Friday, July 9, 2010

BIGGER Is Better--Oh, Really???

If bigger is better, why is it the dinosaurs are no longer around, but the small rodents, insects and microbes they shared the world with are?

We live in an age where big government bails out big businesses and banks that are “too big to fail”. Any idiot can tell you these bailouts just postpone the inevitable—that these businesses will go back to their failed way of doing things, will keep making mistakes and they will fail again, but who will be there to bail them out? Big government can change laws and pass bills that temporarily prolong the vital signs of these dinosaurs but they can’t change the laws of mathematics. They can’t spend money they don’t have or can’t get without thoroughly antagonizing the electorate…and they can’t print more money without suffering even more disastrous consequences in the form of inflation.

“B-b-but what are we supposed to do?” Let ‘em fail, I suggest. Let the cream rise to the top and let’s grow in a positive manner. General Motors would have been better off to fail, sell off divisions that they could (are you telling me Corvette couldn’t stand on it’s own alone as a brand when Ferrari can?) and let people who feel they can make things work right in a downsized world do what they must. Smaller, leaner, more efficient and able to turn a profit.

There’s ample evidence that the bigger a company gets, the more it chums up with the government. And there’s ample evidence the government is lousy at running most of what they attempt to run. Listening to members of Congress and other bureaucrats (most of whom have never balanced a budget or run a business profitably) grill executives from Wall Street and Toyota is laughable when you think about it deep and hard.

So what does this have to do with independent sales reps?

Let’s take vendor relationships for starters. An indie rep will try to add as many lines as he/she can, but with the realization the top 20% or so will account for about 80% of their income. So while it might seem that the rep is trying to be “bigger is better”, they know full well they can’t fully represent each and every line in their portfolio.

Vendors and reps should discuss things beforehand to get an idea as to how much business they can do together. The line a rep is taking on may be a huge potential source of commissions, or it may be a line the rep feels can only go into a few targeted accounts. It’s important to think about this on both sides. It’s important too that the small vendor realize that his line may be on a “reserve” status…but that the possibility may come someday when they have a product the rep can really cut loose with. Relationships may be forged that will pan out later. So long as the vendor can keep expenses low in the rep relationship (which is easy nowadays with websites and high quality images available online), the wait for the relationship to strike gold is worth it.

No matter how many lines a rep has, there will always be a select few that are, what the rep will feel, are the strongest. These may have popular trendy items, good perennial sellers, or the vendor may just provide a decent commission structure and have a great reputation for service. Ideally, these favored vendors will combine all of these attributes: “current hits”, great day-to-day bestsellers, timely and fair commissions and service that a rep doesn’t have to sweat over later on. It should be understood too that such a vendor would be morally well grounded and not have a reputation for backstabbing or otherwise ruining the relationship with the rep. If the vendor feels the need to end the relationship it will be done in a professional and open manner.

Here’s where the lure of “bigger is better” starts to threaten the rep—and any business. What if the rep has many lines, but tends to pay attention to a favored few that he or she thinks are great just because they are “big”? They have a lot of trendy product to sell, but they just so happen to be lousy at aspects like paying commissions and service.

In this case, the rep is writing orders mostly for those lines, yet waiting longer to get paid (if at all) and since the service is terrible, may only be getting paid for 40% of his work, since that is the fill-rate potential on these supposed “bigger is better” vendors. This happens quite a lot in many businesses.

Jonathan Knee, in his book Curse Of The Mogul discusses many of the mergers that have happened in the last several decades with media related companies. While many of these mergers looked great in theory and their CEOs (or “moguls”) promised the moon, very rarely did these new mega mergers make money for their shareholders, or provide better products or service to customers. The moguls and their close friends and colleagues (who you just know happen to hover around our nation’s capitol) are the only ones who make money in these deals because, in forming the merger, they specifically structure pay for executives with huge bonuses whether the company is profitable or not. A great example of such a failed venture was AOL/Time-Warner.

Remember the popular book The Peter Principle (Lawrence Peter & Raymond Hull, 1969)? This was the theory that in most businesses individuals would advance through the ranks but eventually hit their “level of incompetence”—in other words, they’d reach a point at which their limitations would become evident. From there they’d either get demoted or they’d remain in that position and cause everyone around them to work harder to compensate for the individual’s incompetence. Sound kind of like what we have today, on a grand scale, from President Obama on down…doesn’t it?

But not down all the way. There are many small businesses and sales reps out there that know their limitations and live within their means. A rep can take on many lines, but the beauty of being an independent sales rep is that he or she can use the weapons (vendor relationships) at their disposal and apply them in order to maximize their business at any particular time.

A rep that focuses too much on being “bigger is better”, by focusing in on dominating one particular product type, or on vendors who outwardly appear superior but are lacking in certain areas, will almost assuredly fail over the long haul. Focusing in on “small” or (as a better way to put it), lean and fit, means the rep can change course quickly. He can react to positive trends or little disasters that would otherwise go unnoticed or cripple a big lumbering dinosaur who would either take too long to react, or won’t be able to react at all because they are so entrenched.

In one of the Dirty Harry films, Clint Eastwood, after outwitting one of his foes and watching as that foe gets blasted to Kingdom Come, mumbles “A man’s got to know his limitations”. This is advice we as a society better start heeding…and it’s great advice for reps and the vendors they work with.