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For all the work Schmitt has put into making his strategy work, the real test is yet to come. His alternative growth model has required him to spend the first 10 years building UNBT's market share, now at 11%, while laying in place the slow-growth foundation that will ensure his success once the bank reaches its "natural" limit of 15%. After that UNBT will grow with its market. "We don't intend to be dead in the water," emphasizes Schmitt. "It's really a matter of focus; our focus isn't growth: it's efficiency and greater ROE."
You don't have to look far to find critics of the strategy. No further, in fact, than down the hall. "I don't particularly agree with Carl," says president Herb Foster. "We go back and forth about this, but I think we always need new ideas, and that might include more growth." Adds senior vice-president Tormey Ward Jr.: "The risk of limited growth is complacency, and we may need to get more aggressive, particularly in appealing to commercial customers."
And down the road a ways, Roger V. Smith, president, CEO, and founder of Silicon Valley Bancshares, voices the feeling of many CEOs. "Growth helps build the corporate culture," he insists. "It provides a mission, a sense of purpose."
Schmitt understands that and says he's preparing by actively pursuing non-capital-intensive ways to expand. Still, there's every reason to believe that as the bank's market share begins to level off in the next four years, the challenges will get trickier. Some would even argue that Schmitt already deviated from his strategy in late 1989, when he opened up his first branch.
He had long declared UNBT a one-location bank. "Branches," he liked to say, "connoted shoddy service." But his need to penetrate the Menlo Park market, one of the four communities he originally targeted, pushed him toward a decision he had hoped he'd never have to face: opening the bank's first branch there. After nine years a measly 10% of UNBT's deposits came from Menlo Park, and no one thought that figure would go much higher if the bank didn't establish a local presence. Separated from Menlo Park by a wide boulevard, UNBT in Palo Alto learned that, like it or not, Menlo Park residents kept their banking on their side of the street.
"It wasn't a step we took lightly," recalls one board member, "but there wasn't a choice." Schmitt did his best to fold the move into his strategy, calling the new operation a banking floor rather than a branch, insisting that it use the same letterhead as the main bank, and finally, refusing to let customers transfer from the main bank to Menlo Park.
Clearly, this was a moment when strategy and goal were at cross-purposes. On one side was the goal: UNBT's unparalleled customer service. On the other, the strategy: the ungrowth approach. Shouldn't the measure of a strategy be how close it gets to the goal? For Schmitt, the answer was yes, and he opted to reinterpret the strategy. "Call it a compromise," he says. "The world changes. The environment shifts. Any strategy has to bend."
Underlying that clash was a more subtle struggle between ego and conscience. After Schmitt starred on Tom Peters's nationwide television series, his phone lighted up. From Peoria to Pittsburgh, people called, desperate to bank with UNBT -- by mail if necessary. H. Ross Perot's lawyer phoned to hash out possible bank acquisitions along with the economics of small banks. And today Schmitt still receives half a dozen offers a year to expand. All that ego gratification "makes it hard not to start believing your own press clips," he says. "You think, Geez, if I'm really so good, why not make this bigger -- try a move to San Francisco or Los Angeles?"
So far Schmitt swings away from these personal temptations, cleaving instead to what he knows is right for the bank. But what keeps his ego in line is the tension this notoriety creates. "All this limelight on me ruffles feathers around here." Managers secretly wonder why they're working for "Carl's bank" when they thought they were toiling for "our bank." That thinking threatens a critical link in Schmitt's strategy: employee motivation. "I have to pay people well both monetarily and psychically."
Experts often dismiss such ungrowth alternatives on the theory that if you're not growing, you're dying. Schmitt wonders if such thinking isn't a tad extreme. Put him in any other service business and, he says, he'd apply the same approach. "It's like you're sailing down a river with many tributaries running off. Yes, you pause to consider each tributary and whether it is part of your voyage, but keeping you on course is the knowledge of where you want to be at the end of the trip."
Less a story about an unusual bank, Schmitt's tale revolves around a critical business lesson -- all but forgotten in the '80s. What this founder is talking about is the ability to discern between good business and bad business. During a period of robust economic growth, bad business can appear profitable, while over time it exacts a hefty price in people, capital, and business focus. In the past that price was obscured by fast growth. But no more. The '90s augur a new discipline. Faced with a declining work force and tighter credit, business owners will have to define anew what constitutes good business and bad business. Tributaries once seen as profitable will become marginal. And even if profitable, they may undermine the core business. In such a climate, the business byword will be less and less "growth at any price," and more and more "growth at what price."
