• Wallace Fan

The X-Factors of Banking & Finance

Updated: Jun 26, 2019

Once you understand how the X-Factor works, you can apply the same rationale to managing your banking relationships

Once you understand how the X-Factor works, you can apply the same rationale to managing your banking relationships.

You may think I am taking a light-hearted approach to analysing the world of corporate banking, but as a one time self-confessed X-Factor enthusiast, I am not ashamed of drawing parallel comparison of the two - because there is much to learn here.

X-Factor is a reality TV show where four celebrity judges search for someone with the "special" talents and make him or her the star of tomorrow. It starts with four judges auditioning thousands of ordinary people nationally. Then, through a rigorous selection process, the four judges select 12 artists whom they think potentially have the X-Factor star qualities.

Over the course of 10 weeks, they mentor and shape these contestants. Each week, the artists perform to a live audience on TV. The artist that receives the lowest public vote each week is then eliminated. The last one standing is by default the one with the “X-Factor” and therefore, wins the ultimate recording contract prize.

If we put aside the entertaining aspects of the TV show, we in fact can draw lessons from observing the judges, the contestants and also the public audience.

The four judges are metaphorically the four major banks. They hold the key to the door between the contestants (you) and the public (the pool of capital funding). Claiming to know the secret of X-Factor, the judges help the contestants connect with the public, in the same way that the bank connects corporates to the pool of capital funding.

On an individual basis, each judge is like a dedicated relationship banker to the contestants (or corporates). Each judge mentors his or her pool of contestants like a relationship banker manages a pool of corporate clients. Your relationship bankers would keep repeating the same message that they are your partners for growth and offer their insights on how you could manage your cash flow and capital.

You would agree that just like the judges, some bankers are better than others and some are really clueless.

Take X-Factor judge Natalie Bassingthwaighte for example. This Australian recording artist and actress is one of the longest serving judges and mentors on the show, but she has never produced a winner. Her contestants are always the first to leave the competition and also get most of the harsh comments from the rest of the judges.

In front of the TV cameras, she is accustomed to giving conflicting and sometimes swinging comments which confuse the hell out of the contestants. She is the ever-so-gentle and supportive mentor to her contestants. You are laughing at this point as you must have had your fair share of the "Natalie" bankers: nice, but really useless to the overall growth of your company.

Then, on the opposite end, you get Ronan Keating, a no-bull, straight shooter. This Irish recording artist tells it like it is to the contestants and also to other judges, sometimes accusing them of not doing the right thing for the contestants. Not everyone agrees with him. Most people, including corporate executives, would prefer not to hear Ronan’s frank opinions. But, you must admit - his banker equivalents would be the honest type who really tries to add value to your business. Which type would you prefer as your mentor/banker?

The contestants, without doubt, are you, the corporate clients. Each contestant exemplifies some typical traits of corporations.

There is much we could learn from contestants such as Dami Im, the first ever Asian K-pop, try-to-be contestant. Frankly, I found her performance fine, but really one-dimensional and doubted she would ever have the X-Factor to be a superstar. But, she is the only contestant ever to have received six-straight standing ovations from all four judges for her performances.

Dami Im has never been in the bottom two rankings. Why? Because, unlike her peers, she may be boring, but consistent, almost flawless in every acts. Much of this is attributed to her traditional Asian upbringing, which is all about diligence, hard-work and never deviating from the guidance she receives. Dami Im never complains about anything thrown at her, but just focuses on delivering what she is asked to do.

Putting that in the corporate banking world, Dami Im are the companies/businesses that always get plenty of banking support. They may be boring businesses that will never make it to the Fortune 500, but they are consistent performers with no bad surprises and are well-liked by banks. So, think about what you can do to deliver consistent performance.

Lastly, the public are the “mainstream” pool of capital. It is true that the X-Factor show captures a large segment of the TV audience, but it does not represent the whole audience universe. It is designed to appeal to the large young “pop” market. Similarly, bank funding is a mainstream funding source, but it is just one of many types of capital funding. Not all artists can be liked by the mainstream TV audience, just as not all companies can be banked by our major banks.

A great example is Vendulka Witchta, a 15 year old Blue Mountain sensation. She is a true artist and has a unique acoustic style. Vendulka wowed the judges in 2012– her ‘Blackbird’ audition performance. On YouTube it received more than 1 million views – and also featured in 2013 auditions, but never made it to the live shows. She should take it as a blessing. If she were to be put on the live shows, her true style and talents would need to be refabricated to suit the mass audience. It would have been a tragic public display of destroying a fine artist.

So rather than forcing a square-peg corporation into a round hole, each business ought to understand its own appeal and seek the appropriate capital for growth. This would include understanding its own credit and business risk profile and the various risk appetites of different capital providers. There are plenty of growth capital lenders available outside of banks, just as there are many more recording studios than Sony.

Are you getting the appropriate type of capital funding? I hope your financier is not cramping your unique style of business just to fit a particular bank’s lending criteria or asking you to sing for your life as in X-Factor.

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