What Recession?

By Henry Canaday

Times are tough. But with a solid plan and a way to keep your emotional responses in check (We have nothing to fear but…), your sales will rebound. Just read and follow the advice of three academics who’ve studied it all, six sales experts who’ve consulted with every type of company in all types of economic climates, and six sales leaders who tell you exactly what they’re doing to drive sales no matter what is going on in Washington, DC, and on Wall Street. Just remember: yes you can!

As countless jokes begin, the economy has some good news and some bad news for salespeople.

The good news is that the capacity of the United States and world economies to produce goods and services is exactly the same as it was before the autumn financial crisis. The bad news is that exploiting productive capacity requires a healthy financial system, and the financial system is very unhealthy.

The problem began with about $700 billion in subprime home loans. If half of these default and lenders recover half of the value of all these homes, less than $200 billion may be lost, a trivial fraction of the world’s assets. But no one really knows how much will be lost and who will lose it, causing lenders to be extremely cautious. Stingy lenders and a host of other problems led to much bigger losses and, eventually, a recession.

US recessions have been mild and brief in the last two decades; however, this one may be different because it stems from a financial panic, as in the early 1930s. But unlike in the 1930s, governments have moved aggressively to strengthen both banks and consumer spending.

This mix of good and bad adds up to major uncertainty for sales managers and reps.

Andy Zoltners, professor of marketing at the Kellogg School of Management, Northwestern University, and managing director of ZS Associates, thinks cutbacks are inevitable in many sales departments. The chief questions are how much and what type. Companies emphasizing cost control will cut back more, while “opportunistic companies will use this time as a chance to build relationships with customers because the competition is vulnerable,” Zoltners says.

The aim should be cutting sales fat, not muscle, and carefully looking at goals, overpayments, bad hires, and territory alignment. “In hiring, you have more choices, so you can set hiring goals higher,” Zoltners says. “You can target accounts smarter, going after ones that are vulnerable.”

Tactically, value propositions should change, with less emphasis on service and more on price. “Listen to customers, because their needs will change,” Zoltners urges. Sales reps need to go after new markets creatively, adjusting product offerings. “If your product was out there before and customers didn’t buy it, they will probably not buy now just because you call them. You need to tailor products to new markets.”

Mark Leslie, who founded and ran several successful companies and now teaches sales to MBAs at Stanford University, sees things similarly. Companies that are vulnerable to the slowdown and have weak cash positions will be conservative in hiring and setting quotas. “Given the strong labor market, it might be a good time to upgrade some weaker personnel,” Leslie notes.

But firms with very strong market and cash positions have opportunities to gain strategic advantage in the slowdown. These firms can invest in both new products and increasing sales strength. When the economy comes out of its slump, they will be positioned to take market share from competitors.

Leslie cites Warren Buffet, who takes this contrarian approach in the acquisition of entire companies. Sales reps do not make acquisition decisions, but they can be heavily affected by them through lost jobs, increased or decreased opportunities for new employment, or in shifts in the competitive landscape.

Big changes are not un-precedented. Terry Loe tells his professional sales students at Kennesaw State University that the United States has experienced 32 economic cycles since 1854, so they better get used to surviving in downturns. “The best way to make it through is to focus on fundamentals,” Loe stresses. These include making the targeted number of cold calls, and visits and maintenance calls to current accounts. “If you do those things each day, you will get a feeling of accomplishment and you will eventually sell,” Loe says. He urges salespeople to help their customers survive and avoid wasting precious time in negative conversations.

Determination in the Field

“Things look pretty bleak out there,” says Todd Fassnacht, sales and general manager for The Henry Bierce Company, which sells hardware and construction materials to the building industry. “We have felt the slowdown in construction for the last twelve months.”

Nevertheless, Fassnacht will not lay off any of his four outside salespeople. “Now is not the time to lay salespeople off. I know it is time to lay one off in good times when he or she is not performing, but I keep the good ones during slowdowns.”

And Fassnacht refuses to give in to the gloom: “There are always things you can do.” He is investigating more products that Bierce can sell, looking at new products coming in to the market, and traveling more to spot innovative goods. “We are also looking at more markets. Places that were just on the edge of our radar we are looking at closely with a bigger magnifying glass.”

“Anyone who says the economy is not a challenge is totally in denial,” says Josephine Armenio, director of business development for W Marketing, which sells publications to the electronic and construction industries. “Salespeople need to look at the needs of customers. It’s customer, customer, and customer now.”

In her wholesale business, distributors are tightening budgets, reducing inventories, and asking for rebates. Armenio is focusing on end users and paying more attention to decision makers. “I am no longer dealing with Joe, who will get a message to Mary, who will speak to Tom. There have been changes internally at many corporations, and new people are making the decisions, even at mom-and-pop companies.”

Rina Patano, director of sales at the Doubletree Chicago/Schaumburg Hotel, is worried because large-account holders say they will cut back on expenses and travel in 2009. “So we are out looking for new accounts wherever we can find them to replace the current accounts.” The Doubletree team is looking for new firms relocating into the Chicago area and is vigorously prospecting across the nation for companies that may bring business to the local market.

Douglas Campagna has not seen any decline in JanPak’s sales of packaging and janitorial supplies, but he sees a decline in his customers’ businesses. “We view this as an opportunity market, because customers are more receptive to creative ways of controlling their costs,” Campagna says.

JanPak, a provider of cleaning and packaging solutions, offers programs to save customers money by reducing the number of purchase orders and invoices, and JanPak is investing in IT and the sales force. “The company feels a professional sales force will do very well in the current market conditions, and I personally am highly optimistic. Customers are at least willing to talk now.”

Jim Roth manages six internal reps and 30 manufacturers’ reps selling liquid shipping products for A. R. Arena. “We have seen a lot of activity in the last 60 days, maybe because budgets are shrinking and our customers are trying to use innovative solutions,” he notes. “Some customers have slowed down purchases, but new customer business is significantly up.”

Roth admits 2009 will be risky. “It will be a challenging year as salespeople are chasing fewer dollars. But in our case there is still significant market share we can capture and continue our seven-year growth.”

Arena’s packaging is “green” and enables customers to cut costs by reusing it.

The company also increased sales staff recently, aiming for long-term growth. “We have contingency plans if growth slows. We might reduce some promotion programs, but I don’t think we will reduce staff. And we are reluctant to upset the apple cart by changing our comp plan.”

Changing Comp Targets

Jerry Colletti of Colletti-Fiss advises companies to revisit forecasts and performance requirements for setting sales compensation at midyear. “In times of uncertainty, planning cycles shorten,” Colletti says. He does not think firms should start using quarterly incentive plans, but they should closely monitor performance versus goals. “If less than 65 percent of the sales force is achieving threshold and less than 35 percent are hitting quotas, the numbers may be unrealistic.”

A November survey by Colletti-Fiss found firms adjusting their expectations for both growth and the type of business they receive, especially new accounts and products. Colletti thinks incentives for a fast start in the first quarter of 2009 may increase. And performance thresholds might be lowered while incentives for overachievement are reduced so that any upturn will not be so costly.

Mark Davis, managing principal with the Valitus Group, sees firms very carefully defining acceptable ranges of performance in 2009. This involves resetting target compensation and the thresholds below which 5 percent of reps will fall, as well as excellence levels, above which 10 percent will perform. The adjustments are case-by-case and not uniformly downward. But greater uncertainty naturally leads to a wider range between threshold and excellence levels. Quarterly adjustments in these levels are practical, but Davis says rules for making adjustments should be specified and communicated to reps at the beginning of the year. He sees more interest in new compensation metrics, particularly gross profit and acquisition of new accounts, as current accounts may slacken in 2009.

Productivity and Value

Businesses will be watching expenditures very closely in 2009, according to Doug Lord, president of the North American Solutions Group at Xerox. “Now is the time for companies to increase the use of productivity tools that help reps bring in revenue.”

In its own sales, Xerox will train its reps for success, emphasize setting attainable goals with attractive incentives, and keep territories steady to ensure customers receive support from trusted salespeople. The copying and document-management firm will continue to focus on customer- industry expertise, not just its own products, to help customers cut costs. Lord says Xerox will be a trusted advisor for customers, deliver on its value propositions, and offer clear accountability with a single contact responsible for profitability and performance at its largest accounts.

Reform, Take a Deep Breath, and Get Creative

“We aren’t seeing any panic among our clients,” says Steve Grossman, a principal with Mercer. “That probably is a good sign, because they do not have their heads in the sand” Mercer recommends taking a thorough look at clients’ sales efforts.

“Start with organization, segmentation of customers, and prospects for decline or growth in each segment,” Grossman explains. “Then move back and see if you should change your model or change critical roles in your sales organization.”

Sales headcounts should be tailored to the new picture of market needs. “Companies have gotten very good in recent years at identifying the real keepers, the stars, up-and-comers, and solid performers. Make sure you have a list of these people. Then look at any new roles you have created and ensure you have the right people to fill these roles.”

To deal with uncertainty, Grossman recommends shifting from an annual plan to quarterly plans, if possible. “You might have quarterly resets of headcounts and comp, because no one can really tell what is going to happen this year. And take a hard look at frontline sales management.”

Uncertain markets are a lot like major changes in business strategy, according to Dr. Pam Brill, head of In The Zone Inc. “Only 25 to 30 percent of strategy changes are successful, because they confront people with uncertainty,”Brill says.

Faced with major uncertainty, people develop fight-or-flight responses, with chem- icals slowing down the parts of their brains needed to solve problems and innovate – exactly the functions that are necessary to deal with change or uncertainty. “Just as we need cutting-edge strategies and implementations, our brain chemistry makes us stupid.”

Brill recommends three basic remedies: the first is physical. “Just breathe and feel your heart slow down. Put on the running shoes, get your sleep, and eat right.”

Next, take a step back and look at the problem from other points of view, including the customers’. “Develop solutions for customers. This is the brave new world, the as-is world. Keep an even keel, and then call in someone who makes you laugh.”

Third, set realistic but challenging goals. “And when you achieve them, recognize yourself every day. You can do it, and you are doing it.”

“One problem salespeople face is constantly going back to the same people for money,” notes Sylvia Allen, president of Allen Consulting. “In uncertain times, salespeople need to go outside normal contacts. Look for areas unhurt by the economy, like fuel, senior products, utilities, and electronics, and come up with new and interesting applications.” Allen urges offering creative financing and unique products that are distinct from those offered by competitors.

Allen cites data from previous recessions to demonstrate that companies that cut marketing during recessions lose market and have to spend abundantly afterward to regain what they lost. “Don’t believe everything you hear,” she states. “Certain industries are hard hit, but others not all.”

“The more fear there is, the more need there is, and salespeople fill needs,” says Jim Cathcart of the Cathcart Institute. “The difference now is that solutions are not obvious, so salespeople have to be the creative problem-solvers we always claimed we were.” Cathcart believes optimism is the only useful mind-set for selling in uncertain times. “People who call themselves realists are really pessimists who won’t admit it.”