice as often as consumer account holders,” says Lisa Cole Pacquin, vice president for B2B Solutions for Harland Clarke Marketing Services. “Yet branch personnel often are poorly trained to deal with their needs.” Indeed, Javelin Strategy & Research found that 87 percent of small-business owners had visited their local branch within the past month, compared with only 39 percent of consumers.

Another issue is that small-business accounts are often “hidden” on the consumer banking platform, where business and personal accounts may intermingle. “They’re easy to miss,” says Pacquin.

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Wanted: The Tools to Run a Business

So what do small-business owners want from their bankers? According to Stephenie Williams, senior strategist at Harland Clarke, financial institutions ought to focus on two key areas: communication and operations. J.D. Powers and Associates found that the more often a new small-business account holder received a communication, the higher that individual’s satisfaction was with the financial institution. The recommended frequency of communication, on average, ranges from two to three times a year for businesses with less than $1 million in sales, to five to seven times annually for businesses with sales in the $5 million to $10 million range.

These communications can be a combination of phone calls and in-person meetings. Yet more than two in three small businesses reported no account representative visits in 2008, according to Harland Clarke case studies. Clearly, there is a tremendous opportunity here to improve service. The key is to generate a natural and ongoing dialogue that creates awareness of various solutions for the small-business account holder. Brian Haney, small business products expert at TD Bank North, sums it up this way: "Small-business account holders are looking for a banker who takes an interest in their business."

However, Williams cautions that communications should not always be promotional in nature. “Institutions can offer educational information and trends,” she advises. “E-mail relevant articles about the account holder’s industry, provide financial analysts’ reports, or draw attention to industry-specific webinars or seminars.” Small-business owners also seek assistance with operations. They may excel at delivering whatever product or service they provide, but they do not necessarily know how to run the operational and financial aspects of their business. Often they are looking for basic rules on how to get started.

“Financial institutions can provide these account holders with services that help improve the efficiency of their business processes, which goes a long way toward easing their frustrations and ultimately earning their trust,” says Williams. “Think in terms of convenient value-added services that can save them time and money — things like projected cash flow, expense categorization and transaction history.”

One person who can attest to this is Todd Barnhart, senior vice president of Retail Deposits and Fee Income for PNC Financial Services Group, which services small-business accounts. “Time management and cash flow are generally their biggest problems,” he notes. “So they often choose a financial institution based on the tools it can provide to help them with these two challenges.” Examples, he says, include online payroll systems or merchant processing solutions. “For financial institutions, it’s about tailoring and simplifying sophisticated corporate cash management solutions for the small-business market.”

Services might include budgeting tools, financial record storage, establishing financial security and privacy policies, easy movement between business and personal accounts, direct deposit, payroll and ACH services, and online bill pay. It is worth noting that Javelin found that nearly three in four small businesses pay invoices directly at the biller’s site, compared with fewer than two-thirds who pay using a financial institution’s online bill payment site. This indicates that an institution’s online bill pay program may need improvement or, perhaps, better promotion.

Wanted: A Personal Touch

If bankers were inclined to under-estimate the value of paying attention to small businesses, they should consider the J.D. Powers finding that highly satisfied small-business account holders can generate a 19.7 percent increase in revenue for a financial institution when compared with
less satisfied ones.

Marous adds that smaller local banks and credit unions seem to understand this intuitively. “They are very good at reaching out to account holders and making one-on-one connections,” he says. “In this case, it’s smart for big national financial institutions to think more like small ones.”

PNC’s Barnhart adds a note of caution, however. Financial institutions should remember that all small businesses are not alike. “A medical practice has different needs than a manufacturer, which has different needs than a fits-all banking.”

The simple truth is that small-business owners feel neglected. “They want to hear from you,” says Marous. “The solution is to get in front of these account holders and help them be more successful. There is no substitute for consistent, ongoing communication.”

A Business-to-Business (B2B) Best-Practices Primer:
Attracting and Retaining Small-business Accounts

The following guidelines will help you qualify small-business leads and grow them into more profitable accounts:

Smart B2B marketing programs build momentum. They should be repetitive and dynamic, nurturing interest and generating dialogue. Communications can be a combination of e-mail, direct mail, telephone calls and face-to-face visits.

Marketers should envision lead management as a continuous loop. “Financial institutions need to stay patient throughout the process,” says Lisa Cole Pacquin, Harland Clarke’s B2B Solutions vice president. Change takes time. It doesn’t happen overnight.”

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Harland Clarke continually develops new marketing strategies to help financial institutions communicate with small-business accounts. To learn more, contact your Harland Clarke
account executive or visit harlandclarke.com/contactus.