A while ago, I received a message from a reader that brought back some bad memories. He wrote: "I know you believe that, if you run your business right, departing salespeople shouldn't be able to take your customers with them. So what am I doing wrong? I give our project managers and salespeople a lot of freedom to serve customers. After a year or two, the employees walk off with the account. Each time, I get the same feeling in my stomach that I have when I receive a letter from the IRS."
I can't tell you how many times I've heard similar stories, and not just from inexperienced businesspeople. I remember being approached once at a conference by the founder and CEO of a former No. 1 company on the Inc. 500. He said he needed my advice on a difficult problem he was struggling with, namely, what to do about an 85-year-old salesman who was making from $3 million to $4 million a year in commissions. Aside from creating a tremendous imbalance in the company, the commissions were depriving the business of cash it desperately needed to finance its growth. "I'm at a total loss," he said. "I made a big mistake in setting up the commission structure like I did, and it has come back to haunt me. He's just getting too damn much money, but I'm afraid if I cut him back now, he'll get angry and go to one of my competitors, which would be a disaster. He knows everybody in the industry, and he's extremely tight with his customers. I could lose half my company overnight! I tell you, I'm scared."
I have to say, I was taken aback. Here was a guy with a $100 million business, making plenty of money, who had received all kinds of honors and awards, and yet he was terrified that if one salesperson left, he would lose half his business. It was his greatest fear. Fortunately, there was an easy solution. I suggested that the CEO talk to the salesman and try to buy him out of his contract in exchange for a deal that would guarantee him an income as long as he lived. At 85, I figured, he just might be willing to go for it. As it turned out, he was.
Now, if you're a longtime reader of this column, you already know what I think about sales commissions (see "The Sales Commission Dilemma," May 2003), and I don't intend to rehash those arguments here. Suffice it to say that commissions make it more difficult to solve the underlying problem in these situations. I'm talking about the problem of customers feeling greater loyalty to the salesperson than to the company that is actually providing them with a product or service. When salespeople are compensated based only on their relationship with their customers, they have a vested interest in making sure that the loyalty problem isn't solved.
In almost all cases, however, the customer's loyalty to the salesperson is misplaced. (There is an exception, which I'll get to later.) After all, the salesperson doesn't create the product or service, and if the customer needs help after the sale, the salesperson is not the one who can provide it. It takes a whole company to satisfy customers, and the company's leadership should make sure the customers are aware of that. If customers have relationships with people throughout the business and truly understand what everyone contributes, salespeople will have a much harder time taking those accounts with them when they leave.
Of course, this lesson -- like most business lessons -- is one I had to learn by getting whacked in the head a few times. I remember vividly how, at my first company, we would scramble whenever a salesperson left. We would print up a list of his or her customers and make sure that somebody went to see each of them. Then I would say, "Now, you go see the ones I saw, and I'll see the ones you saw." The disruption was huge. Yet, no matter what we did, we lost a significant percentage of the salesperson's customers anyway. And while we were running around trying to shore up those accounts, we stopped focusing on servicing other customers -- and lost some of them as a result. It was incredibly frustrating, not to mention a big waste of time and energy.
In my heart, I knew there had to be a better way, but it took me a long time to figure out what it was -- mainly, I'm sure, because it required an enormous change in how I recruited, trained, deployed, and compensated salespeople. I didn't begin implementing the new system until I had been in business for nine years. I should have started much sooner.
As you would expect, a big part of the implementation challenge had to do with persuading salespeople to move from commission to salary plus annual bonus, but my new approach involved much more than a change in compensation practices. I wanted people throughout the company to work together -- supporting one another, covering for one another, relying on one another. If we were short-handed in customer service, I wanted our head of operations to feel he could call any of our salespeople and say, "We're in trouble. Could you come in here and answer the phones for a while?" If a problem arose with a customer, I wanted our sales manager to know he could always ring up our customer service people and say, "Hey, I got a call from a customer. I know you guys are really busy there. But can you do me a favor?" And he wouldn't have to yell or scream, because they would all understand that they were members of the same team.
Developing that kind of esprit de corps took some time. For openers, we had to make sure the salespeople understood the inner workings of the business. So we had them spend time inside the business, answering customer questions on the phone and putting boxes on shelves. New salespeople didn't do anything else for the first six to eight weeks after they were hired. By the time they finished their training, they knew the whole operation and could explain to a customer exactly what happened in every area of the company. What's more, they knew the operations people personally and understood what each person did to contribute to our success.
We also provided customer service training to all of our full-time salaried employees. In the process, people began to understand better what role each of them played, what challenges their co-workers faced, and how important it was that they all work together. Among other things, they started providing more feedback to one another. When customers called in with praise, the telephone representatives made sure that the warehouse workers heard about it. When there were complaints or special requests, employees were able to coordinate among themselves to do what had to be done.
As the barriers between departments broke down, something interesting began to happen: Employees throughout the company became more visible to customers. The salespeople played a key role here, often bringing operations people on sales calls. As a result, when customers had issues they wanted to discuss, they didn't have to contact the salesperson and then wait for him or her to come back with an answer. They could go directly to the employee or executive who could give them the answer right away. Granted, the customers usually had a closer relationship with their salespeople than with other employees, but the customers knew that servicing the account wasn't the salesperson's job. If there was a billing problem, they went to the accounting department. If they needed to talk about storage or delivery issues, they called the operations person. If they had a question about their contract, they got in touch with me or Louis Weiner, the company president.
When that happens -- when customers see the business as a whole -- the danger of losing them to a departing salesperson goes away. Not that they will necessarily stay with you forever. You still have to give them great service and do it at a price that keeps you competitive. But they aren't going to leave just because a salesperson moves to another company. It has been many years since we lost a salesperson to a competitor, but if we lost one today, I wouldn't worry for an instant about him or her taking customers along. Our customers know that their satisfaction depends on a team of people. No matter how close they may be to the salesperson in question, they are going to say, "Well, I hope you're happy at your new job, but I don't know these new people you're with, and I do know the people at CitiStorage. They do a great job for me. Why would I leave?"
I believe that almost any company can develop such a relationship with customers. It's more difficult to do with a commissioned -- as opposed to a salaried -- sales force, but even then, there are things you can do to make sure customers know they are being served by a whole company and not just a salesperson. The exception: personal services businesses in which the salesperson is, in fact, providing the service as well as making the sale. I'm talking about real estate brokers, travel agents, hairdressers, investment advisers, and the like. Those businesses call for a different approach -- but that's a subject for another column.
Norm Brodsky is a veteran entrepreneur. His co-author is editor-at-large Bo Burlingham. Their book, The Knack, will be published by Portfolio in October.