What Goes Up Can't Come Down

There is a truism about incentives that applies equally to Customers and Employees: What goes up can't come down.

When you consider an incentive program for employees, regardless of whether it's a spiff program for Customer Service, a bonus structure for Salespeople, or a shared pool for people within your organization who find ways to save money, it's always best to start conservatively, with the smallest incentive that you believe actually is still an incentive. If it turns out that the incentive is too low (depending on whether or not your business is seasonal, it can take anywhere from 90 days to a year to figure this out accurately), it's easy to lift it a notch or two down the line.

But what happens if you start too high, and have to trim back?

Even if none of your employees hit the incentive minimum, scaling it back will immediately be seen as a negative - as you 'taking away' something (even if no one ever received it). And it will be grumbled about behind your back for months and months to come. Who needs that kind of grief? Especially grief that you caused for yourself?

There's nothing wrong with incentivizing behavior; there's no doubt that, when done correctly, it works. But the 'when done correctly' part is key. Consider carefully what you are incentivizing, and start slow and small.

The same applies to Customers. The author Terry Pratchett tells a story about a bounty that was placed on rats in his fictional city of Ankh-Morpork. To curb the city's rat population, citizens were given a fixed amount for each rat tail that they brought in. The result? The rat population increased, because the citizens were farming the rats to earn extra money.

If your incentive has a loophole or a flaw, I personally guarantee that one of your Customers will find it. In fact, many of them consider it their job to do so. And you know what? They're right, and shame on you if you missed something, because getting it right the first time is your job.

It's important not to create incentives in a void; don't ever let Marketing do it alone. Run it by every Salesperson and Customer Service rep you have; they are terrific at finding holes and faulty logic. Plus, by having them take part, they will also take ownership. How can that be a bad thing? Marketing, Sales, and Customer Service all talking to each other? Fantastic!

And, again, until you know what response rates are going to be, start slow and small. It's no good ordering 500 free iPads to give away for every new Customer signed if 5,000 show up. They will blog, Twitter, and Facebook your reputation back to the Stone Age, turning a campaign that you planned as a big plus into a potentially lethal minus.

Look. Listen. Learn.

The (Lack of) Persistance of Memory

The human brain is an amazing organ. Despite our current technological expertise, it has yet to be equaled in terms of computing power per ounce, but it does have something in common with the hard drive on your computer:

Every time that you remember something, your brain re-commits it to memory, effectively playing post office with itself and fundamentally changing the memory. This has such a profound effect on your perceptions that it's actually possible to create memories of events that never happened, so vivid that your brain can't tell the difference.

Aside from how disturbing this is when applied to the idea of 'eyewitness testimony' at a trial, this has potentially destructive implications for your business. Even Customer Service and Salespeople that are 'young and sharp' remember things differently than they actually occurred.

How do you combat this? By making it part of your organization's culture to record everything in your CRM or database as soon as it happens (while it's happening, if possible, so that even the wording used is retained). If it was a phone conversation, record those and attach them to Customer accounts (in my call center experience, 95% of Customers remember a phone conversation differently than what actually occurred). If it was an email chain, make certain that those are attached to the Customer account, too.

The essential ingredient here is urgency. If a rep or anyone else who has direct communication with Customers is slow to record those communications, curb this behavior immediately. The longer anyone waits, the more that will become your culture, and the less accurate the information in your database will be. And then why are you spending so much money for it?

Transactional Fluency

In Sales, every question is a transaction. Unfortunately, more than 80% of Salespeople don't speak the language of Sales fluently. In fact, they speak it so poorly that their Prospects usually buy from the Competition. Fear, laziness, lack of education - all of the typical Sales baggage is clearly visible in the following conversation.

Here's the Customer's question: Does it come in blue?

Is the correct answer:
A) No, but the brown ones are better, anyway.
B) I'm not sure. Let me go check.
C) We don't have any blue ones in stock, but I can get you one.
D) Is it important to you that it's blue?
E) That's an interesting question. Why blue?

What percentage of your Sales team routinely chooses each of these answers? What is their close rate? Why do you keep them?

Part of being a Sales Manager is asking the hard questions. The same baggage mentioned above comes with how you address the answers. Your success - or the lack of it - rides on your team's fluency, and their consistency. Don't assume that they're doing it right - go find out, regularly, so that it becomes expected behavior.

Work Parties

There are 3 things that you absolutely must get right when it comes to work parties. Do them wrong and an event that you intend as a benefit and sign of goodwill will be universally loathed and demeaned for months before it rolls around again, distracting everyone from their work and giving them one more reason to hate you.

1. Attendance. Is your party a social function or a work function? If it's a social function, why does everyone have to come? Why can't they bring their significant other(s)? If it's a work function, abandon all pretense and pay everyone for their time. Better yet, don't have a party. They already have to put up with you all day. Aren't they allowed to have some time to themselves to berate you in private? And if you say 'Then let's have it during work hours', you are conveniently forgetting that doing so means that all of your employees' deadlines must move up an entire day to make room for a party that no one wants to go to. In other words, you suck.

2. Oversight. Here's the best idea yet: Throw a work party, but don't go. Let an employee committee plan it - venue, theme, etc. - just give them a reasonable budget and a few guidelines to keep you from getting sued. You know - like your first college mixer (are those still a thing?). They'll plan an event that they think is fun (bacon grease limbo night is my personal favorite), as opposed to the cornhole tournament at the VFW hall that you planned. Best of all, if the event is a bust, you're off the hook - everyone will blame the party committee (who are usually troublemakers, anyway, am I right?). You can't lose!

3. Booze. Okay, here we go: I know that you're scared to death of the 'L Words' (Liability and Litigation), and there is wisdom in your fear; some people just can't handle their liquor, and will do things under its influence that will likely get them a) fired, b) one hell of a reputation, or c) killed. But if you're going to go ahead and throw the party, not buying drinks for those who want them is just going to look cheap. So how do you do it right? Simple: Drink tokens. Allow 2 per person, and anything else they drink is out of their own pocket (and out of your control - there go the two L's). Lots of companies do this, and it works a treat. Employees get enough free hooch to loosen up and appreciate your generosity, but not so much that they dance naked on the bar (if you think I'm joking, you're wrong).

But better yet... If you have a budget for this, don't throw a party. Your employees don't need it. You know what they'll appreciate more? Money. Give them the money you budgeted for this, and let them decide whether to do something fun without you around (employees need to vent about the boss; it's normal and healthy - as long as it doesn't happen at work) or pocket the dough. Again, either way, you win. And what's better than that?

Sales 101

Before we get too far ahead of ourselves, it's time we start our conversation about Sales. The fact is, most companies do Sales wrong: Wrong expectations, wrong incentives, wrong communication, wrong, wrong, wrong.

Let's start with Incentives. I mentioned in a previous post that an adequate Sales rep should generate 10 times as much revenue as their total compensation. To help make this happen, goals should be based on this metric. Otherwise, you are underpaying some reps and overpaying others vs. what their value is to the company. And believe me, they know it.

Expectations: You spend a lot of money to generate leads, right? So what's the close rate for each of your Salespeople? You should know this, your Sales Managers should know this, and your Salespeople should know this, too. At a minimum, it should be reported monthly, and it should be public information. (Nothing drives performance like spectators.) Regardless of your industry, if you have effective marketing (you do, right?), your Salespeople should close at least 1 out of every 3 leads (a 33% close rate), or you're wasting your money.

Communication: If you sell a physical product, rather than a service, your Sales reps should know exactly how much gross margin each product has. This will make it easier for them to negotiate volume deals - especially since their pay should be based on margin.

Splitting Territories: Because this is often done incorrectly, Sales reps feel like they're being punished when a productive territory is split. This is exactly the opposite of what you want to convey. Generally, if you're thinking about a split, it's because there are Prospects in the territory that the original rep isn't getting to. That's how you need to explain it, and that's how you need to approach compensation: reward the 2nd rep for new business generation, and make sure that the two reps work together by giving the original rep an incentive for turning over Leads that they have not touched. It need not be a large amount - they know they're being comped for zero work; it's more the fact that you are acknowledging the fact that you expect them to be team players and reward them for it.

CANI: The important thing is to look at everything that your Sales staff does, every day, and ask yourself "Why?" It is incredibly easy to fall into the rut of doing things a certain way just because you've always done them that way. The way to keep your company growing is to constantly improve everything you do. Don't expect to fix it all in a day, but do make a list of what to change and do set deadlines and milestones for those changes. (Think CANI - Constant And Never-ending Improvement.)

Reseller or Customer?

If your organization sells products and/or services to Resellers, it's likely that the line between the two blurs from time to time. Here's a dose of reality: Resellers are not who pays your bills; End Users are. Resellers are a way to get your products/services to End Users... a transportation mechanism. If you mistake Resellers for Customers, you will begin to slant what you sell to your Resellers' needs, rather than your End User's needs. This virtually guarantees that your sales will stagnate.

"But what about Customer for Life?" you say. "Isn't the Reseller my Customer if I follow the tenets of Customer for Life?"

No. Think of it this way: Individual people within your Reseller are your Customer under Customer for Life, and your goal is to find their deep-seated needs and help to fulfill them, but the Reseller as an entity is not. In other words, companies are not people (no matter what the Supreme Court thinks).

Generational Businesses

You've got to love entrepreneurs. They're responsible for much of our Gross National Product, most of what makes America great (ie, new ideas) and almost all of the best jobs. They work ridiculous hours, often starve themselves to pay their employees in the early days, take crazy risks, fight fear with enthusiasm, and learn what they don't know by doing. Entrepreneurs are what makes the rest of the world wish they were us (that is, Americans). They may be eccentric (Steve Jobs used to soak his feet in the toilet), they may eventually become self-entitled (two words: Larry Ellison), they might be arrogant (pick your favorites here), but a certain amount of all of these ingredients are required to be the man or woman who says, "I have an idea and I'm going to make it real!"

But piss on their kids.

This isn't sour grapes. Most of us will never be founders, and that's okay. Many of us actually like being the folks who help make the vision happen; we just want someone slightly less mad than Captain Ahab to follow. It can be satisfying to be the person that figures out the 'how' without the pressure of having to come up with the 'what' or the sleepless nights spent pondering the 'why'. An entrepreneur's work is never done, but we get to go home and have lives.

But why do so many seem to mess it all up by leaving the business to their kids?

It's not that they walk into wealth (okay, maybe it is, a little). But if you work as hard as founders do and take the big risks, you should absolutely be comped for that, and making sure your kids have the best of everything that you can afford is the American Way. Send them to the best schools, buy them the best clothes, take them skiing in Whistler and snorkeling in Belize. Do it all. But never, ever leave them your business.

Let's start with the obvious: You understand your business because you had to know everything; there wasn't anybody else. You know how to handle employees, what makes an effective marketing campaign, how to negotiate with vendors, and how to keep Customers coming back.

Now let's look at your son/daughter: Their first job was probably working for you doing some kind of menial job. But they didn't technically report to you - thy reported to the head of whatever department handles shipping, cleanup, moving merchandise around or whatever. But they're your kid. How likely do you think that manager was to rip them a new one when they did something stupid that cost the company money? They probably didn't even tell you. And who else gets to set their own hours?

From day one, they are raised in an environment of resentment.

Now your kid gets older. You send them to college, they take a few classes, but nothing too stressful because they have a job waiting for them at home; their degree is window dressing. And they come back and you give them some kind of management job, their very first, and set them loose. And they suck, because they have no experience actually doing anything, because all of their lives you were the doer.

Trouble is, you don't notice, because everyone still comes to you, just like they always have. You don't know it, but your son or daughter is a joke, and nobody tells you, and they get used to making money - probably more money than anyone but you - for doing nothing very much. Until the day that they do something so monumentally dumb that it can't be brushed under the carpet.

And you fire them, right? Just like you would any manager that did that incredibly dumb thing. You fire them, because you realize that you should have put someone in that job with some experience under their belt, someone who'd worked for several other companies and could actually do what needed to be done. Right? Right?

"Of course not," you say. "This is my child, here. They are beautiful and perfect, even if they are a little dumb sometimes. They just made a mistake. I'll have a talk with them. It will be okay."

So you have a long talk, and they're really embarrassed, just like that time they cut their little sister's hair or put that baseball through the window, but you give them a couple of pointers, pat them on the back and, just so they know that you love them, you give them a promotion. (Tell me that you have not seen this happen.)

Time goes by. Things seem to be going okay. You're working just as hard as always, still making all the big decisions, but you're the president and that's what president means. Meanwhile, your kid has learned that the secret to keeping everyone happy is to let them do pretty much whatever they want, and to spend most of their day chatting with employees about things that have nothing to do with the business, or having meetings where there is a lot of conversation but no decisions.

Eventually, you get old. You spend a little less time at work because your son or daughter is now in a VP role of some kind, and they have to stretch their wings sometime. Everyone in the business seems happy, so things must be going well, right? Your business has become a Name, it's not as hard to fight for Customers as it used to be, and you stopped having to worry about making payroll years ago. And someday, probably much later than you promised your spouse, you retire, move to Costa Rica for part of the year, and your business is in the capable hands of the 2nd Generation, one or two or more of them, but of course they never fight like they did when they were kids, and things are exactly the way you dreamed they would be, with grandkids coming to visit you and afternoons spent fishing or antiquing or traveling with friends.

Until a new competitor with a better idea, better staff, or both moves in and eats your empire alive. Not right away, usually. There's time for your kids to hire expensive consultants to tell them what to do and to endlessly debate whether or not they should do it, and getting second opinions from still more consultants, trying to do what you always did because it always used to work, but the new guy does new stuff and, before you know it, Customers stop coming in the door. Then the layoffs begin, until finally there's no one left. Your kids have money, of course, and they made more on the sale of the business or the land, but you still remember the look on the faces of all of the employees on the day that you or your son or daughter told them when they would receive their last paychecks.

Not all 2nd Generation businesses die this way. Some last long enough to be passed along to the 3rd Generation - kids who want to do something other than work for their folks, who in fact work for someone else and build up some experience, and eventually realize that their parents are running a money machine into the ground. If they come into the business, they're all about numbers, and hire experienced managers to do most of the work. They're more like a ringmaster than a founder, with a keen eye on the books, and they make sure any children that they bring into the business work somewhere else first, just like they did, and walk in the door with ideas of their own.

So if you're an entrepreneur, rather than go through all of this, ask yourself a couple of questions (plus probably a few more), and act accordingly:

1. Did your kid(s) ever ask for your business, or is that your idea?
2. Did you ever ask them what they wanted to be when they grew up?
3. Can you get someone better for less money?