The IMR Summit - ISA

The IMR Summit

February 19, 2018 11:00 AM to 3:00 PMFort Myers, Florida

Discussion Leaders

J. Michael Marks, Indian River Consulting GroupAbe Walton PhD., Ivory Bridge Consulting Group

Attention Participants

This deck contains materials that will take approximately 8 hours to properly cover and we only have three hours. Our intent is to tailor the material on the fly based on audience

feedback. You get the entire deck for future reference.

WWW.IRCG.COM INDIAN RIVER CONSULTING GROUP

3Download This Deck At www.isapartners.org/educationFor Your Convenience


4Agenda

Morning Session 11:00 to 12:30• Crossing the chasm: birth to ownership exit

• Growth through adjacencies

• Workshop: Valuing the Ideal End Result

Lunch 12:30 to 1:30Afternoon Session 1:30 to 3:00• Strategic alternatives & intentional growth

• Process creation and achieving scale

• Workshop: Prioritizing Value Propositions

You may think that you are just a really talented sales

rep but your success is defined more by your

business model than your talent


5Peter Drucker

He passed away on November 11, 2005

I had the great fortune as having many classes and dinners with him at Claremont Graduate School and the book’s principles include:

1. Ensure your capacity for survival with enough strength to weather a blow

2. Ensure your ability to recognize needed change and adapt quickly

3. Ensure the boldness necessary to exploit emerging opportunities

His writings contributed to the philosophical and practical foundations of the modern business corporation. He was also a leader in the development of management education, he invented the

concept known as management by objectives and he has been described as "the founder of modern management"

http://smile.amazon.com/Managing-Turbulent-Times-Peter-Drucker-ebook/dp/B000FC12QE/ref=sr_1_1?ie=UTF8&qid=1424706401&sr=8-

1&keywords=managing+in+turbulent+times


6Sustained Competitive Advantage

Resource-based competitive advantage • Valuable• Rare• Inimitable• Non-Substitutable

• Culture wins over process - Southwest Airlines


7Idealized Final Result

How can you possibly know what you would do while under constraints, if you don’t know what you would do with out any constraints.

Start with WHY? or How Might We?


8Getting Unstuck: Solving The Perfect ProblemThe only problems you have left are the perfect ones. The imperfect ones, the ones with a clearly evident solution, well, if they were important, you've solved them already.

It's the perfect problems that keep us stuck.

Perfect because they have constraints, unbendable constraints, constraints that keep us trapped.

There's no way to solve the perfect problem because every solution involves breaking an unbreakable constraint.

And there's your solution.

The way to solve the perfect problem is to make it imperfect. Don't just bend one of the constraints, eliminate it.

If the only alternative is slow and painful failure, the way to get unstuck is to blow up a constraint, deal with the pain and then run forward. Fast.

http://sethgodin.typepad.com/seths_blog/2010

/07/getting-unstuck-solving-the-perfect-

proble.html


9

Problem Finding = Different Models of Thinking


10Ideal Final Result - Exercise


11

Effective Rep Firms Keep Both Sides Honest Or At Least Equally Irritated

Your Multi-Sided Value PropositionDownstream- End Users &

DistributorsA rep-discovered sales opportunity creates significant pull through revenue for a distributorThe balance of direct and distributor lines creates linkage with other channel partners who bring opportunities to the rep’s firmThe rep firm provides the technical expertise so the distributor or end user doesn’t need to invest in it

Upstream- PrincipalsRep firms are good at 2 out of these 3 activities, so be clear and choose wisely based on the needs of your principals1. Getting products spec’ed with specifiers2. Managing projects3. Managing flow businessDemand creation or making markets for distributors to serveProviding principals with competitive insight and new market opportunities


12Network Effects (Apple’s I-Tunes)Every business model has two components, how to add value to a market and then how to extract valueMost businesses started with a virtuous circle, but when it breaks they plateau• It spools up just like a turbocharger when

it works• Sticky customers are both high margin

and happyThe key is knowing your tribe• Remember that your principals have high

switching costs and just deny it


13Crossing the ChasmBusiness models that don’t evolve will experience declining growth rates down to

core economic levels, excluding share shift

All of you started with a founder entrepreneur who was the lead sales manager, then you hired sales reps, and when absolutely necessary, finally hired some administrative support besides a spouse• To meet minimum W-2 or T-4 requirements you paid a high percentage of the

factory paid commissions to attract reps in the beginning• As you develop network effects the rep share declines while their income rises

Many firms get stuck here if you fail to change your comp plan as reps become over paid, complacent, and age out in annuity territories

• You evolve into a thirds model (1/3 each to compensation, overhead, and partner profits) while W-2’s grow rapidly at or above market

This is what funds the specialized marketing and operations functions thatdramatically increasing sales rep productivity by typically 4 to 8 times

Over 20 of the 21 Million US Firms Are Lifestyle Businesses

Potential Action Step


14Today’s Core B2B Challenges1. The accelerating trend away from relationship

buying to advantaged players & rabbits

2. The internet buffet of choice and transparent race to the bottom

3. The erosion of selling service as a differentiator in the market

4. Increasing customer sophistication

5. Aging of old school sales reps and a limited pipeline of replacements

6. Markets are aligning by size where larges buy from larges

Many firms simply ride it down harvesting what they can

The punch line is that the old model is not a best practice for the future.http://blogs.hbr.org/cs/2012/07/the_game_buyers_play_with_vend.html?utm_source=fe

edburner&utm_medium=feed&utm_campaign=Feed%3A+harvardbusiness+%28HBR.org%29


15Death of a Rep FirmThe most probable end to a rep firm is when the managing principal ages out and sells the business on a leveraged buyout to a younger firm member, who will default on part of the note, while feeling really bad for a host of market-based reasons• By definition, most are lifestyle entrepreneurial businesses as there is no

shareholder value outside of the relationships with the firm’s senior sales executives

There is nothing wrong with this as long as you don’t drink your own Kool-Aid• If you are old enough to ride it out then the best strategy is to put “lipstick on the

pig” and ride it down taking out as much money as possibleThis is often a best practice and there is a freedom when giving up the illusion of

building something that exists beyond you (Issue: getting others to invest)Some firms go on to create real shareholder value beyond the first founders when instead of waiting for a crisis, they start investing now (the afternoon session)

History Doesn’t Repeat Itself, But It Usually Rhymes


16A Rep Firm Is Worth Four Times Adjusted EBITDA EBITDA is Earnings Before Interest, Taxes, Depreciation, & Amortization (think free

cash flow)

The four multiple is the median value for small professional service firms and your EBITDA is calculated by:ƩN(Principal Revenue X Commission Rate) = Total Rep Firm Revenue

less (Total Salary and Commission Compensation paid to owners*, sales reps, and support staff)

less (Other operating expenses except interest and taxes)

Equals the firm’s ~EBITDA

This value times four is the typical price that a willing seller pays to a willing buyer• This almost always requires the senior executive to stick around for two years to transfer

relationship equity with a sizable variable hold back based on transition success

* Does not include profit withdrawals


17Aging Out Exit Strategies for Life Style BusinessesYour value declines if you are within two years of exiting, don’t wait too

longScale back to become a Lone Ranger hanging on in retirementThis is often a viable alternative for non US principals who are skimming this marketReduce the compensation levels of existing staff capturing more for the owner• Replace aging loyal high paid reps with lower paid replacements• Change incentives to pay higher for growth than market servingSell out to remaining staff using 4X adjusted EBITDA• There is often a discount for limited marketability of 0% to 25% to an internal purchaser• Offering an additional large discount for cash within 30 days is always good moveSell out to an adjacent firm or to a senior leader at a supplier• The adjacent firm needs to share your top suppliers or your same customers

M&A Within Your Supplier Base May Create Valuable Exit Opportunities


18Worksheet: Rep Firm Exit Values

Calculation Element Value

A. Total Rep Firm Revenues (sum of all supplier and fee income)B. Total Salary and Commission Compensation paid to owners (not profit withdrawals), sales reps, and support staffC. Less: Other operating expenses except interest and taxesD. Firm EBITDA = A – (B+C)E. Add back expenses that would not exist in an arms length business (e.g. fancy offices, cars, or jets)F. Deduct expenses, like high rents, that would not exist in an arms length businessG. Adjusted EBITDA = D + E - FH. Typical Market Value of Firm is G X 4

Add one additional multiple if your largest supplier has extended termination notices, and subtract one multiple if your key line was just acquired, each situation is unique


19Group Discussion

Get into groups by non-competing firms and discuss the questions below making sure that everyone expresses their own views. Feel free

to give the boss suck up behavior if necessary.Choose a group leader by determining who has the most children and grandchildren

The role of the group leader is to ensure that everyone weighs in with their own views and that the group stays on track and consider these statements and questions

1. Share experiences in the group around firms that are no longer here, for whatever reason, and discuss your views on how well they managed their exits

2. Based on question one, what are the lessons for you going forward?

3. Given the uniqueness of each of these stories, are there any hypothetical examples you would like to get the take on from Mike and Abe?


20Agenda



Lunch 12:30 to 1:30

Afternoon Session 1:30 to 3:00• Strategic alternatives & intentional growth

• Process creation and achieving scaleFrom Patrick Carrol

https://www.linkedin.com/pulse/6-ways-evolve-modern-sales-pro-patrick-carroll/


21The Truth For Non Glamorous B2B Space

Professional management requires growth faster than GDP and a 20% return on invested capital

• Lifestyle businesses have much lower expectations

Cost advantages come from scale, specialization, and performance management processes

Price advantages come from scale with suppliers, mass customization, and leveraging competitive intensity

• Long tail switching costs are the most valuable

Competitive advantage is not real unless you gain a significant cost advantage over your competitors or a significant price premium from your customers, either resulting in higher profits. Operational

execution is an activity, not a strategy.

Marketing is a force multiplier for everything above

http://www.amazon.com/Understanding-Michael-Porter-Essential-

Competition/dp/1422160599/ref=sr_1_1?s=books&ie=UTF8&qid=1360612888&sr=1-

1&keywords=understanding+michael+porter


22Stanford Idealized Redesign Exercise

How can you possibly know what you would do while under constraints, if you don’t know what you would do with out any constraints.

Start with WHY? or How Might We?


23Changing The Risk/Reward EquationStart by knowing what you are selling and who is buying it

• Risk management is purchased by the CFO or Chief Legal Counsel, not the facility manager, senior project engineer, fleet manager, or the purchasing manager

What you need to be selling is lower risk backed by something tangible (hard for a competitor to duplicate) like a bond or insurance

A core competency must meet three criteria:

1. It must be valued by the customer

2. It must be expensive or hard for a competitor to duplicate

3. It must be transferable to other products or markets

Leveraging core competencies leverage your ability for increasing switching costs


24

Relative difficulty of sales execution

Customer Segment

Existing New

Products, Services

Existing Hard Harder

New Harder Hardest

Growing Into AdjacenciesCustomer penetrationprovides• Additional revenue• Higher relevancy• Better coverage to

protect existing business and intercept opportunities for new business

Large firms are not agile so they get the best returns by focusing on large scale customers with high risk avoidance

Business Models and Strategy

Distributors

leverage relationships

Manufacturersleverage brand


25

Relative difficulty of sales execution

Customer SegmentExisting New

Products, ServicesExisting Hard Harder

New Harder Hardest

Growing Into Your Three AdjacenciesA. New supplier principals

Do you have a strategic perfect line card?

B. New customers in same geographyYou used to call this prospecting

C. New servicesLook at Lowes

https://www.lowesforpros.com/articles/lowes-business-replenishment-program_a1749.html

Cost To Grow and Potential To Grow Define Your Priorities

It is very hard for a rep firm to develop a new customer base

https://www.lowesforpros.com/articles/lowes-business-replenishment-program_a1749.html


26

A. Getting The Right Principals To Represent

What Do Your Supplier Principals Want?Balanced network of channel partners, both rep firms and distributors• Too many small ones are hard to manage and too few large

ones creates a concentration riskAlignment• Visible and attractive to their target customer segments (how

well do you know their analytical profile?)• Firms strongly motivated to invest in and promote their product

line (this means young guys investing for the future)• Manageable line conflicts, shared vision and values (are your’s

published and linked to theirs)Performance• Strong sales and marketing capabilities• Financially sound and capitalized to support investment

Num

ber O

f Rep

Firm

s

Annual Percentage Growth Rate

Target %

Setting this expectation is clearly the responsibility of

the rep firm

http://www.mdm.com/analyticsPotential Action Step

Your sweet

spot

Manage Expectations


27Considerations In Creating The Ideal Line Card1. Build a list of category leaders in primary, secondary, and tertiary products used by your core sweet

spot customers

2. Google dive each to determine if they use rep firms or just announced a major layoff or restructuring (big bet to get them to outsource their sales force)

3. Go see which complimentary lines are carried by their reps in other markets, look for combinations of lines that go together

4. Rank each potential line by both the number of other lines they coexist with their category leadership position and the high, medium, or low alignment between their target customers and yours

5. Break the list into three columns; acquirer, acquiree, uncertain (probability of being around in 5 years)

6. Develop your selection criteria and weighting to rank the lists (there will be multiple lists based on combinations)


% of Sales Commission Rate % Commission $$$ % of Sales Effort

Primary Products 60% Lowest 47% 68%

Secondary Products 30% Intermediate 37% 30%

Tertiary Products 10% Highest 16% 2%

Blended Total 100% NA 100% 100%

Your business is stronger with a mix


28So Why Should a Principal Choose Your Firm?1. You have access to their target

customers because of your existing bundle and relationships, not your selling skills (ante to play)

2. Your complimentary lines make you important to their target customers

3. You demonstrate local market knowledge far in excess of any potential factory principal (with data, not stories)

4. You are a professionally managed firm5. You generate consistently above

average growth

https://mrerf.orgAnnual Dues $250/yrCPMR ~$2,200/3 yrs



https://mrerf.org/


29

1. Protection: Ensuring that they retain all of the flow business that is bought and not sold, avoiding CSEs

2. Interception: Capturing business when a competitor CSE occurs

3. Disruption: Investing sales effort to disrupt a working sourcing relationship, usually driven by a product or programs

3 Ways That Reps Create Demand With Their CustomersA good Critical Selling Event (CSE) happens to a customer and is created by a failure of their

incumbent supplier, or a supplier of that distributor, meaning it is an external event and outside the control of your sales rep

B. Getting New Customers

*Repurchases of identical product

The secret of share growth is to never experience a CSE yourself and intercept the CSEs of your competitors

Your ability to set traps that intercept CSE’s is a major factor in capturing new customers & suppliers


30Critical Selling EventsKey market-timed events are often the basis for winning and keeping contracts

Ask yourself:

How much of your marketing budget is spent on broad marketing efforts vs. identifying and capitalizing on specific market making events?

How much can you afford to pay for a market making event?

Do you know, or even really care, how many customers you have and how loyal they are?

Customer Retention and Repurchase RateRemember that the real goal is to increase shareholder value and the correlation to sales has gotten weakLoyalty and repurchase rate increase switching costs which always drive up profits



31Your Switching Cost ChallengeBid auctions are defined as perfect competition because all value accrues to the end user at the end of the value chain

• The dumbest or hungriest guy gets the business

• All bidders are fungible or interchangeable

We bank with Wells Fargo and we all hate them- but we won’t change

• The hassles (switching costs) are high and there is real uncertainty that we would end up any better, so we stay and they make high margin

You will not create any competitive advantage without changing your offering to increase customer switching costs

• Don’t expect anything to be driven from your sales function

• This is complex and time consuming for executives, it will require investment

• It will invariably require a business model change



32Green is

goodRed is

bad Potential to Grow Cost to Grow

$=10Millions, $$=100Millions, $$$=Billions, $$$$=10Billions

Market Size

Grow

th Rate

Selling Cycle

Ability to Expand M

arket

Current Share of

Custom

er Wallet

Level of Trust

Our Know

ledge of C

ustomers

Sales Force Fit (H

R investm

ent)

Mar-C

omm

Fit

Product Offering

Fit

Operational Fit

(CapX

required)

Com

petitive Intensity

Price Sensitivity

Switching C

ost

Segment 1 $$$$ H 1 – 2 yr H L L L L L M H M L H

Segment 2 $$$ H 6 – 18 mo

H L L L M M H M L L H

Segment 3 $$$$ M < 6 mo L L M H H H M H H H L

Segment 4 $$$$ L < 6 mo L H H H L H H L H H L

Customer Segment Attractiveness Example

Key conclusions:Segment 1 offers highest overall growth potential and a compelling opportunity for “imperfect

competition”: high barriers to entry and high switching cost. But accessing the market will take time, money and focus

Segment 2 offers lower long term opportunity but requires less up front investmentSegments 3 and 4 offer lower profit growth opportunities

Get the columns right first



33Territory Coverage Analysis Mixing New Data With Your Data

What is the role of your own sales reps?Is it OK that he or she spends no time at all visiting 36% of the total industrial spend in their territory?How would your principals look at this?Are there differences by product class?


Predicted Demand From MDM Analytics


34Unbundling for Increased Efficiency

Do what you do best and buy the rest

You must sell to users the way they want to buy- it is changing rapidly The Original Bundle

=Energy+Capital+Labor

+Materials

Why is this happening?

• Analog to digital process transitions• Improved asset utilization• Lower cost to find buyers or sellers

1

2

3

4

C. New Services

Gen 1 Unbundler’sVISAUPSNBCEarly switchboards


35Get Ahead Of The Curve By Considering Investment1. Become a service business as soon as possible

− It starts with thinking about utility instead of products− The hard part is not designing a service based business model, the hard part is letting go of your

historyYour could provide warehousing and logistics service both upstream and downstream,

VMI, toolroom management, facility audits, pre or post sales value-added services, commissioning, reconditioning, end of life disposal, market insight, surveys, new product

evaluation services, application or certification training, value engineering, bonded inventory, or hundreds of other things that would be valued in your supply chain

2. Figure out how to get paid for the intellectual capital and information that you own

3. Invest to digitize analog processes both inside and outside the firmYou need to design and build your own digital roadmap for new capabilities

C. New Services


36Relative Service Attractiveness

It is not about what you can sell, or what you want to do, it is about how can you save money for your core valuable customers

Speak with your good customers discussing: where they have recurring pain-in-the-ass problems; the performance and cost of their other service providers; and any initiatives that they are considering for the futureExplain that your are gathering research and would like to come back when you have sized and cost-out the various opportunitiesThe value you provide is defined by the customer and often it is the difference between what they are paying for something now, and how much lower you can provide itYou speak with many core customers looking for patterns then you build out financial models for each common theme remembering the 1/3’s model

C. New Services


37The Business Model Canvas

1. An organization serves one or several Customer

Segments

3. Value propositions are delivered to customers

through communications, distribution, and sales

channels

2. It seeks to solve customer problems and satisfy customer needs with value propositions

4. Relationships are established and maintained

with each Customer Segment

5. Revenue streams results from value propositions successfully offered to

customers

6. Key resources are the assets required to offer and

deliver the previously described elements…

7…by providing a number of key activities8. Some activities are

outsourced and some resources are acquired outside the enterprise

9. The business model elements result in the cost structure

Value CreationEfficiency

C. New Services


38Value Proposition Development

Customer JobActivities, roles,responsibilities

PainsRisks, fears, hassles

GainsSuccess, fun, status

Pain RelieversWhat they know

they want

Gain CreatorsWhat they’d want

if they knew

Products andServicesWhat we

could offer

Methodology adapted from The Business Model Canvas, by Business Model Foundry GmbH, www.businessmodelgeneration.com

Segmentation Positioning

C. New Services


39Group Discussion

Get into the same groups but choose the group leader based on most years of education


1. In general, which of the three primary adjacencies, of suppliers, customers, or services, offers the most growth opportunity to the typical industrial rep firm?

2. Will the fact that most of today’s rep firms have little appetite for detailed analysis and making PowerPoint, have any real impact on those that prosper in the future?

3. While it is not necessary to share specifics, were there any new insights for you when looking at your business?


40Agenda



Lunch 12:30 to 1:30


• Process creation and achieving scale Challenge: Learn something new from someone you don’t know well


41Agenda



Lunch 12:30 to 1:30



The punch line is that your old model is not a best practice for the future.

How strong is your web presence? Go Google, “manufacturer rep firm

websites” to see best in class examples


Trusted relationships have migrated to rabbits & advantaged players

Click the picture for the link

http://blogs.hbr.org/cs/2012/07/the_game_buyers_play_with_vend.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+harvardbusiness+(HBR.org)


42Strategy Is Intentional and Based on InsightThis Is the Core Executive Responsibility

Tactics

Time

Gro

wth

and

Sha

re

End State

CurrentState

A clear end state is the best way to ensure that your investments

and priorities are additive

Success is often driven by what we

don’t do!

Kitting

Staging

PricingE-Commerce

Promotions

Market data

Warehousing


43Scenarios For ConsiderationMr. Phone, founded by “Trailerload Herbie” Goldstein (my old boss) built the first national rep firm in the automotive high performance aftermarket in 1975• It was acquired several years later by WR Grace and Herbie became a 1%erIt is common in the Heating Ventilation Air Conditioning and Refrigeration (HVAC/R) industry and the factory automation industry for Engineering Project and Construction (EP&C) firms to become manufacturers reps and for reps to migrate into EP&C firmsServicing the “last mile” in the building materials and liquor industry has created many replenishment rep firms• They don’t ever sell, but do all inventory replenishment to plan-o-grams

electronically with smart tablets in cars on routes for a service feeRep firms could have great data on product utilization that is saleable but most don’t spend the time or money to leverage this

You Earn Money By Taking Away Someone’s Pain


44Exit and Growth StrategiesThe most common growth strategy for a rep firm is a merger with adjacent geography (same lines) followed by a merger in the same geography with different products to the SAME customers

Two owners who both want out now is a disaster scenario

The ideal exit point for an owner is two years before you want to be done so you can effectively transfer relationship equity (you will leave some money on the table)

Remember that old men always stay too long, and death isn’t step two in this

The key bit of intelligence for acquisition and merger opportunities is the alignment of key strategic suppliers and their complimentary lines

Supplier acquisitions create both channel conflict and opportunities

There are real opportunities in adjacencies if it makes your customers or principals stickier (e.g. staging, kitting, VMI, 3PL, EP&C, selling consumption info back)


45The Cost Efficiency Of Scale – Go As Far As You WantThis is a worksheet to calculate the increase in your firm’s valuation if you grew large enough to maintain market compensation when you paid your sales reps 1/3 of your average commission rate from your principals• When built out ~50% of revenue

is providing services• You have 15 to 20 new support

staff and major technology supporting the same number of reps earning 10% more

• It could be the same geography, more lines or same lines, more geography, every mix is different

• The firm’s executives transition from selling to management

This takes years of hard work so don’t think about starting if you have less than ten more years

Most Successful Firm Owners Reach a Stage in Life That Scale Isn’t Worth It, Just Like a Millennial

Financial Elements Entrepreneurial Model Current State

Full Buildout With Scale and ~50% of revenue in services

A Rep Firm Total Commission Income 1,500,000$ 4,000,000$

B Average rep W-2 (T-4) 90,000$ 132,000$

C Number of reps including owner (No change as headcount is in support staff) 10.00 10.00

D Percent of commissions paid to rep 60% 33%

E Total rep compensation 900,000$ 1,320,000$

F Estimated support overhead at 33% of A 495,000$ 1,320,000$

G Firm EBITDA = A - (E + F) 105,000$ 1,360,000$

420,000$ 5,440,000$

5,020,000$

Times a 4X Multiple

Increase in Enterprise Value


46

The Sales Rep Of The Futureor how Johnny Unitas Lost Super Bowl III and the case for transparency

The rep firm marketing executive takes responsibility for business development using the sales force as an offensive weapon to gain and preserve shareGaining market scale is often not about selling stuff, rather it is about getting customers to choose your bundle as their supplier of choice

You may be selling a value proposition- not productsScorecards are public and real time• Performance discussions and best practice sharing become the norm

Geo-location services drive everything• Customer and market data is pushed to sales reps real time without asking (Google the

term SoLoMo)

• Everyone knows where the sales reps are- always


47

“People hire products to get jobs done”

Harvard Business Review

so start by asking:

what’s the job to be done?


48


49

When we viewed innovation through a “jobs-to-be-done” lens, new possibilities emerged, inspiring us to rewrite the rules of innovation.


50Market Opportunity Scores - Circular Saw Client ExampleImportance + (Importance-Satisfaction) = Opportunity

Desired Outcomes Importance Satisfaction = Opportunity Scores1. Minimize Likelihood of going 9.5 3.2 = 15.8

off track at end of cut2. Minimize frequency of cutting 8.3 4.2 = 12.4

the cord3. Minimize the amount of 9.5 7.5 = 11.5

splintering4. Minimize time to make bevel 5.1 1.0 = 9.1

adjustments5. Minimize the likelihood of 9.0 9.2 = 9.0

cutting user

Sellers, take note: Stop

chattering about the attributes of

the product. Instead, be utterly clear about what it

does for those who buy it

Success comes from getting the job done 20 - 30 percent better


51

Group Discussion – Critical Selling Events

Get into the different groups (you already know what the other guys will say) but choose the group leader based on who has the most years of

experience as a manufacturers rep

The role of the group leader is to ensure that everyone weighs in with their own views and that the group stays on track and consider these statements and questions1. What are the jobs to be done for those who purchase commercial lawn

mowers?2. What could be the critical selling events?3. Are there new business models that could disrupt this industry?


52The Large Scale TrendIn the beginning, sales reps were all self directed and told to look at their territories as their own businesses• Most were paid incentives on transaction revenue on receipt of funds (discounted

for price reductions) and the idea was they could eat what they killed• It was all about individual performance

What makes me unique is that I sell myself first and offer personal serviceAs market complexity increases the role transitions from being self directed to being management directed as an offensive weapon• The rep is provided with missions, tools, and rules of engagement• This is driven by scale, but small firms will never need to change

What would happen if a Navy Seal Team was put in charge of mall security with no mission defined or rules of engagement?


53The Evolving Omnichannel Sales Model4. Punchouts & LOOP*Inside sales leads with

specialistsYou have sticky customers

with reliable serviceField sales is on call, as necessary, by your team

3. Field Sales LeadsExpand share of wallet

using team members and introducing specialists

along with special services

1. TelemarketingE-catalog or Amazon

Easy to buy & “once and done”Early alert opportunity tool

2. Field Sales LeadsProspect with provided

marketing analysis on cost to grow and potential to

growYour value proposition is

explicit and key

* Lights Out Order Processing (ERP or App)

What % of your sales calls are on the right side of the model?

2-9

The Big Pill Is That Field Sales Customer Assignments Are Episodic


54Specialized Selling Roles

FAMField Acct Mgr

IAMInside Acct Mgr

ISRInside Sales Rep

CSRCustomer Svc Rep

Specialist TSRTelesales Rep

Commontitles

SAM, AM, TM, FSR, OSR AM, IAM, Segment AM ISR, CSR CSR Many TMR, TSR

Primary SOS(1) Business solution “Relationship” =

reliability and trustTechnical and transactional Transactional Technical or

functional Awareness

Customers assigned? Yes, by dirt Yes, by dirt or segment Yes, by dirt or segment No Periodically, by need

or projectNo. Uses call list and

RFM(2) tickler

% in field >80%Own car

5% - 50%Shared car

<5%No car None >50%

Own car None

% demand creation >90% 5% - 50% <5% 0% >90% >90%

Customer relation role Primary Primary Primary but often

shared with FAMMaintenance

“first do no harm”

Support but Primary in peer to peer

situations

Generate and find CSEs(3) to pass to

other reps

Account capacity ~30 ~100 Hundreds Hundreds Hundreds

Usually a set of <1,000 changed

periodically

Median comp (vs. FAM) 100% 70% 60% 50% 80% - 120% 40%

When We Are Free to Do As We Please We Usually Imitate Each Other

(1) Service Outputs Supplied: the key elements of the customer value proposition(2) Recency, Frequency, Monetary (RFM): analysis to determine the optimum call frequency(3) Critical sales event: a sales opportunity driven by external circumstances


55Get Ahead Of The Curve By Considering Investment1. Become a service business as soon as possible

− It starts with thinking about utility instead of products− The hard part is not designing a service based business model, the hard part is letting go of

your history

2. Figure out how to get paid for the intellectual capital and information that you own

3. Fully embrace omni channel strategy (sales reps have transitory account relationships)

4. Realign resources around the life value of customers, not transactions

5. Find something to unbundle and become a marketshare challenger6. Invest to digitize analog processes both inside and outside the firm


56Group Discussion

Get into the different groups (you already know what the other guys will say) but choose the group leader based on who has the most years of

experience as a manufacturers rep

The role of the group leader is to ensure that everyone weighs in with their own views and that the group stays on track and consider these statements and questions1. Share experiences of any group members with any specialized selling roles2. Consider the mergers or acquisitions of independent rep firms and share any

observations on best of worst practices in post transaction integration3. What are the large scale disruptive trends that your principals face where they

lack a clear answer and how might the rep firm be able to help?


57Agenda



Lunch 12:30 to 1:30



Whether you are a current or potential future owner of a rep firm

you are going to have a wind at your back with growth for the next decade

or so.

(There are several acquisition targets in this room today)

Success will be about doing new things, not doing the same old things better, so commit yourself to some

real self-development.


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1.To improve a system, first understand the system

2.A system is a whole, which is defined by more than just the sum of the parts but rather the product of its interactions

3. If you only apply analysis to a system you take it apart and it loses all its essential properties, and so do its parts

Premises of Systems Thinking & Innovation

The Theory of SystemsUnderstand your firm as a system


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Left to their own devices and without a systems approach, the result is sub-optimization

Human Nature is to value what we do and thus improve upon it via discretionary efforts

You would never improve the quality of one part of a system without also simultaneously improving the quality of the whole

Avoid Sub-OptimizationBeware of Independent Actors


60Picking Consolidation Packing Shipping

Maximum facility throughput

Pricing Customer Service Inventory Availability Delivery

Maximumsales

The Theory of Constraints

Either fix the constraint or manage the system around it

After you address one constraint a new one becomes critical

This is a fatal flaw analysis that must be part of your proposal

Travel Salary SupervisorRelationship

JobResponsibilities

retention


61Identify Your Critical Constraint

Attack it with non-recurring investment to gain recurring benefits

Sales Income

Symptoms:•Your biggest single frustration•What you apologize for the most•You talk about it all the time•You blame an entire department

Invest to build a process using technology to

decisively fix itYou pay the money once

and get the savings forever


62Amazon’s Innovation CycleDay 1 ‘vitality’ is like an organization’s startup and growth phases• they are delivering great value to their customers• In a perpetual state of change, flux, and liminality

Day 2 is the spiral of decline. “Day 2 is stasis”• Followed by irrelevance• Followed by excruciating, painful decline• Followed by death


63Stanford Idealized Redesign Exercise

How can you possibly know what you would do while under constraints, if you don’t know what you would do with out any

constraints.

Begin with the 80/20 rule

Then ask WHY? or How Might We?


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http://www.mckinsey.com/insights/innovation/disrupting_beliefs_a_new_approach_to_business-model_innovation?cid=other-eml-ttn-mip-mck-oth-1509

Predator Or Prey

4 Areas Of Focus1. Innovating in customer relationships:

From loyalty to empowerment2. Innovating in activities: From efficient

to intelligent3. Innovating in resources: From

ownership to access4. Innovating in costs: From low cost to

no cost


65Leap of Faith Assumptions Exercise


66Potential Downstream Impact Areas1. Helping them make more money or spend less money• Integrated supply, outsourcing partner, value engineering, cost reduction commitments, indirect

and direct cost savings, strategic sourcing versus procurement

2. Getting them into new markets• Rep firms can lead from the middle and you probably sell to some of their competitors, or you can

lead them into an adjacent market niche

3. Making them more capital efficient• Consignment, spares management, date code management, end of life management processes

4. Education around one of their critical constraints• Succession, professional management, or use of analytics

Think About Distributor Channel Partners and End Users

How would your customers rate you on these factors?


67Potential Upstream Impact Areas1. Solid data-driven competitive insight on your geographical market patch where

you know 3 to 5 times more than your supplier principals2. Providing detail competitive and market data in real time, think confidential blogs

built on Google alerts and clipping servicesCall reports are the closest thing for a sales rep getting a Pulitzer prize in literature

3. The ability to provide recurring and valuable progress reporting data to supplier principals and downstream users

4. Providing qualitative and quantitative insight on new product positioning and competitive offerings

5. Lower recurring costs for market serving and higher for market making, think two tier commission rates, monthly retainer fees for services, & year 1 booster rates

90% Of Rep Firms Do Not Do This Well


68The Four Foundational RolesThe senior rep firm exec should first staff to their greatest personal weakness• If you have a strong line card but are too busy to improve, get operations first• If you could have a stronger line card and can’t find growth, do marketing firstAs you gain scale most tactical decisions are made horizontally with concurrence between any two functions and financeA significant portion of the incentive compensation for this group in on the results of the complete firm, not just their function and they have financial visibility into the firm

1- Sales 2 or 3- Marketing 2 or 3- Operations 4- FinanceResponsible for customer facing

activitiesResponsible for supplier facing

activitiesResponsible for rule making and all internal decisions around process

Responsible for defining when and how much and what will be generated

Outside sales, inside sales, product specialists, zone or market managers

Product marketing, supplier relationships, pricing, market analysis,

promotions

Order management, warehousing, IT, facilities, data and phone, logistics,

project management

Accounting, treasury, audit, investment analysis, policy and

procedures

Customer share of wallet growth and customer base broadening

Supplier market share growth, annual planning, building the best line card Warehousing, security, HSE, quality Policy compliance, cash controls,

effective planning and controls

All are responsible for revenue growth and net profit performance (each may have house accounts)

This Starting Point Helps You Get Clear On Who Owns Any Problem

They can all be partners with

various ownership percentages from

1% and up


69Key Take Aways

With less than 5 field sales reps per rep firm your options are limited, but…

1. You can define territories by assigned accounts instead of geographySome customers (think house accounts) only want an inside sales rep

2. When you have a vacant territory you don’t have to put another general line sales rep into it

Add a pure hunter or a specialist or any of the other roles

3. You can start to measure key activities around growth and share of walletMeasure and manage their growth responsibilities explicitly

4. You can change the way you compensate them and reduce the annuity effects of your sales management process

Perhaps territory size and tenure shouldn’t be the key income drivers

Your Size Is a Great Excuse to Do Nothing and Is the Most Common Choice


70Group Discussion

Get into the same group but choose the group leader based on who has the fewest years of experience as a manufacturers rep


1. What is your largest take away from these sessions?2. What advice would you have for ISA and the IMR group with respect

to additional training (you will be surveyed after this session)


71Do You Own Part Of a Manufacturer’s Representative Firm?None of us live forever and old men always stay too longIt is a great time to sell between now and 2019 to 2020 if you want out• If this is the answer, work hard to maximize EBITDA while

developing a good story and sell in 2019

If you always hit your growth targets, or at least are ahead of the other rep firms in the market, you remain strong at line extension introduction, AND you are an effective and valued partner in your principal’s change processes then

“…yours is the earth and everything that is in it”


72Next Week’s Homework Assignment

Discuss the questions below making sure that everyone on your team expresses their own views.

Everyone write down your assessment of your firm as it currently exists on a 1 to 10 scale with 1 being a pure lifestyle play with long tenured and loyal sales reps and a 10 being a professionally managed firm with high productivity and use of analytical data. Then give your score, folded up, to the least tenured member of your group.

1. The least tenured member provides the team with the low score, the high score, and the average

2. After a brief discussion everyone scores the firm again based on where you think it will be in five years if you don’t change anything and the least tenured member provides the same values

3. As a group discuss how you feel about the two sets of scores


73Suggested Readings- Getting Out Of The Cat Box

These books are focused on improving where you are today

These books are focused on where you need to go

The IMR Summit - ISA

Documents

Transcript of The IMR Summit - ISA