What Makes Your Banker Tick?

It is unfortunate that business owners frequently consider their lender an adversary rather than a team member. Mark Twain once wrote ‘A Banker is a fellow who lends you his umbrella when the sun is shining and wants it back when it starts to rain.’ In today’s world banker jokes are probably second only to lawyer jokes.


In this article, I would like to suggest that business owner’s reconsider this common attitude toward banking and, instead, consider the benefits of treating your lender as one of the members of your management team.

One of the first steps in building strength in your lender relationships is to become more knowledgeable about bankers in general. To this end, you might consider reading the book ‘The Small Business Insider’s Guide to Bankers’. This publication does a nice job of providing a synopsis of how the banking industry operates, how to speak the banker’s language and how to turn your banker into an advocate for the growth and success of your small business.

Uneasy relationships, with a lender, can be traced back to:

• Business owners who do not understand the most basic facts about the business of banking.

• Using the wrong bank or the wrong financing

• Failing to understand the four P’s of a perfect loan proposal and what it means to ‘package’ a loan.

• Failing to understand what makes your business ‘bankable’

• Failing to understand your commitments and the implications of resenting your lender’s requests for information.

• Not valuing a long-term relationship and how it can impact your survival as a business.

• Turn-over in the banking industry and the need to continually nurture new relationships

Following are five positive steps you can take to improve the relationship with your lender:

1) Consider reading ‘The Small Business Insider’s Guide to Bankers’ to learn more about why and how your lender does business.

2) Invite your lender to visit your business and help him or her gain a better understanding of your operation.

3) Provide your lender with accurate, timely financial information. Not only is it a good idea to have this information for internal use, it is also a condition of your loan commitment to the lender.

4) If you want to communicate more knowledgably about your financial status, consider the Profit Mastery Program offered through the Small Business Development Center.

5) Do not blind-side your lender. Be sure to keep your lender informed of critical issues affecting your business.

If you need assistance in the development of a loan package or would like to explore the Profit Mastery Program, you can access services through the Small Business Development Center in Longview.

IS YOUR IDEA FEASIBLE?

Are you considering an expansion project or the purchase of another business? Are you anxious to run to the bank, get a loan, and open your new division or buy that new business? STOP! Before you pump cash from your existing business into an expansion plan, you want to know if it has a chance to succeed.
A common mistake made by many people is to blindly grow their business thinking that increasing sales will result in increased profits. A feasibility evaluation will allow you to make a more informed "go" or "no go" decision. A sampling of topics that should be honestly appraised includes:

•  Is there really a demand for the new product or service? Is that demand sufficient to fund growth or will the existing business be compromised by the drain on cash flow?
• Have you researched market demand or have you just assumed that people need or want your product or service?
• Does your product or service satisfy an unfulfilled need?
• Will your product or service serve an existing market in which demand exceeds supply?
•  Will your product or service be competitive based on its quality, selection, price or location?
• Do you know who your customers will be?
• Do you have the internal capacity, i.e. equipment, personnel, parking, to handle the growth?
• Do you understand how your business compares with your competitors?
  

Study the Market

Ultimately, your idea must fulfill a need for your buyers and must do so in a way that's somehow superior to the competition, however you define it. If you want to be sure that your idea will do these two crucial things, you need to know as much as you can about the following:

• Personal knowledge. Understanding the industry is vital to assessing the market for a product or service. Personal knowledge of the industry develops from having contacts in the business, personal experience and a general feel for the business.
• Competition. Who are your competitors? What are your competitors’ strengths and weaknesses? What are your competitors planning to do next? What are your competitors’ spending trends? A survey of the competition may be needed to determine if there is a niche or room in the market for another business. This can be done by observing competitors' businesses. How busy are they? What problems do the businesses seem to have? What type of customers do they have? Observation helps to determine the size of the market and problems businesses have in serving that market. It may be helpful to develop a Strengths-Weakness-Opportunity-Threats (SWOT) matrix to summarize this information.
• Customers. Do you know who your customers are? Do you understand why, how and when they will buy your products or services? Did you know that 80% of your business likely comes from 20% of your customers? What are the characteristics of those ‘most valuable customers’? Will they be interested in your new products/services?
• Secondary research. Finding information that is already published, through searching the library or Internet, is necessary to quantify the market and to verify your findings from the above three steps. Obtaining outside validation that the market potential exists and is yet untapped or is capable of supporting your business is critical. How big is your market? Is it large enough to sustain your business and competition? What is the growth trend for the next five years? Once a market has been identified, what is the size of the actual market that you can compete in? The actual market segment that you can sell to may be a small fraction of the total market.

Determining the feasibility of your project is just as important for a pre-existing business as it is when you first start a business. If you fail to determine whether your project is feasible before making an investment, you may jeopardize the long-term health of the business that you have worked hard to create. Contact your local Small Business Development Center if you need assistance in this area.

Excerpts were taken from an SBDC publication and modified by Susan J. Hoosier, a SBDC Certified Business Advisor with the Longview Small Business Development Center, which is part of the 24 statewide offices of the Washington Small Business Development Center (WSBDC) network. The WSBDC offer in-depth, confidential, and no-cost management advice to businesses within Washington State. To locate your local SBDC advisor please visit the SBDC web site www.wsbdc or if you or your business is close to the Longview WSBDC office you can contact Susan Hoosier at shoosier@wsu.edu or 360-442-2946.

Five Steps to Defining and Delivering Your Unique Value Proposition

In today’s increasingly competitive business landscape, it is vitally important to develop a clear statement of the tangible results a customer gets from using your products or services. This, in a nutshell, is your ‘value proposition’. Developing a powerful and tangible value proposition will set you apart from the competition and entice your prospects to investigate your products and services. The ability of your company to back up the value proposition will be critical since a value proposition, for all effects and purposes, is a promise that you make to your customers.


The number one response you don’t want prospects to ask, or even think, after hearing your value proposition is, ‘so what?’ Strong value propositions deliver tangible results.

Examples of weak propositions:

It’s the most technologically advanced system on the market. So what??

We offer training classes in a wide variety of areas. So what??

Example of strong proposition:

We have been in business since 1960. What that means to you is we are dependable and our money-back guarantee has been a solid commitment to our customers for over 40 years.

Your value proposition should be something that can be incorporated into your elevator speech, i.e. a short but interesting and focused description of the work you do and the solutions you provide. It should last no more than 30 seconds (the length of an elevator ride).

Example of a value proposition incorporated into an elevator speech:

My name is Jane Smith. I am a consultant with …., where I have helped over 30 small biotech companies form business partnerships with universities and research labs in 20 states.

How can you develop your own value proposition?

1) Describe what your business provides in terms of tangible business results to clients.

2) If you can easily ask the question, ‘so what?', when you read the description you have created in 1) above, then you are probably describing a feature (characteristic) rather than a benefit (takes away your client’s ‘pain’). Talk to your existing customers to find out what value you bring to them.

3) Use enthusiasm to improve the persuasive power of your value proposition. This may take some practice but will become easier if your value proposition focuses on customer needs.

4) Never assume that your prospect knows even the most obvious features and benefits about your company.

5) As your company grows, your value proposition may become diluted. Do not lose track of the fact that the value proposition is all about meeting your customer’s needs and taking away their pain.

Here is an example of a strong value statement:

‘ XYZ Corporation is the exclusive provider of patent-pending project management software for paving contractors, saving U.S. contractors over $34M in 2005.’

Keeping these guidelines in mind will help you create a Unique Value Proposition (UVP) for a new business or ‘discover’ one for an existing business. Remember to keep it clear, concise and emphasize benefits and solutions for your customers!

This article was written by Susan J. Hoosier, a SBDC Certified Business Advisor with the Longview Small Business Development Center, which is part of the 24 statewide offices of the Washington Small Business Development Center (WSBDC) network. The WSBDC offer in-depth, confidential, and no-cost management advice to businesses within Washington State. To locate your local SBDC advisor please visit the SBDC web site www.wsbdc or if you or your business is close to the Longview WSBDC office you can contact Susan Hoosier at shoosier@wsu.edu or 360-442-2946.