When a Business Is Held Hostage

What to do when your customers are more dependent on your top sales executives than on your company.

March 24 2010 by Steven J. Shaer And Mike Struzik


 

Fred, Tracy and Bob are in sales. Each is holding their employer hostage in a drama that is played out daily around the world. Fred is being courted by a competitor and could take his largest customer with him if he leaves. Tracy is a weak performer but the cost of training her replacement is keeping her employer from pulling the plug on her job. Bob’s customer list includes the company’s top ten clients – all of them. Would they follow Bob anywhere? If you’re a CEO and this sounds all too familiar, set your Rolaids™ aside and read on.

There are two fundamental reasons you’ve become dependent on an employee. The first is a flawed business model – your customers are looking to your salespeople rather than your company for solutions. The second is an HR problem – you’re not able to efficiently replace top producers.

Russ Scheppmann, owner and CEO of APS Technology Group in San Diego, CA, provides a great example for us. Russ had a top producing sales executive who approached him one day with an offer he hoped Russ couldn’t refuse. He threatened to leave and take customers with him unless Russ agreed to sell the business at a deep discount. After some soul-searching Russ opted to show this disgruntled sales executive the door. True to his threat, he left and took customers with him. Remember the old adage that those who “live by the sword die by the sword?” Those customers who placed so much faith in a person were just as quick to lose faith in that same person when things went wrong – which they inevitably do. Within a year, Russ had nearly all of his customers back because they knew they could trust his company more than one person.

Likewise, Glenn Younger purchased a company with more than 50 years under its belt. Grah Safe & Lock of San Diego, CA had several key employees. Some of them became central to maintaining continuity during the ownership transition. Glenn eventually had to make some choices. While having loyal customers was one reason to purchase the company in the first place, he couldn’t allow his substantial investment to be held hostage to employees who refused to buy into his new management structure and policies.

Glenn improved his hiring practices, provided extensive training for his new hires and then set into place a system whereby every employee participated in a small group of other employees to research and suggest growth strategies. The process gave each employee the chance to buy into solutions they helped create. Glenn has fewer worries now and Grah’s customers remain loyal to a long-standing community fixture.

If your business is depending on personal relationships – and many do – there may be nothing in place that holds customers to your company. Not only has your product or service been “commoditized”, you’re on the verge of having your top producer’s personalities end up in the same bulk bin. There’s always someone out there that is smarter, funnier or more pleasant. How long will it be before a competitor hires their own Miss Congeniality? If this is resonating with you, you need to work on your business model.

A good business model infuses the framework for your value proposition into every one of your customer’s touch points. From marketing’s first contact through subsequent impressions driven by your sales team your value proposition should resonate louder than any single person. Once you have made a sale, your service or product delivery department needs to continue “touching” the customer in positive ways that reinforce your company’s premiere placement as a problem solver. CEOs also need to touch the customer much more frequently.

Each touch with your customer has the potential to differentiate your company from the competition. Nothing is more important, either, than spreading your customer’s real satisfaction throughout the entire team of people who serve them. When you solve a customer’s problem the solution needs to be presented as a team response, not the product of someone pulling strings to circumvent your policies. The more people who touch your customer, the more your customer will want to keep in touch with your company. Did I say that CEOs need to touch the customer more frequently yet?

What about the time and expense of hiring and training new people? For small to medium-sized businesses the entire burden may fall on the CEO. While an outside provider can bring candidates to your door the biggest expense of hiring and training employees is the CEO’s time. The solution is establishing a system one time that is followed to the letter each and every time someone new is brought on board. The “system” should be broken down into manageable components each of which can be delegated.

Take a moment now to consider the meaning of the word “delegated”. For many executives the meaning can quickly change to “abdicated.” Turning one component of your hiring and firing system over to a subordinate does not mean walking away from the process. Make sure that the individual components of your system have measureable milestones that are documented and sent to the CEO or Group Manager for his or her sign-off.

Task Delegated To Milestone Sign-off
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Job Description Group Mgr. CEO Approval CEO
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Collect Candidates Outsourced/Group Mgr. 15 Candidates CEO
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Interviews Group Mgr. 8 Candidates CEO
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CEO Interview CEO 3 Candidates Group Mgr.
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Prioritize Offers Group Mgr. 1 Candidate CEO
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Hire Group Mgr. 1 New Employee CEO
   Â
Training Materials Group Mgr. 10-Hours of Material CEO
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Pre-Train Reading New Employee Test Score 80% Group Mgr.
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Training Group Mgr. Performance Check CEO
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30-Day Review Group Mgr. Remediation CEO
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60-Day Review CEO Retain/Fire CEO

In the example above, the CEO has limited his/her actions to interviewing three candidates and spending an hour or two on the 60-Day Review of the new employee. A decision to retain or terminate the employee at this stage should be clear and well documented. Clearly there has to be an investment in time and money to create this system correctly the first time. A good system for hiring and terminating employees should be measured by your company’s reputation for hiring slow and terminating fast.  Too many CEOs do just the opposite; they hire fast and take forever to let underperformers go. Even someone who is disruptive or otherwise divisive should be terminated quickly.

Some may see this recommendation and say, “Well, that’s great for a bookkeeper or an administrative employee. Terminating someone on the sales staff is much more complicated. That could damage a customer relationship.  I’m not sure I want an inexperienced salesperson testing their talents (or lack thereof) on my existing customers.” The remedy does have some associated risks – there’s no doubt. However, failing to establish a system that creates excellence in your sales group is the same thing as reinforcing mediocrity. Most successful CEOs didn’t build their business on average performance and there’s never a good reason to start.

Just as important is the effect a hiring system has on your customers. The quality of your representation should improve. Customers will come to understand that their relationship and service comes from the entire company rather than just one person. One further recommendation: The CEO should visit customers at least once a year. Larger customers should get a minimum of two touches per year from the CEO.

It is not unusual for high-performance salespeople to eclipse the branding of the product they sell. It is also not unusual for top producing salespersons to earn more annual income than anyone in the company. Retaining that kind of salesperson may be essential. Managing the risks of losing them and your customers to a competitor may mean that it’s time to bring that top producer into ownership or some sort of profit sharing agreement. The trick here is to have your company absorb your top producer’s credibility rather than compete with it. Sometimes a top producer will leave to start their own venture. If they do it is all the more reason to have a systematic process in place to efficiently reach out and obtain your next top producer.


Steven Shaer is a Miami-Based serial entrepreneur and principal at the management consulting firm of Shaer Associates, who started and operated a number of businesses including one that was awarded the Inc Magazine 38th fastest growing company in America in 2000.

 

Mike Struzik is president and CEO of LeMesa, CA based CEO Focus, a peer consulting group of company presidents and CEOs that designs and delivers over fifty different programs in sales, sales management, and executive management development. He is the co-author of “Creating True Sales Cultures in Financial Services.”