Shaper: Vernon W. Hill II

Show aired on 4th March 2017

Transcript

Elliot Moss
That was The Boss from James Brown and a very appropriate song to and you will find out why very shortly. Hi I am Elliot Moss and this is Jazz Shapers; thank you very much for joining me. Jazz Shapers is the place where you can hear the very best of the people shaping the world of jazz, blues and soul and alongside them we bring someone who is shaping the world of business and I’ve got one of the biggest shapers in modern business life here with me today, it is Vernon Hill. Vernon is the founder and chairman of Metro Bank, the first new bank on the High Streets of Britain in a hundred years they say. Forty eight stores and he is going to be making another fifty by 2020 with over nine hundred thousand of you who have accounts with him. You are going to be hearing lots about breaking the rules and reinventing a future. Lots coming up from Vernon very shortly. In addition to hearing from Vernon, you will be hearing from our programme partners at Mishcon de Reya some words of advice for your business and then we have got the music and it is great today, it’s going to be including Gregory Porter, Marlena Shaw, Mark Murphy and this from the one and only Aretha Franklin.

Vernon Hill is my Business Shaper here today here on Jazz Shapers and as I said he is the founder and chairman of Metro Bank; they are bright, they are out there, they are stores, they are not really a bank they are just a fantastic place to go and enjoy an experience which happens to be banking and Vernon has a bit of a track record in this regard. He set up Commerce Bank in the States 1973, 1.5 million dollars and well the rest is history and we will find out what it is. Vernon thank you so much for joining me today.

Vernon Hill
Good morning.

Elliot Moss
Tell me, how did you get into banking? I know you studied at Wharton, I know you are obviously an educated guy but banking is not one of the big easy industries to crack, highly regulated, complicated, all the old players are there yet back over forty years ago, you said ‘we are going to do something different’.

Vernon Hill
Yeah that’s correct. Good morning, great being with you and my father always wanted… had worked in a bank before the War and wanted a son to go to Wharton and wanted a son to be in banking and I worked part-time while I went to school. What I often say when I talk to students is, people that excel at life are lucky enough to match their… find and match their unique talent to what they do in life. Somehow I had a talent of combining a retail outlet on world with banking and when I was twenty six for some reason they gave me a new bank charter. At the time there were twenty four thousand separate bank charters in America. Twenty four thousand and we were twenty four thousand and one. And how were we with very little capital, one office, no brand turn this into a high growth business as you say, banking is a somewhat difficult business. We learned over a period of time that to turn it into a high growth retailing concept built around the idea of service and convenience and when we sold that in ’07 we were the eighteenth largest bank in America with a twenty five percent compounded annual growth rate, we turned it into a high growth company by delivering a unique service and convenience experience. People in America often wrote about us as the Apple of banking. Nobody buys an iPhone 7 because it’s cheap; they are buying the Apple world and in many ways that’s what our bank in America Congress was and that certainly is what Metro Bank in Britain is.

Elliot Moss
Just… what you’ve just mapped out and you’ve just summarised forty years of your life in about two and a half seconds which is always the way that brilliant people manage to do these things, Vernon it’s an extraordinary thing to have even believed you could do because it is all very well seeing the opportunity, especially in a really difficult category. Tell me about just that first step going beyond the one branch, going beyond the one and a half million dollars that you had at the time to make this thing work. How does… what was the first thing you have to deal with in terms of thinking so ambitiously, having such a big dream, thinking about scale like that?

Vernon Hill
So I have a book out that talks about how we did it in America and Britain and the book’s theory is great businesses are built by building great brands with three parts. A differentiated value added model, a pervasive reinforcing culture and fanatical execution and it begins with a differentiated value added model. No one needs a me to bank, lawyer, radio station or whatever and we learned to re-define how banking could be delivered to make it easy, to make it fun and over a long period of time we refined this and the customers were drawn to it and our response in Britain, everything we did in New York works better in Britain.

Elliot Moss
Stay with me for much more insight and I am going to go for those three things, again you’d better take some notes because I think it might just help you as you look to growing your own business. Time for some more music now, this is Milestones from Mark Murphy.

That was Milestones from Mark Murphy. Vernon Hill is my Business Shaper today as I said earlier, chairman founder of Metro Bank and Vernon you were drawing parallels to what you did in America and you are applying it over here. You made it sound simple. You talk about differentiation and value add. You talk about pervasively reinforcing culture and you talked about fanatical execution. It’s the fanatical execution that I want to just talk about for a moment. As a business gets bigger, that must get harder. If you and I were in business together and you were sitting there and you were telling me what to do, it’s pretty easy you can be as fanatical as you like and if I am an obedient pet I am going to listen to you and I am going to do it. You’ve now suddenly got five, ten, fifteen thousand people and they are spread. How do you ensure that you deliver fanatical execution every day as you get bigger?

Vernon Hill
Of course that is the test and that’s what used to worry me most in America. The last years I was in business in America we were getting twenty one million in store customer visits a month. Twenty one million people walk through our doors every day. How did we make them happy? How did we make them fans and when something went wrong, how did we respond and make them more fans? It’s about the model. If your model is about delivering the best service and convenience. You design your model for that, you recruit people for that, you manage for that. We also had the advantage as we do in Britain of being a growth business. If you believe you have a growth business you have to invest for growth, you have to recruit for growth. That is directly opposite what the large banks in Britain are doing they think they are going… they are in the process of trying to cost save their way to prosperity. Those are fundamentally different views of life.

Elliot Moss
And I just want to jump now to 2010. So you’ve now, you sold this business, this business was… you left the business around 2008 is that right?

Vernon Hill
I sold Commerce in 2007.

Elliot Moss
Yep.

Vernon Hill
I had nothing to do for a week. A friend of mine at the time had been on me saying you’ve got to bring this service and convenience model to Britain where the banks don’t know what the word service and convenience mean and literally I got on a plane in late 2007, shopped the banks. The next day I went down to talk to the Government about getting a bank license and in true American fashion I said ‘what the hell, let’s go try it’ and we began the process in early 2008 of getting a bank charter and building a bank from scratch. There is a difference fundamentally about between British businessmen and American businessmen. By culture we tend to start with the results and work backwards. The British culture is more let us start at the beginning and see what comes out. So in true American fashion of course I had the advantage of a proven model, I had managed with people from America to help, I had the ability to raise capital and we said ‘what the hell, let’s go try it’.

Elliot Moss
And indeed the trying has worked out quite well, seven years later here we are and your business has a market capitalisation value of over three billion. Not bad. Much more coming up from Vernon, my Business Shaper today, that’s the founder and chairman of Metro Bank. Latest travel in a couple of minutes and before that some words of wisdom I hope, though maybe not as sage as the ones you are hearing right now, from our programme partners at Mishcon de Reya for your business.

You are listening to Jazz Shapers, I am Elliot Moss and I am very lucky because every week I meet someone who is shaping the world of business. If you have missed any of the over two hundred and fifty people that I have interviewed in the last five years go to iTunes, that is a good destination you can find a bunch there. If you are travelling with British Airways you can also pick them up over there and CityAM.com is another destination for you to pick up some of the choice interviews we have done over the last few years. My choice interview today is with Vernon Hill and Vernon if you haven’t heard earlier is the founder and chairman of Metro Bank. You said you took a week off. I love this about people like you… I took a week off and then I thought you know what we are going to go and do something else. Were you ever tired of it or is work for you just living and breathing and eating and all the other things that people do? Is it just who you are?

Vernon Hill
Entrepreneurs, entrepreneur. That’s what we do. So we are always attracted by new ideas and new challenges. I have five or six other things that I do so building businesses, creating business, building business and building fans which is the objective of almost all my models is what we do and it’s been great fun. It was a challenge as to whether our American model would work in Britain, could we build it with a modern IT system, could we raise the money? We raised a hundred million pounds to begin, now one billion pounds, ninety percent American money.

Elliot Moss
And when it comes to ninety percent American money I just want to ask one question – if you do relax Vernon and you can tell me you don’t I don’t mind but if you do relax what do you do to relax?

Vernon Hill
I play golf.

Elliot Moss
Oh that was easy. Good. Anyone famous you might have played golf with in the past?

Vernon Hill
I’ve played golf with Trump a lot.

Elliot Moss
And what is he like?

Vernon Hill
Just like you see.

Elliot Moss
So what you see is what you get?

Vernon Hill
What you see is what you get.

Elliot Moss
And in terms of you know, we are going to touch on this for a moment. The landscape when you set up the business in 2010 here was different. We weren’t in a post or just about to go into a Brexit world, we had President Obama in the States. What material difference does the geo-political and the geo-economic state make for someone like you? Do you just get on with it and do what you do?

Vernon Hill
Almost none.

Elliot Moss
And why is that?

Vernon Hill
It is easy to talk about the macro world, Brexit or… unless you have a crash and of course I came post-crash, unless you have something as dramatic as that we are in the market share take business. So we don’t worry about all these macro things, it’s about how we create fans, how we get them to switch banks.

Elliot Moss
Now the fans that have switched banks have ensured that people believe that you are backable and of course you are backable because you have been doing this for decades. You said ninety percent of your shareholders are American. Why is that?

Vernon Hill
Investors in America believe in growth. British equity investors do not believe in growth. I have accused them of being bond buyers in disguise. They care about yield, they care about price the book. Uber is worth sixty billion dollars and has never made a dime. So American’s fundamentally believe in growth.

Elliot Moss
Much more coming up from my Business Shaper, that’s Vernon Hill. Time for some more music, this is Marlena Shaw with the uplifting California Soul.

That was Marlena Shaw with California Soul. I have been talking to Vernon Hill about growth and about the pre-disposition of the British investor to kind of think that you know, they’ll hang back a bit or I love what you said Vernon earlier about when you think about setting up a business in the UK people think about starting at the beginning rather than starting at the end and you started at the end with the results in other words. What interests me now is that you’ve written a book and I have it in my hands, Fans not Customers and the subtitle is ‘how to create growth companies in a no growth world’ rather. You are interested in sharing what you’ve learnt. What motivates you these days apart from making Metro the best service on the high street, sine qua non, regardless of whether it is a bank or whatever else. What else drives you as you wake up in the morning? I know entrepreneurs are entrepreneurs as you said but what is it?

Vernon Hill
I think most of us are driven by the same thing. Yes we want a sexy, we think wealth is a result of what we do not the objective of what we do. But there’s this drive to prove that your idea is better. That you can change things. And I think we are all driven more by that than by the creation of wealth.

Elliot Moss
I sense also and you are a visiting professor of Rick Cass, you are… yes it is about proving yourself and as you said I think you are right, many of the people I have met here do exactly that, it isn’t the money necessarily. But it also feels quite a generous thing to do. I mean writing a book is not an easy thing. You are sharing what you have learnt. Why is sharing what you’ve leant important beyond say I am the guy with the idea. As I think it is a little bit more than that isn’t it?

Vernon Hill
Because it helps us build our brand.

Elliot Moss
Right.

Vernon Hill
Metro has a brand. Sharing our ideas, conveying how we believe in things is a brand builder for us.

Elliot Moss
As is your doggy.

Vernon Hill
Everybody loves my dog.

Elliot Moss
Tell me about the dog Vernon.

Vernon Hill
Sir Duffield. In America my wife found at Chase they wouldn’t let her bring our dog into the branch and she calls me from New York all excited is there is some law, some ruling against this and of course there wasn’t, there is another stupid bank rule and we turned that in America to a policy called Dogs Rule. We want you to bring your dog in, we give them treats, we give you water bowls, we have dog events in the stores. We did it in America, it’s even taken a deeper hold here. The customers take that to mean if you love my dog, you must love me and it has brought a fun component to a business that has no fun component and all of these parts, hours, stores, coin counters, safe deposit boxes, dogs, they all unite to deliver a differentiated experience. Great retailers know that they need to provide an entertainment and fun experience to attract people. That’s what we’ve learned to do in banking.

Elliot Moss
Final chat coming up with my guest Vernon Hill plus we will be playing track from Gregory Porter, that’s after the latest traffic and travel.

That was Gregory Porter with Liquid Spirit. I am with Vernon Hill just for a few more minutes and if you weren’t listening earlier you should have been because he has been opening his book of secrets to you about how to build a brand and how to take a category which frankly is boring, which is uptight, which makes you feel miserable and saying ‘you know what we can inject some fun here and we can actually do good things for you’.

Vernon Hill
And we can build fans.

Elliot Moss
And we can build fans and that’s really important.

Vernon Hill
And why are fans important Elliot?

Elliot Moss
I am guessing because when they are super loyal they talk to everyone else, they say it is so wonderful you’ve got to come join me.

Vernon Hill
And that’s the way every great brand is built. Fans join your brand, they remain loyal and they bring their friends. You cannot build a high growth business unless you are creating fans.

Elliot Moss
Now it is one thing to create individual fans, it’s another thing to create business fans and what people don’t know about your business is that you actually are doing a hell of a lot of commercial banking. Tell me about that just for a moment so I understand a little bit better?

Vernon Hill
Yes we are actually more commercial than we are consumer and all kinds of business and commercial banking, lending, cash management, everything you expect from a medium sized bank. Shockingly the British four mistreat the business customers more than they mistreat the consumer customers and the business customers are crying out for an old fashioned banker who knows them, who knows their business, they can handle their needs and we have received incredible acceptance. One little joke about business banking the British banks admit to open a new current account for your business takes six to eight weeks. It takes us an hour.

Elliot Moss
How do you do it?

Vernon Hill
The correct way.

Elliot Moss
Is there any other. What is the correct way? How do you manage to fast track seven and a half weeks of wasted time?

Vernon Hill
There is no reason for the six, seven, eight weeks.

Elliot Moss
Right.

Vernon Hill
There is absolutely no reason. They have antique IT, they have a philosophy that they are doing you a favour by letting you bank. Listen you have to make an appointment, it’s not until next Friday, it goes on. You couldn’t survive an hour in the American banking environment with that kind of service but it is a great example of how you have, you’ve had a cartel market with no new competitors. This is what happens in any business when there is no new competitors.

Elliot Moss
Related to that experience and I am sure you are right, businesses, anyone listening who is running a business will go, it’s been terrible. You’ve been investing and will continue to invest in the high street and yet we read everywhere that the technology element, the non-high street I don’t need to be present over there, is now going to be the future of banking. Why are you rowing against the tide?

Vernon Hill
Well that’s what I do for a living. I row against the tide.

Elliot Moss
But not for its own sake but because you really believe…

Vernon Hill
There is no, there is no example of a successful on line bank in Britain or America. The customer wants the best of every channel. He wants to bank with us in store, on line, mobile and it is my job to deliver you the best of every channel and let you pick whatever channel you want every day. On that subject I might add that Apple has the highest retail sales per square foot in their stores of any retailer in the world. Apple doesn’t need stores. It’s part of the Apple ethos.

Elliot Moss
Going forward Vernon, I mean you know, I am talking to you here, you’ve taken two companies public. You are growing this business, it is a growth business. You strike me as someone who will always look at it and say ‘hold on a minute we are not looking at this right’. Is this going to create a fan? If it is not we are not going to do it and if we need to fix it we will fix it, we are not bothered. What does it look like the next five years for you? Is it just more of the same?

Vernon Hill
We’ve announced our targets for 2020 and we are going to be much larger, an eighteen percent return in capital. I thought you were going to ask me as I am often asked, what’s my goal – it’s a hundred percent of the market.

Elliot Moss
You see the good thing about you I don’t need to ask you the question, you are going to tell me what you want to tell me anyway and that is why you are Vernon Hill.

Vernon Hill
Well isn’t that the first thing we learn.

Elliot Moss
Absolutely right and I can tell you what, he has done these before. Listen it has been a real pleasure talking to you.

Vernon Hill
Thank you very much.

Elliot Moss
I really appreciate your time. I am now going to play out with and I think it is appropriate because this man is doing it every day, it is Curtis Mayfield with Move On Up.

That was Curtis Mayfield with Moving On Up. Vernon Hill, what a guy. Talk about being focussed on building the brand. Really honest about everything he did was about that pursuit. Differentiated value added he talked about, the secret number one, not so secret now. A pervasive reinforcing culture number two and number three, fanatical execution. That’s the focus that you need if you are going to build a business the way he has. And that sense of continuing to write and to be a professor and all these other things, he was very honest, he said, ‘well it is all about proving that your idea is the best idea’. Fantastic stuff. Do join me again same time, same place. That’s next Saturday, 9.00am for another brilliant Business Shaper I hope here on Jazz Shapers. Meantime though stay with us because coming up next it’s Nigel Williams.

Vernon W. Hill II

Vernon Hill is Chairman and founder of Metro Bank. Previously founder and former Chairman and president of Commerce Bank – which he founded in 1973 as a one-branch bank in metro Philadelphia with nine staff and $1.5 million – he is often credited with reinventing American banking.

Vernon believes that the value of a bank is in its deposits. He believes that customers will be willing to give more of their deposits in exchange for a better banking experience, and that great companies are built by creating fans not customers. By applying this philosophy, Vernon built Commerce Bank into one of the largest banks in America with 15,000 team members, 500 branches and $50 billion of assets. It was purchased in July 2007 by TD Financial for $8.5 billion. Commerce was voted the best bank in America in 2006, 2007 and 2008 by JD Power and Associates for its absolute commitment to customers. It also produced exceptional shareholder returns. Vernon is Chairman of Pet Plan North America. He is a graduate of the Wharton School of the University of Pennsylvania.

Listen live at 9am Saturday.

People who excel at life are lucky enough to find and match their unique talent to what they do.

If you believe you have a growth business you have to invest for growth, you have to recruit for growth. That is directly opposite what the large banks in Britain are doing… they are in the process of trying to cost save their way to prosperity.

I went down to talk to the Government about getting a bank license and in true American fashion I said ‘what the hell, let’s go try it’ and we began the process in early 2008 of getting a bank charter and building a bank from scratch.

There is a difference fundamentally between British businessmen and American businessmen. By culture, we tend to start with the results and work backwards. The British culture is more: let us start at the beginning and see what comes out.

I’ve played golf with Trump a lot. What you see is what you get.

Investors in America believe in growth. British equity investors do not believe in growth. I have accused them of being bond buyers in disguise.

There’s this drive to prove that your idea is better, that you can change things. And I think we are all driven more by that than by the creation of wealth.

Fans join your brand, they remain loyal and they bring their friends. You cannot build a high growth business unless you are creating fans.