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What would happen if we applied investment strategies to sales?

By Frank Hurtte

Standard and Poor's ratings echo in the distance, Wall Street rumblings rattle through our minds and media financial folks blast investment strategy to the point of nausea. These tidbits of mental torment cause blood pressure to soar – and they cause us to once more revisit our investment strategy. When my arteries feel the hypertensive squeeze and my vision starts to blur, I make a call to my friendly financial advisor. He reminds me of the value of a sound investment strategy. Let me explain.

Years ago I handled my own investments. As a kid of 26 or so, I had this notion that I was smarter than anyone on the planet. I had read the business news since I was
in junior high. I understood technology. Heck, I was a computer engineer, how could anyone be smarter than me? And, back then very few people were actually
investing in the stock market. So I made lots of mistakes, made some money, lost some money and didn't really make any progress.

Then my financial advisor suggested I think about investing in a whole new way: a balanced portfolio. I realize many of you are thinking, "Gosh, that seems kind of elementary" but for me it was a new concept.

Think about your investments. The ideal balanced portfolio means you have interests that grow slowly with minimal risk, others with high risk and massive rewards, and maybe a few that generate dividends year after year with little room for growth. I believe we need to apply a similar strategy to the accounts we serve. Let's talk about how this strategy might work.

The Long Haul Investment
First let's look at the Warren Buffet style investment. The old Oracle of Omaha is fond of saying, "If the business is sound, why worry about fluctuations in the market?" He owns shares in companies whose place in the market is sound over the long haul. American classics like Coca-Cola and Dairy Queen fall in this category. They are destined to be in business for a long time with little overall risk.

It makes good sense for every company's sales department to invest in these long haul players. Here are their characteristics: The customer organization has a solid place in their own market. They enjoy a sound financial position. Over time you have built up an annuity in this account, they view you as a solid contributor to their organization. And, you receive a steady stream of orders from them. You enjoy their business and realistically they are essential to your long-term success but the room for growth is limited.

Special projects such as expansions, modernizations and rebuilds might come along, but over the long haul this type of account is likely to be stabilized with only modest growth which tracks along with their own growth.

Under the right kind of care and feeding this account is yours to lose. However, there are a number of safety points that must come into consideration.

• Is this account financially stable? Are there risks associated with them moving, merging, or off-shoring in the mid-term future? If you understand these issues, risk is minimized. However, it must be recognized. Loss of a customer in this group can have an overall effect on your own future.
• Do you have well-maintained relationships with upper management, key leadership and all other levels in the account? Failure to "truss up" these non-traditional distributor contacts may be your Achilles' heel.
• Do you have a plan for identifying and dealing with budding new competitors who might be niching away at your business in technologies where you aren't strong?
• Is your entire organization engaged? Single points of contact create inherent weakness. Think about the ramifications of your salesperson experiencing a debilitating collision with a peach truck. Unless you are connected via multiple points the account could be at risk.

The costs associated with providing our kind of "knowledge-based" distribution are ever escalating. In order to do the right thing for the home team, it's imperative that we continue to look for innovative ways to hold the costs at these accounts. Applying technology to the sales process comes to mind. Bar-code driven inventory programs, online order entry and electronic invoicing might drive more profitability.

Analysis of the selling transactions at our accounts reveals a significant percentage of our activities are reactive and administrative. A number of distributors have found it makes sense to utilize lower-cost resources for some of these "mundane" selling functions. Does it make sense to use a highly trained customer problem solving resource to count crib inventory or sort through warranty return? Many progressive distributors have added a new level of "logistics" oriented sellers to their team, ramping up their perceived service levels at greatly reduced cost.

It must be reiterated, we're not eliminating service. Instead, we are freeing up our "high value" technical problem solvers to move to the front lines of solution selling.

The High-Growth Stock
At the other end of the spectrum is the high-growth stock. These can be big gainers and they can go bust. One of the common mistakes in the investment world comes when common folks start thinking of these high-growth deals as long-term investments. We saw the phenomenon of the dot-com bust of a decade ago. These things have a high upside and a correspondingly high risk.

In our world, these accounts come in the form of hot new prospective accounts. Just like the high-growth stocks in our portfolio, our chief concern lies in losing our investment – and there is a risk of this happening.

Salespeople react differently to the risk associated with this type of account. Some jump headlong into their prospects, investing specialist time, samples, demos and other resources with little or no research. Others are so risk adverse they frustrate their managers and supply partners by continually balking at the idea of investing anything shy of an introductory call.

When dealing with high-growth stocks, research is the name of the game. The same holds true with high-growth potential accounts. Far too many sellers invest first and ask questions later. Often, the answer comes in the form of barriers to future business. To explore this issue, let's drill into a situation faced by a client in the electrical industry.

After just two exploratory calls, one of their new customers gave them a purchase order for several hard-to-get (non-stock) items. To the salesperson, this was a major breakthrough, so the items were pushed through the system and expedited orders were placed with a supply partner. Unfortunately, the parts were on their way before the routine credit check revealed poor credit standing. The disaster that followed left the distributor stuck with an inventory mess and several never-to-be-paid invoices. A well thought out targeting process would have alleviated the hassles and potentially saved both the distributor and customer a great deal of embarrassment.

Research is the name of the game. Just imagine if early on in the process the following questions were answered:

• Is the targeted "high-growth" account credit worthy? If your organization doesn't have a plan in place to periodically test the credit standing of major targets, you should develop a plan to build one.
• Can the resulting sales pay for the selling investment? Develop a plan for quickly identifying the true potential of the prospective account. Is this a major opportunity in the making or another tiny account added to the customer list?
• Does the potential customer take part in a supply contract or national agreement that prohibits your team from ever being a major supplier? In today's environment, there are many Fortune 500 companies that participate in these future limiting plans. Failure to recognize the situation may cause you to spend too much effort developing an account with little long-side growth potential.
• Will your services and product offerings match the future needs of the customer? For instance, if the customer has standardized on a line you don't currently carry, the relationship may require a gigantic investment on your part to pay off.
• Do you deal in products or services that might be good door openers? With a little thought, you can develop a list of near exclusive products or services that might allow you to understand more about the customer without a big outlay of time and money. Test your theories before you go "all in" at the customer.

Beat the Market
With the right kind of process, it's possible to beat the market. Creating the right blend of accounts balances your sales portfolio and allows you to come out ahead of your competitors. Blue chip accounts create a long-term revenue flow. Carefully managing new high-growth accounts positions your organization for sales growth.

As we end our few minutes together, I can hear your comments. This strategy simplifies the whole investment portfolio idea. I agree. Call it artistic license, writer's prerogative or consultative oversimplification; I only hope you spend a bit of time thinking about balancing your sales investment. And, I would love to hear about how you are balancing your portfolio.

Frank Hurtte, founder of River Heights Consulting, brings 30 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 Sept./Oct. 2011 issue of Industrial Supply magazine. Copyright 2011, Direct Business Media.

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