Making the small mighty

It’s a sad fact of our modern value system that we equate size with success. The bigger the business, this flawed logic goes, the better –and those companies that have floundered on the Darwinian fight to the top have simply succumbed to their inadequacies, their in-built flaws. According to this creed, pursuing growth is obligatory, not optional; scaling-up is second-nature, not strategic.

Yet, there are millions of small business owners in the US with no plans – and no need – to expand. Content with their slice of the pie, the proprietors of SMEs have often bootstrapped themselves to a position where employing a handful of people is a huge achievement: they’ve worked hard to realise their American dream. These aren’t economics majors on a crusade to add zeros to their net worth; they’re humble and provincial, and, together, they happen to employ half of all American workers.

So, why is financial administration still such a nightmare for small and medium-sized enterprises (SMEs)? SMEs – the beating heart of the US economy – are struggling. NorthOne’s CEO, Eytan Bensoussan, explains how his challenger business bank wants to help them not just survive but be recognised for the heroes they are

“Historically, small businesses have been a very difficult segment to serve for classic banks,” says Eytan Bensoussan, CEO of small-business challenger bank NorthOne. “They also have a lot of idiosyncratic needs that are unique to their business, so there’s no easy way to do a one-size-fits-all kind of offering. That makes it quite unprofitable to serve them at scale.

“The other part of it is that, even if these businesses execute perfectly, they still go out of business. As a financial service institution, you look at that kind of cohort, thinking ‘how much will I invest in a group of customers where there is a natural churn of up to 50 per cent within five years?’. It makes the balancing of a portfolio of investments much tougher.

“And the vast majority of businesses will never get into corporate banking services. They’re going to stay a small business. That’s what they want. That is their definition of success. So they will be permanently underserved. And that’s the problem.”

It’s one NorthOne has set out to fix. Founded in 2017 and launched in August last year, the digital bank has its sights set on the pain points that can be overwhelming for SME owners. Even if you have no experience with SME administration, you’ll know what these dread-inducing tasks look like: the inanity of invoicing; the tedium of balancing the books; the endless paper trail and the eternal siren sound of the tax return.

“I grew up in a family of small business owners,” says Bensoussan, “and much

of my childhood is filled with memories of sitting on my grandfather’s lap after he’d stopped working for the day. He was an electrician and he used one of those old calculators, with the reels, into which you’d type the numbers, and it would just spit out the paper.

“This took hours and hours and hours. Much of my family had that same pattern: the anxiety around closing your books, the frantic search for invoices – this was the ebb and flow of my childhood. But when you start stepping back, you think ‘that’s crazy’. This was a good electrician – he should have been spending more time fixing wiring in buildings, rather than trying to close accounting ledgers’.”

Why should skilled labourers and busy business owners have to wade through a Kafka-esque blizzard of bureaucracy just to do their jobs while larger firms enjoy access to a warming buffet of corporate banking services? That’s the premise from which everything flows at NorthOne.

LEVELLING UP SERVICES Its mobile app – currently available in the US – is a timely intervention for admin-allergic SMEs. The app offers cashflow analytics and dedicated tax accounts. The derisking, de-stressing effect of these features is more important than ever as businesses bear the brunt of the economic impact of coronavirus.

“COVID switched our unleaded fuel for jet fuel,” says Bensoussan of the impact it had on NorthOne’s growth. “We started seeing orders of magnitude more businesses looking for bank accounts that were untethered to branches.”

It’s not difficult to see why: while stocks in the tech giants have been soaring, it’s SMEs that are suffering the sharp end of dramatically reduced footfall in towns and cities across America. To date, the pandemic has forced 70,000 US businesses to permanently close, leaving close to a million unemployed. Data from the Census Bureau suggests five per cent of surviving SMEs expect to shut up shop for good in the next six months, while a survey from the National Federation of Independent Businesses found that 21 per cent of American SMEs believe they’ll have to close if conditions haven’t improved by spring.

This isn’t pessimism – it’s realism. SMEs in America are heading towards the gnashing jaws of two narrowing trends: lower consumer spending and less federal support. The Paycheck Protection Program, which 70 per cent of SMEs took advantage of to keep their workers on the payroll earlier this year, is on course to end on a cliff-edge as Democrats and Republicans grapple over the finer detail of future fiscal safety nets.

All the while, thousands of America’s much-loved ‘mom-and-pop’ stores – small-scale family retail businesses – are exposed to what’s looking more and more like a full-blown economic depression, the scale of which is still difficult to determine. And, in a year defined as much by Black Lives Matter protests as by the coronavirus, the Federal Reserve Bank of New York revealed that black-owned businesses were more than twice as likely to close as a result of the pandemic.

All this underlines the fact that SMEs need help – life support, even – and providing it would serve to mitigate the inequalities that coronavirus has exposed in US society. NorthOne’s tagline commitment is to ‘rebalance the economy from the bottom up’ – and that starts with providing SMEs with accessible banking services with 24/7 support.

I grew up in a family of small business owners… the anxiety around closing your books, the frantic search for invoices. This was the ebb and flow of my childhood

“Small businesses are overwhelmed by financial management,” acknowledges Bensoussan. “So NorthOne, at its core, is trying to fix this historical wrong, where the burden of financial management is thrown onto the small businessperson who’s been trained to be a dentist, or a mechanic, or an electrician – not a financial analyst.”

Bensoussan and his team interviewed hundreds of small business owners to build their banking product – and with a subscription business model, they’re incentivised to keep listening as businesses continue to onboard with them.

“It’s a $10-a-month charge, and the thing we are incentivising is to make sure you come back next month. That’s it,” Bensoussan says. “The way we win is by every one of these customers coming back, month after month, and this forces us to, at the beginning of every month, reset and say ‘OK, how do we earn their business again?’.”

NorthOne’s obsessive stress-busting philosophy – leaving no stone unturned in its mission to simplify financial tasks – extends to its mobile onboarding. It’s a three-minute process: no queues, no call centres, no hold music.

“When we started building NorthOne, we said ‘it’s got to feel like you’re signing up for an Instagram account – something really easy to get on board with’,” says Bensoussan. “To be able to bring access to finance essentially to anybody with a phone in America, is actually really valuable. Branches are closing in rural areas – even in some parts of cities. With a smartphone, you don’t need to travel 45 minutes to open a bank account, you can just do it right from your couch.”

Bensoussan’s background as an academic with a masters in business administration, and as an advisor with global management consultancy McKinsey & Co, has led him to believe that small businesses have the ‘potential to reduce income inequality, empower immigrants and provide disproportionate leadership opportunities for female and minority businesspeople’.

In other words, SMEs aren’t just the beating heart of the economy – they’re also representative of its soul, its character, its moral compass. Firms like NorthOne don’t seem to believe in a survival-of-the-fittest economy of heavyweight monopolies slugging it out for more and more market share. They’re in it for the little guy – a valuable ally for the unsung heroes of the local economy in these turbulent times. “The small businesses of America don’t get to have their name on Time Magazine, they don’t get the fanfare – but they’re providing for their families and communities,” says Bensoussan. “They remain faceless to the broader world, but an enormous effort goes into making that happen, day in, day out.”

NorthOne recognises their effort, equipping them with the tools they need – even as COVID’s second wave approaches.