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Recessions We Have Known and Loved

Short of being shot at and missed . . . nothing feels better than surviving a recession

by Frank Hurtte

For the next 30 seconds, join me on a nostalgic ride down memory lane. If you are older than 40, you remember those lost days of youth, the "Good Old Days." Way back then, we had us a grand old recession. Like good recessions everywhere, it came with the standard recession-driven unpleasantries. But ours came with more – Ricardo Montalban's rich Corinthian leather and a few ultra-nasty options.

For our junior readers, allow me to elaborate. We had stagflation – where the inflation rate and unemployment rate are both high and seemingly stuck in that position. We had an energy crisis – actually we called it the Arab Oil Embargo. Rockford, Ill., had unemployment pushing over 25% and the prime interest rate was 21.5% in 1982 (really). When I bought my first house, my dad quipped, "Why didn't you put it on your MasterCard? The interest would be lower."

What does this little walk down memory lane have to do with anything in 2011? When the 1980s-model recession was over, a new level of optimism spread over the nation. Even though the months before were the worst on record, we all felt great about the future. We were so optimistic, we hardly batted an eye when the nation's seventh largest bank folded. Today that isn't the case. Most of us suffer from a new-fangled form of uncertainty. We are still struggling to decide what course of action to follow.

We've just attended the first round of post-recession conventions, association meetings and networking sessions; most of our friends are posting some pretty strong months. In a few instances our pals are crowing that business jumped back to 2007 levels. As we review our most recent sales report, the numbers look good. The recession is over, but things have changed since those great recessions of the past.

Forecasting is harder in today's climate
Today it's nearly impossible to comfortably forecast future business levels using traditional methods. This is a radical change from pre-recession times. Not that long ago, distributor managers were able to understand and predict future business trends in the subsequent six, eight or maybe 10 months approaching (in their heads). That intuitive skill seems to have gone away.

Without some well-thought-out tool, today's distributors are lucky to predict next month's levels. Good months are followed by dismal months with little or no warning. Economists call this a saw-tooth recovery. Distributors and other small businesses call it nerve racking.

In the current conditions, forecasting and planning must be kicked up a notch. Distributors who lack these tools find themselves at a major competitive disadvantage. All the industry experience in the world won't help you. Plus, if you rely on your sales team for data points, and they don't operate under a process, you may be doubly jinxed.

Because they lacked a process (a real documented process with definitions and measures of success) many distributors waited too long into the past business downturn before streamlining their operations. Similarly, many will wait too late in the upturn before spreading their wings into full expansion.

So what is needed for forecasting?
Regular review and a thoughtful update procedure are a good start. The forecast will never be perfect but just a couple of slight changes can add a whole new measure of confidence.

Many distributors go through some type of annual sales planning. Sometimes driven by their manufacturing partners, other times pushed forward by progressive marketing groups (like Affiliated Distributors or IMark), these companies assemble a once a year "guesstimate" of future sales.

Whether they refer to it as a sales plan, budget or forecast, most are derived from data provided by the sales group. Salespeople are asked to provide their best guess of business levels for the following year, and this information is rolled into branch, region or company reports.

Two issues come immediately to the surface. First, salespeople have very poor forecasting skills. More importantly, once the data is collected, it is rarely updated for the next 12 months. As witnessed by our industry in 2008, a lot can happen in a year.

The problem with most salesperson-generated forecasts
The problem with salesperson-generated forecasts is this: salespeople lack faith in their own abilities and most question exactly what their management team might do with the numbers once submitted. The data provided by salespeople can be substantially flawed.

Without training, the typical salesperson's attempt to provide forecast data might fall into one of the following categories:

• No clue whatsoever – recognized by the salesperson's lack of ability to explain how they arrived at the numbers.

• Sandbagging – early in my sales career, a senior salesperson told me, "There are sandbaggers and there are losers. Always give management a number you know you can easily beat." How do you run your business with this kind of data?

• Pie in the Sky – generally new salespeople who imagine they can double their business in the first two months. I would give them a gold star for optimism but an "F" for realism.

• Whatever management is looking for – characterized by a detailed conversation with the boss about what kind of growth they are looking for. And followed up with a regurgitation of that message.

How to improve the process?
That which is measured improves – creating measures and metrics improves the results of the forecast. Salespeople are closest to the customer situation. They need only be trained to provide better numbers. As strange as it may sound coming from a person who often conducts sales skill training, I don't believe this is something that comes from a
day planted in a chair in the conference room. Instead, it comes via long-term coaching.
Instead of an annual 12-month projection, salespeople are asked to provide projections for the next 30 and 90 days on a monthly basis along with their normal annual projections.

Expect pushback. New processes of any kind involving the sales team will generate backlash. However, the time required to revisit accounts and create a new projection will diminish with each passing month. The time required to complete the task can be further minimized by focusing on each salesperson's top accounts (remember the
80/20 rule).

As each additional month and quarter passes, the projections become better. Failure to improve provides a number of questions for the manager / salesperson conversation. Think about it. If a salesperson has a large order arrive without at least some anticipation, a wary sales manager might wonder exactly how engaged the seller actually is within their accounts. Conversely, a major drop in business without anticipation again indicates a lack of customer connection.

Create a Funnel Report
Some distributors create funnel reports which include much of this same information. The major difference between most funnel-based activities and a rolling
forecast is the time factor.

And, timing is everything. So, by adding the time factor, salespeople must begin thinking about potential business in a new way. It's not just, "Will there be an order?" but also, "When will the order happen?" This added dimension improves the total sales team.

Once the measured funnel report data becomes reasonably accurate for 30 and 90 days, expand the time frame. The simple act of tying opportunity size, probability of success and time frame together improves the spectrum of sales activity. Developing sales team awareness of just the time frame component of the sale produces a shift in skill level.

Improving the selling skills at the same time
A regular complaint around distributor salespeople is their lack of connection with the management teams of their customers. One distributor confided: "We seem to only meet the top guys at our accounts when an emergency looms. Either we are about to be tossed out on our ear or the customer is contemplating legal action. And, generally,
if our sales team knows them at all, there's not much of
a relationship."

In the world of knowledge-based distribution, most salespeople are long on technical savvy and short on business sense. Mahogany row contacts don't respond well to techno-talk. Walk into their office and launch into a spiel on the latest gizmo feature and the visit will be short. However, if you take time to understand their business, they can provide insight into future decisions and
forthcoming spending.

Clearly the search for accurate projection information leads to more thoughts around business conditions. Salespeople are open to discussing topics such as:

• Shifts in the customer's own market
• Cost pressures, new competitors and market trends
• Factors driving business conditions for the customer
• Large orders the customer's team is working on

 

Each of these topics gives the salesperson better perspective for feeding data back to their own management. But that really is secondary to their ability to better understand the customer. And, that is a selling advantage.

Before we shuffle into the sunset
In the new post-recession world, distributors will either develop sales processes or be surprised by the next economic turn. And that's where the uncertainty comes in.

Like the great Ice Ages of pre-historic times, recessions produce systemic changes in the organisms destined to survive. It is impossible to build a process in sales without positively affecting the whole sales mechanism. Research indicates that companies with well-developed sales processes are more successful in achieving their financial goals. What's more, their customers are much more likely to view them as strategic business partners.

If you're not thinking about how to create your own sales process, you should be.

Frank Hurtte, founder of River Heights Consulting, brings 28 years of distribution industry experience and a lifetime in sales. Reach him at (563) 514-1104 or
frankehurtte@riverheightsconsulting.com.

This article originally appeared in the Jan./Feb. 2011 issue of Industrial Supply magazine. Copyright 2011, Direct Business Media.

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