Whoa! A practical list of things to stop doing now

BY RICH SCHMITT
Management specialist

In many of my columns I challenge you to “just do it,” and often provide a list of activities or actions for you to consider “just doing.” This month I want to base this column on the old saying, “When you find that you are digging yourself into a hole, the first priority is to stop digging.” This prevents further deterioration of the situation — and often provides the time needed to work your way out of the hole.

So the mantra this month is “Just stop doing it.” My list of things to stop doing includes:

• Stop bleeding – This has been a tough couple of years and overall our industry has been hit harder than most. After excluding extraordinary expenses, if you are not in the black, you need to get real focused on getting profitable. In the worst of the downturn, even the best-run wholesalers were struggling to stay in the black, but in the current economy, it seems that most are profitable and some are doing pretty darn good. If you are not, something is wrong. The first step is to compare your company to similar wholesalers using industry performance reports. Some segments are still in trouble — but it’s a big red flag if your segment has recovered and your company has not.

• Stop hiring the wrong people – There are so many companies in our industry with little or no process for bringing good people on board. Without a solid process, your odds of finding a successful long-term employee are not great. I think the owner or senior management should be personally involved in every hire in small and medium sized companies. This may seem burdensome, but hiring involves high cost, high risk and an area where quality matters the most. In this size of company the owner is often involved in this kind of decision. Plus, at least for a while, you are not going to be hiring many people so it shouldn’t require a lot of time. Further, with few openings, you want them filled with the best and brightest. When, for whatever reason, senior management involvement is not possible, a strictly-followed, detailed process must be created to maximize the odds of a proper hire.

• Stop keeping the wrong people – Even with great processes and senior management involvement, hiring is often a 50/50 proposition. While a bad hire is unfortunate, I feel it is forgivable since it is impossible to cover every base during the hiring process. Sometimes people misrepresent themselves intentionally, especially when they are out of work and possibly desperate. Often these good process-bad hires are miscommunications or misunderstandings that can happen in life.

What is unforgivable is to continue the relationship when you know that it was a bad hire. It is bad for the company and bad for the individual. Both parties should move on. Of course, you must comply with labor laws. Further, I believe that there should be a defined process that allows the individual to improve their performance — but there should be a short timeframe for the required improvement, lots of communication and an explicit decision regarding the individual’s continued employment.

This is critically important as the recovery is causing wholesalers to hire people to support growth. Hire the best possible people into your company and it will give you even better odds of growing faster than your competition.

• Stop showing cost and gross margin on sales order screens – The cost and gross margin of the product have nothing to do with the price that the customer will find fair. Salespeople should face the customer to determine the price that is acceptable. Cost and gross margins are a crutch that untrained salespeople use instead of conversing with the customer about the fair price for a product and the competition in the marketplace.

• Stop sending your salespeople into battle with inadequate training for their job – Are they prepared to properly manage the account? Is their only “sales tool” a price concession that is used as the universal solution for every customer problem? Do they have an interesting and compelling story to tell about your company’s value proposition? Are they prepared to sell the full breadth of your offering? Do they have a catalog to show your customers what you sell? Do they have fresh marketing and selling materials that help make sales calls interesting? For a reprint of the column I did on the value catalogs, e-mail me at rich@go-spi.com

• Stop sending your salespeople into battle with inadequate marketing – Most salespeople in our industry get little help from marketing beyond arranging hot dog lunches, the golf tourney and handing out hats. Thoughtful promotions for the counter, inside sales, outside sales and for house accounts are a good start. Measuring the results and adjusting the approach is a requirement. Store merchandising is a marketing activity since most store managers don’t have the training or time to make it happen. Creating a “grow the sale” program is a marketing activity. The idea is to remind the customer to add associated products to their order. This is accomplished through sales training and using the reminder feature that probably exists in your computer system. This type of program increases order size but, when properly structured, often pulls higher-margin products onto the order.

• Stop allowing your team to give away profits casually as if it didn’t matter – Most wholesalers are struggling to make acceptable returns, yet they allow just about anyone to give discounts that hemorrhage profits in huge amounts. In a year when a 1-point margin increase may be the difference between black and red ink, they allow people to routinely give discretionary discounts of 5%, 10%, 15% or more. (Maybe the management team doesn’t understand that a 15% discount is a 15-point margin dump.) Further, there is seldom a review or discussion of these give-aways because there is no reporting and accountability for the problem. Another excuse for inaction: The list of senseless give-aways is so overwhelming that nobody looks at it any more.

• Sales management, stop sitting in your office – The war is being fought far away from your office. I am a fan of quotas, measures and statistics but they show what happened and do little to shape what will happen as your company competes for business. As the Benjamin Franklin saying goes, “Believe half of what you see and none of what you hear.”

• Stop thinking that you don’t need a first-rate website and web storefront – You are kidding yourself if you don’t think that the world is moving in that direction at an accelerating pace. Most of your business will continue to come through traditional channels. B2B web business in our industry is still in single-digit or low double-digits as a percentage of total sales. I just don’t think you should concede that business to a competitor without a fight. Customers may look at your five-year-old website and your POS (and I don’t mean point of sale) web storefront and choose another wholesaler — even if they like everything else about you.

It is often just that simple and happens with a click of the mouse. You get disqualified from the game due to a lack of technicality. For a reprint on e-marketing, e-mail me at Rich@go-spi.com.

• Stop thinking that you have a first-rate website and web storefront if it is more than a year old – Yours may be good but might not be. The bar is being raised on a monthly basis so unless you have updated it recently, you are probably falling behind. If you are hearing complaints like, “Customers can’t find products. The data sucks. There are no pictures. It’s slow.” It is time for a professional renovation.

• Stop forcing your Information Technology (IT) team to direct your website and web storefront – Marketing should be responsible for your website and web storefront. With the evolution toward all sorts of “E-based” marketing activities, the marketing team needs to step up and direct the company’s efforts. Of course, the IT team will be involved in all the technical aspects of the “E-based” marketing but the rest of it is marketing. To their credit, many companies’ IT teams have sincerely worked to fill the void abdicated by the too-busy, non-techie marketing folks. Many IT folks have done an amazing job given their limited customer contact, minimal product knowledge and lack of any marketing training. That does not change the fact that your company needs a marketing team that understands “E-stuff” and puts your company at the forefront of “E-marketing” for your target markets.

Recently, our software company was conducting a web demonstration of our Web storefront software to an IT person who had been given the directive, “Get us on the internet.” He did a great job on the technical side but I felt sorry for him as we asked marketing questions relating to the company’s operation and marketing objectives. He had no authority over those areas and was embarrassed that the marketing team didn’t even show up because it involved computer terminology that was complicated.

• Stop assuming that you understand what your customers need and want – I am not a big fan of surveys since even the very best written surveys seldom get to the heart of a customer’s heart. The best way to get information from a customer about what they need and want is to ask them. This is tough since you have to ask sincerely, not be defensive, listen carefully and clarify the heck out of each complaint or suggestion to insure that you really understand what the customer is saying. With this clarity, you can adjust how you operate to improve your company in ways that the customers will appreciate.

• Stop thinking that pricing management is completed when your costs are updated in the computer – Of course, getting the costs right is part of price management but centrally managed market-based pricing is the goal. Most wholesalers aren’t even close to the goal of providing competitive pricing and making fair profit for themselves. That’s what pricing is all about. And as I have said before, if you have sales of $20M or more, you need a good full time pricing manager. They are hard to find and hard to create but after you have one in place, you will ask yourself why it took you so long to get it done. For a reprint on price management, e-mail me at Rich@go-spi.com.

• Stop kidding yourself, your people don’t understand the realities of your business – They probably don’t know that they are routinely taking orders at profit levels that are below the break-even point for the company. They don’t understand the difference between gross margin and markup. They don’t understand that a 10% discount gives away 10 points of margin. They think that somewhere between 20% and 25% is the right gross margin for normal sales. However, they have no problem selling at 12% to 15% when pressed. (So far I have not encountered an industry wholesaler who is profitable in that range.) You have two options: Train them, measure performance, hold them accountable or stop allowing them to do stupid things…remove the authority that allows them to hurt the company. I like option one the best but it takes a fair amount of work initially followed by continuous, relentless, ongoing review and coaching. In our experience, the minute you stop reviewing and coaching how people price, is the same minute that your profits start to ratchet downward.

As always, I know that you cannot stop doing all these things but take time to pick a couple that will have the biggest impact on your performance.

Rich Schmitt is president of Schmitt Consulting Group Inc., a management consulting firm focused on improving the profitability of distribution and manufacturing clients. Rich is also the co-owner of Schmitt ProfitTools Inc. (SPI), a business producing print, CD-ROM, web and palm-based catalogs as well as pricing management and analysis software for wholesalers. Go to www.go-spi.com for more information.