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Distribution after the Recession – Funded Sales Resources

Frank Hurtte | Dec 19, 2009 600 views 6 Comments

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Think about the Great Ice Age – before the great sheets of ice enveloped much of Europe and North America, great Dinosaurs roamed the planet. After the ice cleared away a new breed of highly adaptive animal took over – the mammal. Without being overly graphic, this hardy new breed later gnawed on the frozen bodies of the regal creatures that once reined supreme. The Ice Age was a game changer.

Recessions are game changers. What worked on one side of the recessionary dip will not work on the other. I have been challenged to outline some of the metamorphosis associated with the other side. Earlier this week, I exchanged a few thoughts with Craig Justice of Alliance International on “the funded head”. Mr. Justice, wrote a blog covering his very successful experience with the concept at:

http://allianceinternational.blogspot.com/2009/12/funded-head-experiment-yields-positive.html

Because Mr. Justice lives high on a mountain side in San Diego County wine country, I conjure up thoughts of vintage Orson Wells stating “We sell no wine before its time.” The funded head, I believe, is an idea whose time has come. Let’s explore.



First what is a funded head?

A “funded head” is a distributor employee (at least in part) paid for by a supply partner. Here’s how it works: The distributor hires a new person and focuses their attention on the supplier’s line. While employed and managed by the distributor, a certain amount of direction comes from the supplier.

Why would anyone want to use them? Why not just hire a direct employee?

Funded heads are more efficient than a direct employee. Because distributors operate on a smaller company environment, the cost of adding another head at the distributor end turns out to cost less. Depending on the industry, adding a distributor employee tracks between 25-30% less than an equivalent at a Fortune 1000 sized supplier.

Further, a great deal of natural effort is lost in the interaction with the distributor. Whether we like it or not, new supplier sales people must “earn the trust” of their channel partners. Internal resources – customer lists, CRM access, POS sales data and all the rest – are “filtered”. Access to distributor sales people takes time to build. Perhaps more critically, distributor management face time is constrained. Within this concept, instant traction, fast results and lower cost are exchanged for direct management.

Plus there are other advantages for the supplier. In times when controlling head counts are important – a funded head eliminates the cost of benefits, office, company car and travel expenses. Further, funded heads are temporary. At the end of the program, the employee becomes the responsibility of the channel partner.

Why is now the right time?

I began this argument with the point – this is an idea whose time has come. Bold statement? I don’t think so. As we move out of the economic doldrums of the past 18 months, we face a whole new game. Customers are reevaluating their suppliers and the company who reacts most quickly picks up valuable marketshare.

Properly done, a funded head scenario has an advantage. Today, there are many qualified candidates available in the market. Because of local networks – business and social – distributors know who these people are and how to reach them… quickly. No lengthy interview trips, no delays at the HR department and (usually) no relocation costs are involved. But wait there’s more. Many of these qualified candidates already have a rudimentary idea of the local market. Sometimes, they may even have a history with the customers you want to reach. The growth side of the economy is the right time to use this advantage to seize opportunities.

Why don’t the distributors just hire the people themselves?

Here’s the situation, it’s all about cash flow. Coming out of a recession, distributors want to use their available cash to finance increased accounts receivables and inventory. The current financial climate impacts the distributor – bank relationship. The banks of all but the largest distributors are questioning the distributor’s line of credit. Growing the business is important but only if they have the cash to fund it. A funded head, frees up a portion of their cash reserves to support their supplier’s business in bank friendly ways. Most likely, the distributor might add another person, but the funded head puts the person in place – early. And, the advantage goes to the fast responders.

What is the right way to get started?

Understanding is the root of a good program. You must come to a strong understanding of goals and expectations prior to the program. To this end, an agreement needs to be laid out which defines:

The skill set
Educational background, personality type, and previous experience must be defined. If you are targeting a competitor, outline which competitor’s previous employees should be considered.

The interview process
I personally believe the funding company needs to play at least some role in the process. Rights of refusal need to be laid out carefully.

Training
Product training and building connections with factory level people can be critical for success. Define when and where the training will be held and who pays for it. If additional training is needed down the road, this must be laid out as well.

Goals, Metrics and Reporting
No metrics equates to a bad program. Define success and measure against a predetermined set of goals. Because the supplier plays a role in funding the person, advanced information to be reported needs defined. Detailed targeting, POS and margin information are all set ahead of the program.

Recommendations on the person…

Having seen these programs in an up front and personal manner, I have a few recommendations as to what works and doesn’t work. This absolutely cannot be a “rebranded” person. I have nothing against that really promising inside sales guy or the warehouse worker that’s showing a lot of initiative, but this type of person is too easily pulled off course. And when the role is only 50% funded, some will be tempted to try to use this arrangement. There may be exceptions, but for the most part – there are too many opportunities for failure.

There has to be a migration plan

What’s a migration plan? I believe it’s the answer to a number of questions about the future. Here are things that need to be developed:

What happens if the person selected just does not work out?
You hope it doesn’t happen. You go through a great deal of pain to prevent it, but sometimes we make hiring mistakes. What happens if the person doesn’t meet expectations? Since the supplier has a financial hand in this person, both distributor and supplier need to preload some expectations. Remember, no surprises…

What happens in one year (or two or three)?
Does the funding go away? Are there ways it can be extended – growth goals, new account conversion etc. Defining this saves frustrations.

What happens to the employee once the program ends?
Ideally the distributor will reach the point where the person is a good investment for their organization and keeps the employee “plugged in” continuing to chug out results for the supply partner. All too many times, these programs are used to “warehouse” employees for some other use. This probably isn’t what the supplier has in mind.

What can be expected of the distributor for taking part in the program?
Again expectations are critical. These need to be ironed out before the fact to remove emotions should something happen.

Before we head down the road…

I am an ardent supporter of a scientific sales process. Plus, I am the leading proponent of using distributor specialists to drive the sales process. Throughout much of this article, I waxed on as though you are adding a generic salesperson. For some distributors this may work. However, for a good many distributors and their suppliers, adding a funded head specialist makes far greater sense. Our research shows that upper quartile distributors – the ones who out performed 75% of their peers – apply specialists to drive the sales of a selected supplier or technology group. Funded Specialists will impact the dynamics of distribution.

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6 Responses to Distribution after the Recession – Funded Sales Resources

  1. Eric Pfeiffer December 21, 2009 at 8:38 am (1 comment) #

    This is an interesting and intriguing concept. I see it being a really strong play for major product lines, such as cutting tools, carbide inserts, and the like. But what are the opportunities for less significant lines, where a full time resource is impractical? There needs to be a way for these suppliers to “play” as well – they might be the ones who get the most bang for this buck, and in turn this might play out the best for the distributor as well.

  2. Jim Derrick December 21, 2009 at 1:44 pm (1 comment) #

    I did (with Intertape) this 15 years ago at a packaging distributor, Morrisette Paper. It was called a shared resource. We paid half and the distributor paid half. It is a very good idea if you have:
    1) A Rep who is very good (especially as a trainer) at what he / she does… and I was.
    2) A young kid out of college who is a go getter, personable and eager to learn… and he was.
    3) A broad based product line that cuts across many business segments and markets.
    4) Committed vendor and distributor partnership… it was.

    This distributor became our largest cistomer and the kid went on to become the distributor 3rd largest sales number guy… in 3 years (out of 23).

    Unfortunately after I left the territory to do something else within the company the relationship fell on hard times and the company had its i.q. drain with the stock price.

    The problem in business now is that distributors have hammered the prices down so low that the margins are not there for most companies to do this.

  3. Jeff Scott December 21, 2009 at 2:51 pm (1 comment) #

    I agree with your ideas on the “funded head” concept within distribution. Additionally, I agree that this person cannot be “rebranded.” Rebranding or partial funding within the distributor would lead to a system where excuses would dominate results and measurement of results would be more difficult. One alternative to “rebranding” that may work well would be the transfer (agreeable by the employee of course) from employment with the manufacturer to the distributor under this type of program. Additionally, this could allow the manufacturer a way to reallocate and focus existing talent within their organization for greater sales gain, while also decreasing overall costs (benefits, car, etc.).

    As a distributor, we have had success with product specialists. When implementing this type of program I believe it is important to be careful to make the distinction between “technical” specialists and “marketing” specialists. As a regional technical distributor, through the process of implementing specialists we attempted to use one person to fill the technical role of supporting our field salespeople and the marketing role of putting together programs and plans to grow sales for that line. We quickly found the skill sets necessary for these roles are very different and often times conflicting.

    If properly implemented, a “funded head” with a marketing focus could lead to significantly greater results for manufactures within a distributor.

  4. Frank Hurtte December 22, 2009 at 11:04 am (13 comments) #

    Eric,
    You bring up a great question – Funded Resources for less significant lines. Let’s explore this…

    There are many supplier organizations with product lines that are narrowly focused. For instance, I have a couple of clients whose total sales to a distributor, even if they are “hitting on all eight cylinders” would be under a $200,000. They constantly fight for mindshare even though they offer good margins; very limited distribution and customers want to buy their product.

    I am currently researching best practices for helping them expand their importance to their channel partners. Until recently funded sales resources were out of the question for them because funded sales resources really equated to one thing – a funded head.

    I believe there are some other places manufacturers can be of assistance to their distributors (especially those falling in the $5-25 Million range).

    I am working on developing a list, but here is a few off the cuff points:
    1) Email Marketing – Most manufacturers today operate some type of email marketing system, ie ConstantContact, Campaigner, iContact, Vertical Response and others. And they have developed expertise.
    Most of these systems allow for maintaining separate groups with unique features (from, response email, lists). What would happen if the Supplier offered to handle the heavy lifting of email marketing?
    2) Outgoing TeleProspecting – what if the Manufacturer funded a portion of it?
    3) Feedback surveys – Again many distributors don’t have access to SurveyMonkey, Zoomerang or other services. What happens if the supplier “sourced” their spare capacity to their distributors in return for sales activity?
    4) WebConferncing – Distributors haven’t invested. Again this presents a potential opportunity to “source” a sales tool to distributors in return for activity, mindshare, growth, activities.

  5. Frank Hurtte December 22, 2009 at 11:21 am (13 comments) #

    Jim,
    As one of the leading proponents/advocates of distributor based sales, I have to agree that your comment is sometimes true.

    I know a number of distributors whose “modus operandi” revolves around reverse auction selling. They sell the job to the customer, then they go back to their suppliers and say, “I have this order, and I can give it to you for just a two, three or ten percent better price.” There implied threat is; if you don’t give me the better price, I will broker it out to someone else. Further, I have seen “market server” distributors use this technique to submarine the distributor who actually pulled in the order.

    Both of these situations can be addressed with the right distributor policy. And, when the folks who are doing it are caught – I think it should be a “hanging offense”. With the new wave of Special Pricing Agreements (SPA) sweeping through the channel. I believe vendor partners need to establish a plan for fairly adjudicating pricing irregularities.

    With all the concerns surrounding the Robinson-Patman Act at larger companies, I believe a well planned shared resource tips the scales in favor of the distributor who makes the greatest sense for you to add to your channel.

  6. Frank Hurtte December 22, 2009 at 11:32 am (13 comments) #

    Jeff,
    My motto – Specialists They’re not Techno-Geeks Anymore.
    In research for my book, The Distributor Specialist: Customer Champion, Profit Generator! (available through NAW Institute for Distribution Excellence http://www.naw.org) I contrasted specialist use at upper quartile distributors and their lower performing brothers in trade. The upper quartile folks put specialists into their sales process. They did targeting, price direction, marketing interaction and developed plans for sales person skills training.

    I believe many people get hung up on the “Techno-Geek” role because from the outside looking in the position seems “Techy”. Supporting complex products, training customers, answering support questions are all very visible. The process driving side is harder to see.

    And, depending on what type of technology you sell… The vendor sales people want “Techno-Geeks” not sales drivers. They don’t want to be challenged.

    If you want a wealth of resources around the Specialist, visit my website – http://www.riverheightsconsulting.com. We have posted nearly 50 articles designed just for Specialists.

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