The Small Company's Secret Weapon -- Its Sales Force

'At a recent exit interview with one of our promising young salesmen, I pressed him to explain how our competitor, a much larger mortgage-banking company, could compensate him at such a high level considering his experience and productivity. Our (now ex-) salesman replied, "Your company has been great and has taught me what the margins are and what it takes to produce profits in this business. I know this larger company doesn't understand loan origination and doesn't realize it can't pay me what it promised. My hope is that they remain dumb long enough for me to get established within the company. Besides, if they ever figure out the business and cut my compensation, I'm not afraid to move on."

I could have tried to change his mind with friendly persuasion or -- if that failed -- a pay raise, but I didn't. This kind of competition, I know, is precisely the sort that a small company can't, and shouldn't even try to, overcome. A salesperson who is willing to bet that large companies will show poor judgment has never learned and will never appreciate the advantages of selling for a smaller company.

And there are advantages to selling for smaller companies, or so our best salespeople tell me. Indeed, after 11 years of doing business, The Hammond Co. has yet to lose a sales manager (and we currently have 16) to the competition. When I recently asked our sales managers why they work here rather than for our competitors, which are all much larger and wealthier, they told me that they enjoy the opportunity to participate in all sales issues -- an opportunity that usually isn't available at large banks or savings and loans.

That sense of opportunity lies at the heart of The Hammond Co.'s success over the past decade. We are a mortgage-banking company that originates, sells, and services residential real estate loans. Since our founding in 1975, our capitalization has gone from $150,000 to $13 million. We had our initial public offering in 1983; revenues during our fiscal year that ended last March 31 totaled $21 million, with $606,000 net income. And yet, based on the size of our loan-servicing portfolio, we ranked only 194th in the American Banker's 1985 listing of the top 300 U.S. mortgage bankers. Most of the others are owned by commercial banks or other financial institutions.

To come as far as we have, our salespeople have had to compete for loan originations against financial intermediaries with substantially greater resources than our own. That competition is particularly tough because our competitors view loan origination as fundamentally unprofitable but necessary to build a lucrative mortgage-servicing portfolio. As a result, they are not reluctant to compete on price, capitalizing losses from loan originations to increase mortgage servicing. But, despite our price disadvantage, The Hammond Co. has managed to make a significant profit on the loan-origination portion of our business in five of the past seven years, while building a $650-million servicing portfolio -- a significant achievement in the mortgage-banking industry.

I have our sales force to think for such accomplishments. At 100 people, it comprises about one-third of our work force and reflects what I believe to be an important advantage that small service companies have in going up against large competitors -- the ability to focus on sales. We have used that advantage not by trying to outspend or underprice our competition, but by being creative in the recruitment, training, and motivation of our salespeople. Granted, we have sometimes faced severe competitive pressures to which there were no short-term solutions. We have always managed to overcome these difficulties, however. Along the way, we have developed some rules that may be useful to other small companies in a similar position:

* Recruit where the big companies don't (and won't).

Smaller companies often appear to be at a disadvantage when it comes to recruiting. After all, we can't offer things like extensive formal training at high salaries; we need new salespeople to produce revenues almost from the start. While some new recruits thrive on the experience, others are bewildered and present a poor image to potential customers. So our challenge is not only to outflank large competitors in our recruiting efforts but to integrate the new salespeople as rapidly as possible.

We meet the challenge by finding unusual sources of recruits. While our large competitors go around raiding one another and recruiting people with real estate backgrounds, we look for interesting alternatives. During the late 1970s, for example, we found that disenchanted schoolteachers made excellent prospects. They exhibited a level of intelligence and a sense of organization that carried over well into mortgage sales. More recently, we've had good luck with recent college graduates working in well-managed restaurants, of which there are many in our area. After a year or two of restaurant work, these young people are often ready for a job with greater opportunity. Accustomed as they are to a controlled business environment and hectic work conditions, they adapt quickly to mortgage sales and show good customer skills.

While schools and restaurants have been fertile recruiting grounds, we can't take candidates based on such experience alone. We must have people with the right characteristics -- people who are ambitious and motivated, who will fit into our corporate culture. To identify these recruits, our sales managers put candidates through a tough screening process. They look for possible problems, quizzing applicants about their lifestyles and outside interests. We generally avoid hiring people with personal problems.

In addition, all prospective salespeople go through a three-day training session that concludes with a two-hour rhetoric and logic test. More than half of the candidates are dropped on that basis. This process may seem inefficient, but it works for us.

* Let your people train each other.

For those salespeople who survive the initial screening and training, we provide additional training intermittently. But we no longer take the big-company approach. We tried that route a few years ago with extensive sales-training sessions and organizational meetings: it just didn't work. To begin with, such an elaborate program required additional staff, which we couldn't afford, and nobody felt comfortable with the tight structure. When we held monthly meetings, the newer salespeople asked for weekly meetings. When we held weekly meetings, we were told that the sessions weren't productive enough and detracted from time in the field. I eventually concluded that the structured, big-company approach was simply stifling our sales force's creativity.