Reps: Are They On the Right Track? Or Have They Run Off the Rails?

On Tuesday last week, much like any other day, after arriving at my office I powered up my computer and began wading through the usual 100-150 emails that greet me every morning. Some of these are client-related emails, some are personal, but most are press releases or announcements. On that day, however, one in particular caught my attention – it was from Richard Glikes of Azione and it included a link to a video which was…remarkable.

This press release caught my attention not because it was from Azione, that is an common occurrence. Rather it caught my attention because it was from Azione on a topic that I am not used to dealer buying groups concerning themselves with – sales representative companies.

Little did I suspect that this would be the beginning of a strange turn of events…

If you haven’t seen the video, I suggest you take a few minutes and watch it.

At first blush, the video seems to be a mix of positive, neutral, and negative comments. And while the positive comments were complimentary, if a bit measured – it was the negative comments that really caught my attention. Some of those negative comments were shockers. I could only imagine the horror that reps must have felt when they heard some of those comments.

So imagine my surprise when, on the very next day, Dave Humphries, President of IPRO, a national association of sales representative firms, sent me a copy suggesting in the accompanying email that it was an interesting press release and video. The subject line of his email was “Fwd: Azione Unlimited Loves Reps.”

After I recovered from the shock of receiving this video from IPRO, I replied to Humphries that while some of the video warmed my heart, other parts of it shocked me. To this he replied that IPRO thought it was well written.

First things first…

First of all, you should know that I have spent a substantial amount of my career working with reps in multiple capacities. When in retail, reps were a resource for me as a floor salesman and as an accessories buyer for a small retailer. When I went into manufacturing, I was in charge of, first a region – and then a nation, full of reps. In this role, I’ve hired reps, fired reps, evaluated reps, motivated reps, and defended them from those who were less understanding of their roles.

Some of the finest business people I’ve ever worked with were reps. Some of the biggest idiots I’ve ever known were reps.

When I left manufacturing, I had the opportunity to work with a national group of rep/distributors in which I, essentially, represented them. Sort of a rep’s rep. In this role, I interfaced with manufacturers’ regional sales managers, national sales managers, VP of sales, and others.

I learned that many of these manufacturing companies had really, really terrible sales management staffs – abysmally bad in some cases. But some, on the other hand, had competent, knowledgeable, and supportive sales managers – and so, ironically, it was a bit of a reflection of my previous experience…only inversely so.

Just one short year ago…

About one year ago, I had written a story about Dean Miller moving to Lenbrook. This became big news because Lenbrook ended up firing all of their reps and hiring a factory direct sales staff. By itself, this caused an explosion within the rep community – many of whom attacked Miller personally…sometimes unfairly.

Within a fairly rapid pace, other companies made a similar decision, with Velodyne, McIntosh, and Sherbourn all deciding to eliminate their rep sales force. In addition to that, the first wave of Nortek consolidations took place as the company decided to combine their rep forces causing many long-time, high quality firms to lose their lines to a lucky few.

It was easy to look at the sales representative network as under siege as every few weeks a new announcement seemed to appear. While there was some counterbalancing relief in the form of new companies launching and hiring reps, this was not much consolation as it can take years for new companies to develop their markets to a meaningful degree.

Rep research project…

As it looked to us at that time, there appeared to be a major trend taking hold and so we began a research project, talking to literally dozens of manufacturers, dealers, and reps. What we discovered…shocked us.

While some reps suggested to me that the events of 2011 described above were all Dean Miller’s fault, as if his decision to go factory direct had a cascading effect with other companies blindly copying his course of action – my research did not bear that out. In fact, on the contrary, these companies – as best as we could determine – appeared to have independently come to their decision.

Mega-trends…

As a former VP of Sales and Marketing for a major manufacturer, I have seen the value of a motivated, efficient, productive national sales force. The sales rep is “where the rubber meets the road” between producers (manufacturers/distributors) and the market (dealers/integrators). As I used to tell my superiors, nothing happens…until somebody sells something. And you can bet your bottom dollar that a knowledgeable, well-trained, fairly-commissioned sales force is going to sell…every day.

And this formula worked well for our industry for a lot of years…decades really. But as we all know, our industry is undergoing a radical transformation.

Hitting the economic wall…

Starting with the recession of 2007, our industry has begun a painful, multi-year contraction. Many companies are gone, or subsumed within other companies. Billions of dollars have been collectively lost…and the trend continues.

While we’re no longer in a recession, a sluggish, slow- or no-growth economy with low single-digit GDP growth rates barely moves the needle. It would be fair to suggest that we really are in a period of stagnation. And, of course, the fiscal cliff is looming just ahead of us.

Root cause…

The industry contraction as a result of the sluggish economy is a root cause…but not the only cause…of the struggles that many of us face. Another root cause is the changing consumer taste in products. Whereas only a few short years ago, A/V was a high demand item for Americans who, thanks to easy credit, were building houses and forming households at a frantic pace (that we now know was a bubble).

Residential construction in 2006 was near 2 million units a year. Now this rate is under 900,000 units a year or well under half of what it was at the peak. Consumers aren’t buying and forming households at anywhere near the same rate, and demand for major household appliances and A/V have dropped off as a result.

Mobilization…

Consumers are now mobilizing. In other words, the most popular selling items are now mobile items – smartphones and tablet computers. And this trend, that puts an entire entertainment system in your pocket, shows no signs of slowing down. At least not for the foreseeable future.

The systems, processes, and networks we built over years and decades past…are overbuilt for this mobilized and miniaturized product trend. Hence, the contraction that has caused sales rates to decline in many product categories.

Which brings us to…

Couple the struggling economy with the changing consumer preferences…and manufacturers, reps, distributors, and dealers all seeking to find ways to cut costs and improve profitability – and you have a big build-up in pressure.

Much of that pressure is being dumped in the laps of the sales rep. They are the easy target. If sales are down, it must be their fault, right? Well, not necessarily. There’s plenty of blame to go around.

Azione, unknowingly, stepped in it…

The issue of reps arose, Azione Unlimited’s Richard Glikes told us, at one of their conferences when an Azione dealer asked, “What would happen if we eliminated reps?” Although it was tabled in that meeting, Glikes scheduled a group discussion on the topic of reps for a second meeting…and chose to film some of the group member’s (including vendors) responses.

The topic of the discussion was, “Does the rep model work?” The discussion was open to all members, which at Azione includes both dealers and vendors. Azione is unique in that they consider vendors equal members to dealers.

There were some negatives…

“There were some negatives, I would think,” Glikes said. “But generally, you know, people felt that there’s an expense, and somebody’s got to take up the slack and represent the brand in the territory. And reps – you know there’s a lot of valuable things they do.”

Glikes added, “I thought it was an interesting, provocative…I think provocative is the right word…topic.”

Suggestions for improvement…

Azione then followed up this meeting with a survey of its members to try and come up with suggestions for how to improve the rep model in a constructive way.

“It’s one thing to have an idea, it’s another thing to try and get something good out of it,” Glikes told us. “Really what I was trying to do is get something good out of it. Our number one goal is to make profits for our members. And of course that means vendors and dealers – so if a rep is more productive then our vendors make more money…and they’re members too.”

A bigger bombshell…

Glikes told us that he was surprised by “a bigger bombshell” with a lot of pushback he endured as part of the CEPro series of articles. The first of this series was titled “Independent Rep Debate: 20% of My Reps Should Be Shot” which referred to a comment made by Eric Bodley of Perfect Path in the video.

CEPro’s comment boards lit up as many reps were agitated at what they considered to be the industry criticizing them for poor performance. Some felt that Azione was talking down to them by suggesting that Azione needed to help them improve.

Editor Jason Knott took a fair amount of heat in the comment section. Reps accused him of taking Bodley’s “20%” comment out of context. However, taking something out of context means picking a comment that means something other than the whole comment said. Knott could have made the headline, “Independent Rep Debate: 40% of My Reps are Good.” But is that headline really any better?

Reps also fired back at Azione and its director Glikes, whom some felt was condescending. Many noted that were no reps present in this meeting. However, Glikes told me that he had invited IPRO to send a representative to the meeting…but one never showed up.

Pushback result…

As a result of the pushback, Azione has conducted another survey of reps about what manufacturers and dealers can do to help improve the situation. Glikes said the response from the reps was even bigger than from his members. These results will be released shortly, perhaps even as early as today.

We asked Glikes if he had anticipated the response from reps. “I think reps are sensitive, I think everybody is sensitive,” Glikes said. But these types of discussions, he feels, are good for everybody. “I think its going to help…I think there’s a lot of good that’s going to come of this.”

Let’s go to the tape…

After a brief introduction by Glikes, the edited tape showed a series of individuals making short statements giving their thoughts about reps. Below is a short summary of their comments:

• Jason Sloan of Sonance mentioned that reps are the “most efficient economic way” to find, sell, and support dealers.
• Jimmy Paschke of Elan/Sunfire said that his company has created (with IPRO) a rep “scorecard” to measure their performance. He also asked dealers, “How are you using them [reps].”
• Dave Miller of IC Realtime mentioned that rep performance is often a function of training, managing them properly…and selection (as in selecting the right rep).
• Kirby Gaboury of Audio, Etc. (Dayton, OH) talked about how he would pick up lines based on his Stewart rep’s recommendation.
• Sondralee Orengia of Custom Audio (Erie, PA) talked about how she uses her reps for their knowledge, “They have their finger on the pulse of the industry…They are a great tool.”
• Joyce Seago of Warrantech says she tries to use them “…when I can.” Glikes, off microphone but audibly, asks her, “And what number are you in their bag?” Seago, responds that Warrantech is low. “We’re the most profitable and least utilized,” she sighed.
• Scott Srolis of Ultimate Remote Control told the group that they have a combination of independent and factory direct reps after a process of “weeding out” under-performing reps. Srolis sees no qualitative difference between his factory direct reps and his independent reps, saying he has “fantastic” ones of each type.
• Murray Kunis of Future Home Theater (Los Angeles, CA) said that in the past you needed reps to help you pick up product categories. Now, he says, reps help you choose between nuanced competitive product offerings. “So I think the reps are very important…”
• Jeff Brewer, also of Sonance, said that if you cut out the reps, “there’s going to be an expense associated with that to bring that in-house.” While he would like to cut out the reps and give that money to the dealers – those functions provided by the reps would still need to be provided and there’s still an expense associated with that.
• Scott Benkendorfer of Captive Audio (Austin, TX) said his Sonance rep “…is in my office every other week. He’s my conduit to Sonance – and that’s why I do business with Sonance, because of that rep.”
• Michael Benedetto of Salamander Design said: “Do I think the rep model is good? I think it’s like our government – in principle its good, but its broken and they need to fix it. And we need to work together on how to fix it.”
• Eric Bodley of Perfect Path provided the grist for a lot of the reaction that would come from reps later saying, “40% of my reps do the right thing every day and I never have to call them. 40% of them, I have to call them once a week and remind them that they need to do this job this way. And 20% of them should be shot.” Bodley went on to say that many manufacturers pay too little and “they’re getting what they pay for and they’re [those manufacturers] slowly circling the drain.”
• Aaron Gutin of Access Networks talked about how everyone had a rep who helped them get started. Some rep who had a good head on his or her shoulders recognized potential in each of the dealers.
• Glikes made a brief appearance and told the group that they should insist on an agenda for every meeting with a rep.
• Steven Weber of Encore Audio/Video (Portland, OR) talked about how a good rep will help solve problems…even on an individual installation.
• Mike Wright of Sound FX (Lewes, DE) talked about the dearth of new reps. “I think as an industry, we’re not growing talent as we once did.” Because dealers are not matriculating over to the rep side, there’s no one “that really understand where we’re coming from, and most of them have been out of our shoes for so long that they really come across more as order takers than trainers and technical people…and people that want to really understand how to help us grow our business.”
• George Walter of Digital Projection delivered what I consider to be some of the most damning comments. Walter said that: “The real problem – and this has come up a couple of different times – is that somewhere between 20 and 40% of our reps that are doing a good job. What that means is that there is somewhere between 60 and 80% that are not doing a good job. And is the trend getting better or worse,” Walter asked rhetorically. He went on to say if it stays like this “…then the reps are going away.” He hoped he could get to 50% of his reps doing a good job. Right now, with around 70% not doing a good job, “that model is broken,” Walter concluded.
• Glikes closes out the tape saying, “I believe in the rep model. And I think we need to help them.” Glikes said he felt if Azione helps the reps, then the reps will help them…” and then Azione (and presumably everyone) will be more profitable.

On the video, dealers tended to be neutral to slightly positive, with only a couple of negative comments. But vendors tended to be neutral to quite negative. Although that’s a judgment call and clearly, how one interprets the overall tone of the video depends on their perspective.

However, given the close correlation to what we learned from our research last year…I have found some red flags that reps should be concerned about. So let’s talk about what we learned from our research last year and how that correlates to what Azione’s discussion uncovered.

• There was widespread dissatisfaction with reps. We spoke to a cross-section of the industry – including many companies that we had thought were strong supporters of independent sales reps (as Lenbrook had once been). We were stunned by the level of criticism we encountered. And the more companies we spoke with, the more we began to see consistent themes emerge. These companies, who were not connected in any way, seemed to be coming to similar conclusions. This level of dissatisfaction may or may not be fair or deserved by the reps…but it was pervasive.
• The dissatisfaction spanned business types and goes both ways. Reps were disgusted with manufacturers who demand more and more from them, providing less and less support  to them – and add insult to injury by cutting commissions to boot. Manufacturers are convinced that reps are less focused and supportive than ever…and less technical or capable. Dealers told us that they only hear from reps at the end of the month when they need an order (a perennial complaint) and that reps don’t know their lines and can’t train their way out of a paper bag. Integrators and installers told us that they get better service from a distributor’s rep than they do from the manufacturer’s rep.
• The value equation of reps is changing. In year’s past, the rep served a critical function in relaying important and timely information of products, programs, etc. The rep was the most efficient way to “get the word out.” Now, thanks to the Internet, email blasts, websites, social media, webinars, etc., companies can communicate their message – quickly and unadulterated – directly to the dealers.
• Everything is on the table. Over and over again, we heard companies say that they are reviewing every aspect of their business to squeeze out more profits…or any profits. There are no sacred cows.

We heard many, many more specific complaints…more than can be discussed in this already too long post. But one thing is for sure…something’s gotta give!

Rep model broken?…

Is the rep model broken? I would say that the industry model is broken. Most of these arrows that are shot each way are the really the result of an industry under a lot of stress. Each side is convinced that the other side has it better – conveniently not recognizing the value that each brings to the table..or the unique challenges each face.

There is only so much profit to go around. And let me tell you that a significant number of players in our industry – people you work with every day – are actually losing money.

Not #1 or #2…

Manufacturers are angry with reps whom they feel have too many lines in their bag and have diluted their ability to effectively represent and sell each brand. “If I’m not #1 or #2 in their bag – I don’t get presented,” one manufacturer told us reflecting a thought that many hold. Also, they complain that reps have not kept up with the technology and trends – they don’t know my line, the technology, etc. “They’ve cut back staff, don’t do training, and expect me to provide system support,” another company told us with obvious signs of distress in his voice.

But manufacturers don’t think about the ravages they incur on their sales networks when they cut commissions. A rep firm is a business too…and like you, they have to grow as well. When you cut commissions, they have only two alternatives: cut staff to cut expenses…or add lines to add revenue.

And how do you expect them to keep up with technology (and your line) when you have cut the amount of training you provide. Or you ask them to watch a recorded mind-numbing PowerPoint webinar with a droning presenter that provides only features/benefits with no real meaningful way to explain or demonstrate technology. Not to mention, a webinar that offers no reasonable way to ask questions and get a response from a live, in-person human being.

Unrealistic expectations…

Reps are furious with manufacturers who have unrealistic expectations about what their markets – in this dismal economy – can really provide as far as sales. And stop demanding reports that take time away from selling. And, oh by the way, my dealers don’t want to see your lousy regional sales manager who is on his sixth trip to the territory in six months. And why aren’t you building more competitive products with better technology and pricing? Give me something sell-able.

But reps don’t realize that manufacturers product lines have sales levels baked into their core pricing so when sales drop – they are immediately in trouble. And while markets are changing, they need you to be plugged into those new dealers who are emerging – or those that are gaining market share so they can hit their numbers to be able to continue to offer you a line…any line. And if they are demanding reports from you, it is most likely because reports have been demanded of them…from upper management, parent companies, suppliers, or even bankers – trying to decide if they will continue to fund them – or call in their loans.

And as far as the support that manufacturers can provide you, well that is just hard to do when sales are down, profits are non-existent, and you’re off selling other lines that are more important to you. Also, finding capable trainers and creating more effective training programs for the sophisticated technologies available today is getting harder and harder to do…even in the unlikely event that there is still have a budget to do it with. And you’ll never know the pleasure of being ordered to travel half-way around the world only to be publicly reprimanded and handed a sword to disembowel yourself with…yeah, that’s really fun.

Like I said…there’s more than enough blame to go around. Maybe we should stop reflexively tossing hand grenades at each other and start working together cooperatively to come up with some solutions.