Bank Smarter Confession

 

We are the ultimate commodity provider, and we know the bankers (and by the banker, I mean your standard “Senior Secured Lender”) are a dime a dozen. It seems in today’s market one can’t swing a cat without hitting a financier of some sort on his/her cheap suit (sorry guys/gals, we dress horrendously).

According to the irrefutable laws of Supply and Demand, as Supply of a product or service goes up, the price for those demanding the product and service goes down. It’s amazing to see this law continually reveal itself in not only business but life in general.

As a banker, we face the law of Supply and Demand on a near-constant basis. Let’s step back and understand where and why.At any one time, the Supply of capital available to a company manifests itself in a number of ways:Contributed capital (private investors or owners of the company)Angel Investors and Venture CapitalOutside Equity Investors (Public Equity Market, Private Equity, Family Office, BDC—Business Development Company)Retained Earnings (i.e. the profit of the company retained in its bank account)Mezzanine LendersAsset Based LendersFactorsCommercial Banks (plain vanilla senior secured lending)Wow, that’s a lot of capital sources available to a business owner.

Where to start? Well as it turns out, I have rank ordered the above sources of capital in order of their relative “Cost of Capital”: just a fancy term used by financiers to confuse the issue at hand which is to simply say “How much does this source of money cost you, the business owner?”So, what’s a Commercial Banker (and any financier for that matter) to do when he’s up against an unlimited competitor-set of potential capital sources?

We’ll try to differentiate ourselves, of course!And by differentiating ourselves, a banker will simply throw around trite phrases that hold no water: “We’re a relationship bank. We build relationships” or “We’re a champion of the business owner.”

Guess what, when all bankers claim to be building relationships, then no bankers are building relationships.Business owners know this, so how does a banker differentiate himself/herself from the pack? This leaves one final lever a banker can pull: pricing and deal structure. And here we have arrived at the definition of a commoditized product or service:

“A perfectly exchangeable product/service where the only means of differentiation are price (and in the case of banking) and structure.”We, bankers, know we’re a commodity provider. And we hate it.Bankers: Bank SmarterConfession

#1: We are the ultimate commodity provider, and we know the bankers (and by the banker, I mean your standard “Senior Secured Lender”) are a dime a dozen. It seems in today’s market one can’t swing a cat without hitting a financier of some sort on his/her cheap suit (sorry guys/gals, we dress horrendously).

According to the irrefutable laws of Supply and Demand, as Supply of a product or service goes up, the price for those demanding the product and service goes down. It’s amazing to see this law continually reveal itself in not only business but life in general.

As a banker, we face the law of Supply and Demand on a near-constant basis. Let’s step back and understand where and why.At any one time, the Supply of capital available to a company manifests itself in a number of ways:Contributed capital (private investors or owners of the company)Angel Investors and Venture CapitalOutside Equity Investors (Public Equity Market, Private Equity, Family Office, BDC—Business Development Company)Retained Earnings (i.e. the profit of the company retained in its bank account)Mezzanine LendersAsset Based LendersFactorsCommercial Banks (plain vanilla senior secured lending)Wow, that’s a lot of capital sources available to a business owner.

Where to start? Well as it turns out, I have rank ordered the above sources of capital in order of their relative “Cost of wb21 bank”: just a fancy term used by financiers to confuse the issue at hand which is to simply say “How much does this source of money cost you, the business owner?”So, what’s a Commercial Banker (and any financier for that matter) to do when he’s up against an unlimited competitor-set of potential capital sources?

We’ll try to differentiate ourselves, of course!And by differentiating ourselves, a banker will simply throw around trite phrases that hold no water: “We’re a relationship bank. We build relationships” or “We’re a champion of the business owner.” Guess what, when all bankers claim to be building relationships, then no bankers are building relationships.

Business owners know this, so how does a banker differentiate himself/herself from the pack? This leaves one final lever a banker can pull: pricing and deal structure. And here we have arrived at the definition of a commoditized product or service: “A perfectly exchangeable product/service where the only means of differentiation are price (and in the case of banking) and structure.”We, bankers, know we’re a commodity provider. And we hate it.