The market is developing well and as CEO you feel that the company’s product offering is at least as good as the competitors. Still, sales are not picking up in a region or in a specific country. Maybe you have already given the sales company several chances. The board is starting to ask increasingly critical questions and despite promises from the local management, nothing changes.
Trying to understand why some sales companies grow and take market shares with good profitability, while others almost never succeed is a challenge. Understanding why that once-so-successful sales company now mostly delivers disappointments, is another.
The question is if it is possible to accelerate an underperforming sales company, or should you simply close down and leave the local market? Maybe you and the management team are discussing using an independent distributor.
To understand what different possibilities you have, you must thoroughly try to analyse why it looks the way it does. Many times there are shortcomings in purely fundamental things that are neither very complex nor difficult to grasp.
Our experience tells us that, for some reason, production and R&D often attain more focus regarding leadership as well as organizational and competence development. The problem with many sales companies is that the business just keeps going year after year without anyone from the head office actually evaluating the situation. It is not uncommon for smaller sales companies to be overshadowed by the large ones, and then never become anything other than consuming. Leaving these underperforming smaller businesses on a to-do-list with low priority, is seldom or never a good way forward.
Content
- 1. Make sure you have the right manager for the sales company
- 2. Demand a local business plan
- 3. Make sure that the management knows the market today – not how it was
- 4. Ensure that the management knows which customers and products are the most profitable
- 5. Use the customers to understand what is not working
- 6. Create a team that knows the game, that wants to win, and is proud of the products
- 7. The skills must continously be developed
- 8. Let the sales company become a part of the whole company
- 9. Make sure you have the board on your side
- Summary
- About the authors
1. Make sure you have the right manager for the sales company
Most people probably agree that there is a clear connection between a company’s leadership capacity and a company’s results. However, this is seldom as obvious as when evaluating the performance of an individual sales company. Of course, the local market development can affect the results and the company’s product portfolio may fit better or worse on different local markets. The strength of competitors also affect the performance. In the end, however, it is almost always the sales companies that have a good CEO, and in the long run a good sales management, that performs better than the ones with a lame leadership.
Example:
One of the authors of this article was, some time ago, the business manager for a dozen foreign sales companies. In general, it was obvious that the companies with the best local management were the ones that also performed the best. In those companies, there was structure, knowledge, and a systematic way of processing the market. In the companies that had it more difficult, it was exactly the opposite.
When it is time to recruit a new sales manager or a CEO for a sales company, industry experience is usually high on the wish list. Of course, this does not have to be wrong, but industry experience can never compensate for weak leadership. We have from time to time had discussions with owners who have said that “in general, this the level of education in this industry is very low ”. The same owner has since continued to recruit only people from the industry.
Remember that a good salesperson does not always become a good sales manager or CEO. A good salesperson is usually extremely competitive but seldom particularly structured. These are often dependent on receiving praise and attention. A good manager, on the other hand, is usually structured and strategic in his/her thinking, working through others. Thus, in some respects, he/she has the exact opposite personality type compared to the salesperson. The prima donna behavior that is sometimes seen in really successful sales people has its charm, but is directly inappropriate in a leadership role. The authors of this article have all too often seen examples of where the star salesperson and entrepreneur has been a complete disaster as a leader in a larger context. These are two completely different personality types.
2. Demand a local business plan
When you join an underperforming sales company, you are often struck by the fact that there is no elaborate local business plan. The sales activities keep going at a leisurely pace, but any recent analysis of where you are and where you want to go, is rarely done. It is not uncommon that there are sophisticated strategic plans, presented by well-trained managment consultants to the board, on group level. The problem is that it very often stays there. At local level, life goes on as usual.
Developing a simple pragmatic business plan is therefore often a very good step towards a better functioning business. Involving employees automatically provides a good foundation and commitment. Working with the business plan usually also gives a good indication of who is actually on board and who is not when the change begins.
Please note that in a first step, such work does not have to be extremely time-consuming. You need to create a structured understanding of where you are, a simple SWOT analysis, a description of the market, and what the competitors look like, and finally a simple action plan that leads you in the direction you want to move. Do not forget to keep track of which products and customers you make money on. Also, remember that a simple plan is better than no plan at all.
It is often the case that the local sellers have good knowledge of the competitors product portfolios, their strengths and weaknesses. By collecting information online about a competitor via the website, press releases, and articles in various magazines, you often get a good idea of where the competitor is heading strategically.
3. Make sure that the management knows the market today – not how it was
If a company has been successful for a long time, an increasing measure of complacency eventually emerges. Not infrequently, the management tends to see the market as it was, rather than how it is today.
Those small competitors who had a poorer product offering in parallel with weaker distribution channels five years ago have now grown stronger and are starting to approach your customers. Your product offering that was the best on the market five years ago has not been renewed as quickly as it should, and is starting to be seen as outdated by the market.
Maybe the company has been part of an acquisition or has acquired a competitor. Perhaps too much time has been spent on internal work and the focus has shifted from outward to inward.
Example:
We have seen up close how a previously successful company lost 25% of its total sales, driven by a large measure of complacency and too much internal focus due to an ongoing integration process. In a specific segment, the price had become an increasingly important factor when customers made purchasing decisions. This meant that foreign competitors with production in countries with significantly lower production costs, suddenly took over the market completely. The product quality was admittedly slightly lower, but fully sufficient for the customers, and the price difference was huge. The foreign competitors whose products had previously been easily and contemptuously dismissed as rubbish had now completely taken over the market. It was a process that had been going on for a couple of years, but which they had chosen to neglect partly driven by complacency but also due to lack of attention.
4. Ensure that the management knows which customers and products are the most profitable
Having an iron grip on who are the most important and profitable customers, as well as having knowledge of which products are selling the most, is characteristic of all successful sales organizations. When you enter an underperforming sales company, however, it is not as certain that this knowledge exists and above all, is up to date. It is not uncommon for the management to think they know, but the picture is sometimes based on emotional assumptions as well as on old information. Doing an analysis on this is usually a necessary and valuable exercise in all underperforming sales organizations. Another dimension to evaluate is the seller’s efficiency, ie. if the sales staff spends time on the right customers and the right products to get the maximum result of their work. It usually costs different amounts to handle different customers (cost-to-serve), which is something you often forget to include in the calculation when looking at profitability per customer. It is also not uncommon for salespeople’s productive time to be eaten up by poor system support, poor planning, inefficient sales districts, and a lack of support from inside sales. Increasing the seller’s effective productive time with the customer usually provides a good exchange on both the revenue and cost side.
Example:
One of the authors of the article saw up close how several sales companies worked with local agencies at the expense of the in-house developed products. These agencies were also easy to sell but had significantly lower profitability. Sales increased year after year, but profitability went in the wrong direction. In one of the sales companies, loyalty to the own products had become so weak that a large part of the sales force had to be replaced to turn the company around.
Example:
One of the authors was CEO of a company when a big deal was up for discussion. The signals from the sales organization were that the deal must be taken home at all costs. It was one of the most important customers. A proper analysis, however, suggested that it would be a pure loss-making deal and that the customer admittedly had given exchange on the top line in the income statement for several years, but in terms of profitability did not make any real contribution.
5. Use the customers to understand what is not working
Meeting the customer is of course a necessity to be able to do business, but also extremely valuable when you try to understand the health condition of a sales company. Of course, you will always be told that the competitors have at least as good products as you, and also cheaper. It is part of the game, but you can also pick up a lot of other valuable information. How active are the salespeople and how much does the local CEO get involved with the customers?
Example:
A case we had insight into provides an excellent illustration of this. A foreign PE-company had acquired a major Swedish company. The company had virtually all of its sales through wholly-owned foreign subsidiaries (sales companies). After a couple of years, the acquisition had developed into a nightmare for the buyer with declining sales and large losses. It was decided to conduct a large customer survey in all markets. It turned out that approximately every fourth contact person with the customers was out of date, and in many cases was not employed anymore by the client. That image was common in almost all of the sales companies. It shows with all the desired clarity that the entire sales organization, including all subsidiaries, suffered from an extensive leadership problem with poor management both from the head office in Sweden and at the local level. Of course, these problems already existed when the business was acquired. It is this type of warning signal you can pick up from customers at an early stage instead of getting a cold shower after two years.
Example:
In another case, after a couple of customer visits, one of the article authors could clearly see that several of the non-performing sales companies had such a low product knowledge that the sales force could not convey either uniqueness, or win the distributors’ trust.
6. Create a team that knows the game, that wants to win, and is proud of the products
Sales companies are like sports teams. If the team wants to win, it wins, if it does not want to win, it does not matter which game you run. Sometimes you simply meet a sales company that has lost the spark and the confidence. Sometimes we can carelessly say that “man is by nature lazy”. But we need goals and someone who stimulates and pushes us. We need something that spurs us on and that creates joy in winning. This usually applies to all parts of an organization, but perhaps it becomes most obvious in a sales organization. Most salespeople are distinctly competitive people and are driven by reaching (or preferably exceeding) set goals and, in the long run, making money. When you start penetrating and analyzing underperforming units, you are often struck by the fact that many of the salespeople have, for various reasons, been stuck behind the desk and are preoccupied with what is usually called “internal work”. It becomes extra clear if you enter a sales company where the sales force is very experienced and with high fixed salaries. Some sellers may even have lost pride in their own product line. If there is not a motivating manager in the background who creates the will to win, sets clear goals, and follows up on the achievements, you will quickly start to tread water.
Example:
One of the authors saw up close how a group with a large number of international sales companies (of varying sizes), lacked presence and control from the head office. In this case, it was a few major sales companies that got all the attention and that stood for stability and profits.
Example:
In another company, the entire sales force, including the management, was abandoned due to several years of lost market share. It had all gone so far that the organization simply did not believe in itself. After the change of the CEO of the sales company, to one who had a background in sports, the spark and the joy of winning business was found again.
7. The skills must continously be developed
Having the necessary knowledge of the product portfolio as well as of the customer’s needs is a necessity to be able to carry out successful sales. This becomes obvious when it comes to complex product offerings that are to meet the needs of demanding customers.
Example:
One of the authors was part of a major transformation in an industry where the company, which was the market leader, chose to move towards increasingly sophisticated product offerings in order to take a dominant position in an attractive and growing niche. This choice of strategy was driven by the fact that the general market would soon have access to alternative solutions at a completely different price level than before. The conversion was extremely successful, but it required a lot of sacrifices in the local sales corporations where some salespeople simply did not have the required skills. A lot of resources were invested in time and money in terms of skills development, and this of course had a great effect, but a lot of sacrifices were required along the way.
A simple and pragmatic survey of the sales force’s competence is usually a good initial exercise when you look at the current situation and set it against the desired situation. This is especially important when it comes to more complex product portfolios and demanding customers.
Example:
In another example that we have seen, there were large differences in the growth rate between different regions in one and the same country at a company. The regions that grew fastest were those that had an aggregated competence profile in the regional sales force that was able to sell the entire product portfolio, while regions with clear competence gaps in the sales force had a harder time. Identifying such a problem and then initiating an action plan, therefore, becomes absolutely necessary. It may seem obvious, but it is surprisingly often neglected.
8. Let the sales company become a part of the whole company
You can have never such good processes on paper, but if they do not work in reality, it is not worth much. Processes are very much about people who do things in a systematic and well-established way. If the relationship between the individuals in the chain are disturbed, it quickly becomes a problem. Feel free to ask yourself the questions: How does the collaboration between sales and product development work in reality? How well does the dialogue between sales and production work?
Example:
We remember a case when the subsidiary manager in a country did not accelerate sales of a new product at the same time as demand for the old product began to decline. The manager blamed the development on the fact that the new product was of poor quality and therefore not competitive. It turned out, however, that the main problem was that the manager in question had not prioritized the necessary training on the new products, which meant that both the local salesmen and the installation technicians lacked the necessary knowledge to be successful in the market.
The fact that there are tensions between a local sales company and the head office is a rule rather than an exception. In most cases, it can be beneficial as it shows that you want to run your business locally and take responsibility for it. Sometimes, however, this type of tension can be downright destructive.
9. Make sure you have the board on your side
No matter how good an analysis you make, and no matter how good you are at implementing necessary changes in the current sales company, the journey will be difficult if you do not have the board with you. Maybe the owners have bought the company with a completely different picture of both value and future choices compared to what you come up with as necessary measures. If the sales company is part of a larger group, one should not underestimate the political game that can exist in an internal board. Someone in that group may have been involved in starting up the business a number of years ago, but is also to some extent responsible for it not being managed properly for various reasons. In external boards, it can sometimes be a matter of the members sitting too far away from the activities to have insight into the necessity of perhaps quite drastic measures.
Summary
Our experience is that there is generally less maturity of driving both improvement and change in sales organizations than in other parts of a company. In production, for example, regular adjustments of the workforce, outsourcing to low-cost countries, Lean Manufacturing, Six Sigma, and more, are an everyday reality. It may also be appropriate to point out that improvement work and change work to some extent require different approaches. Improvement work is often about developing something good to become even better by adjusting details and doing a little here and a little there. It is often a continuous process that rarely encounters resistance in an organization. Change work is usually a slightly larger approach where the focus must be on the whole, and where sometimes tough decisions must be made. Not all employees love such a trip. If we are to summarize the main problems we encounter in an underperforming sales company in a simple way, it always lands in weak leadership in parallel with a lack of a clear and well-established local business plan. This is where you always have to start. However, the advantage of pursuing a journey of change in a sales company, is that much of what needs to be changed and developed is often relatively self-evident. Not really complicated at all. Unlike improving a product portfolio that can take 5-8 years in some industries, or moving production from one factory to another, in 9-12 months you can create great results in a sales company.
Good luck!!!
About the authors
Björn Henriksson, Managing Partner of Nordic Interim, and Owe Wedebrand (Executive Interim Professional), both have over 25 years of experience in turning sales companies around.
Owe Wedebrand
Professional Interim Executive
Over 25 years experience of change management in roles as CEO, Manager of Sales companies, and CFO.
Björn Henriksson
Managing Partner, Nordic Interim
With over 15 years of experience in change programs in product companies and in roles such as COO, business area manager and responsible for export sales.
#turnaround #salescompany