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I’ve been sitting on this blog post for a while thinking that its efficacy would get better and better as the economy and job market failed to recover at the pace that the economists thought (hoped) it would. It looks like my hunch was right.
Nine months ago, the Wall Street Journal published an article called “Only the Employed Need Apply“. The premise of the article was that many employers were only interested in talking to people who were already employed – even if the candidate who had applied had lost their job even after performing at a high level.
Bobby Fitzgerald, a partner in five restaurants in three states, says these days he gets two dozen or more unsolicited résumés each day at one of his Phoenix restaurants, the White Chocolate Grill. But Mr. Fitzgerald says his top candidates, for jobs ranging from servers to management, usually are people who are employed elsewhere. He currently has 50 openings across his five restaurants and has told recruiters to bring in only people who are working.
When you consider that in March 2010 our unemployment rate is still on the precipice of 10% and the average time that someone is unemployed is still over 1/2 of a year, it would appear that Business Leaders like Bobby Fitzgerald aren’t alone.
At Hire Better, we’ve seen a significant up-tick in the number of clients who want us to assist them in hiring salespeople. For those salespeople who we see as applicants, the statistics are NOT in their favor if they’re applying for a role in which Hire Better is involved. Here’s what we’ve found:
In a typical hiring cycle, assuming that we have 100 people to consider for a role:
- 82-85 will be Direct Applicants
- 12-15 will be People who are “headhunted” or from our Network
- 1-3 will be Referrals from internal employees at the client company
When we get down to the Top Three Finalists, they’ll look like this:
- 1 Direct Applicant
- 1 “headhunted” Candidate
- 1 Referral
And when the finalist is hired: The chance of the Direct Applicant goes DOWN exponentially as the salary and responsibility goes UP.
For a Sales role, the prospects of a Direct Applicant are even WORSE. The same statistics will apply to the Candidate pool as before but I have to expand the pool to 5 people when you look for Finalists:
- 1 is a Direct Applicant
- 3 are “headhunted”
- 1 is a Referral
And when this is the case, the Referral has more than a 50% chance of getting hired and the Direct Applicant has less than a 10% chance. In the case of sales candidates – I believe these stats are just about right. And they’re justifiable! If you’re considering hiring an unemployed salesperson or sales manager, you should be asking yourself “Why would a good salesperson be unemployed?”
If you have a 12 month sales cycle and an 8 month learning curve, it will take nearly 2 years to get your new salesperson producing consistently. In that 2 years, maybe you’ll pay out close to $150,000 in subsidies.
Using your average margin, how much revenue must be gemerated to offset that subsidy?
How much revenue must be generated to produce a satisfactory ROI?
How long must the salesperson stick around in order to produce that ROI?
To bring it all back together, if a prospective sales candidate (who, for the sake of this blog post is unemployed) has found him/herself in a new sales role every 2-3 years, what are the odds that anyone who is hiring them is going to experience a positive ROI?
When we look at candidates through this lens we find it’s a lot easier to not find ourselves getting “sold” during an interview by someone who has all kinds of great excuses for why “things just didn’t work out” at that last job they were in…
Tags: A-Player, A-Players, bad hires, Baseline Selling, challenges of hiring salespeople, Dave Kurlan, hire better, hiring, hiring manager, Interview, Kurlan, mediocre salespeople, Objective Management Group, recruit don't absorb, Recruiting, recruiting salespeople, Salespeople, talent acquisition, unemployment, unemployment rate, virtual bench
Earlier this year, Dave shared his opinions on the 5 Steps To Motivation. We Tweeted just this past week about ensuring that you’re worrying less about Motivation as a Leader and more about De-Motivating your employees.
Below are some of Dave’s thoughts. Of note: he suggests that various people react to these in different ways. I found that doing a Communication Builder with my Sr. Team and Executive Assistant was really valuable (thanks to the suggestion of my Mentor Lois Melbourne). Knowing how each of them wants to receive information and how they want to be Praised/Critiqued was really valuable but I still have found that the #1 item on his list is the most valuable. I’ll only (personally) use #2-5 as the situation gets more dire.
“I believe that motivation is very misunderstood. You can’t motivate by being a cheerleader, nor can you motivate by reciting somebody else’s inspirational quotes. Motivation comes from within and you must find out what your people’s internal motivators are. Why are they doing this thing called selling?
The other thing that’s important to know is that everyone reacts differently to motivation and motivation takes many forms. For instance, perhaps you have some people who respond to one of these methods when trying to get them to perform:”
- Challenge them (I have a challenge for you…do you think you’re up to it?)
- Feign that you’ve lost faith in them (Tell them that you don’t think they can do it)
- Encourage them (I just know you can do this!)
- Demand that they perform (You are required to do this)
- Ultimatums (If you don’t do this you’ll be out of a job)
Tags: A-Player, A-Players, Baseline Selling, challenge, Dave Kurlan, demand, encourage, Fortune, hire better, job description, lois melbourne, lose faith, motivate, motivation, Scorecard, Twitter, ultimatum
If you’ve been reading this blog with any regularity you ‘ll know that I’m a big fan of Dave Kurlan. His blog and much of his company’s focus is on how to do a better job assessing sales talent before you hire them. What he also focuses a lot of his time on is making people better salespeople.
On June 3, Dave wrote a blog post entitled, “Salespeople and Requests for References“. He wrote the blog because a prospect he was hoping to sell his wares to asked him for references before they would agree to complete the transaction. It caused him to step back and analyze why someone would ask for references.
I read the post and gathered something entirely different from what he was hoping to get across. That was: this absolutely explains why a potential employer would ask for references as well! Geoffrey Smart, in the book WHO, suggests that 25% of what you’ll learn about someone will happen during the reference process. Even knowing that, when I surveyed a room of Entrepreneurs last week that I was talking with, nearly all of them admitted to hiring someone without ever asking for references and a full 100% of them said that they had, at least once, asked for references and then never called them.
Here are some of Dave’s points from that Blog Post. Do any of these apply to you as a hiring manager (in the context of the interviewing and selection process)?
Why would people ask for References?
- they are skeptical of your claims or promises;
- they weren’t referred to you by someone they know and trust;
- they haven’t previously bought from your company;
- they don’t understand what you sell;
- it’s their nature to ask (they always do that);
- they must invest more money than they had planned or feel comfortable with;
- they want to learn what it’s like to do business with you;
- they want to learn if there is anything to beware of;
- they prefer to be sold by your references, not you;
- they are simply using the reference request to put you off.
Tags: ask for references, Baseline Selling, Dave Kurlan, geoff smart, hire better, Interview, Objective Management Group, recruit don't absorb, Reference Check, talent acquisition, Topgrading, TORC, who the book
This is a blog post that I’ve been working on for a while and I finally got the impetus to complete it after reading a post by Clint Greenleaf, Founder of the Greenleaf Book Group. To view a complete version of his blog entry for Inc Magazine click on this link.
I started working on this blog entry when I heard about the new TARP restriction about caps on incentive based pay for Executives at Banks that had accepted federal bail-out money. Turns out they are restricted from receiving any more than 30% of their base salary in bonuses. The whole idea of the Government trying to put caps on anything really started to frustrate me simply because they have absolutely no place legislating incentive based pay at all.
Before you stop reading now thinking that this is going to be a political rant give me one more moment to justify why I believe the government shouldn’t be involved in compensation conversations at all: last year, the Postmaster General received over $800,000. For those of you keeping track, that’s well within the top 1% of all wage earners in the entire United States and about 40x above the Poverty Level. Honestly, I wouldn’t be upset at all if the pay was justified but when you look at the real numbers, he earned nearly $1m (and 4 other execs earned $250k+) while the US Postal Service: (1) has a government guaranteed monopoly on First Class mail (2) has discussed reducing the delivery of mail by a day to reduce costs and (3) lost more than $3 Billion last year.
Going back to the original premise of being more than a little irritated by the Government’s desire to cap incentive based pay for Bank Execs: aren’t they looking at the wrong data point? Instead of worrying about people making more or the same amount as the Vice President or President Obama, why not reduce base pay by 80% and place absolutely no cap on performance based bonuses that are driven through the execution of behaviors that will drive great results. To let a bank choose to pay a top Executive (who in the case of a company like AIG or Citibank are essentially government employees) $500,000 in base pay is what’s so wrong, in my opinion.
I mentioned Clint Greenleaf’s post at the outset and want to bring that back into the forefront. Clint points out nicely that there are certain roles inside of an organization that make it very easy to incentivize employees. The easiest example is Sales. But even with Salespeople, companies rarely get it right. Here’s a real life example:
Acme Widget Company: Sales Rep – John Doe
- Base Pay: $80,00
- Average Sales Price: $100,000
- Quota: $400,000 per year
- Gross Margin: 50%
- Net Margin: 30%
John receives his commission from Acme based on Gross Revenue. He’ll receive a 5% commission on his sales for 2009 regardless of if he hits quota or not. Let’s assume he hits exactly his quota and they’re at the target numbers as stated above:
- Base Pay: $80,000
- Commission: $20,000
- John’s Total Compensation: $100,000
- Company Gross Profit: $200,000
- Company Net Profit: $120,000
- Real Company Net Profit: $20,000 (taking out John’s compensation)
It’s rare, however, that salespeople who are incentivized and paid commission on Gross Revenue are ever going to be worried about preserving margins. If you’d like to determine if this is true I’d encourage you talk to anyone you know who’s been a sales manager in their career.
Let’s change around John’s production now and assume that he EXCEEDED his quota by 25%. Instead of selling $400,000, he sold $500,000. What a banner year! Most companies would name him to the President’s Club and reward him with a trip! But instead of selling 5 deals as in the statement above with the target price of $100k, John brought on 7 new clients with an average purchase price of about $71,500. Let’s look at the impact that his Commission Structure had on his wallet and then the Company’s:
John’s Total Compensation:
- Base Pay: $80,000
- Commission Paid: $25,000 (5% of Gross Sales of $500,000)
- Total Compensation $105,000
Company’s Profit on John’s Sales:
- Gross Revenue: $500,000
- Gross Profit: $150,500 (Gross Profit reduced from 50% to 30% because of price cutting)
- Net Profit: $10,500 (Net Profit reduced from 30% to 2% because of price cutting)
- Real Net Profit (Loss): ($94,500)
By incentivizing the wrong behavior, John’s employer celebrated his victories and got excited about being able to really bring in lots of revenue. But the real impact on the company is that John is quickly driving them into the ground because of his inability to sell in a competitive environment and maintain pricing.
I find myself talking to CEO’s every day who are grappling with this, especially in this economic environment. They look back on the previous performance of their sales team and they give credit where it simply isn’t due to sales reps who are successful simply because they haven’t quit yet (they’ve inherited the clients of former employees, answered the phones when people called in looking to buy, etc). Even crazier, other prospective employers look at guys like John and see annual awards, a history of beating quota and a guy with lots of industry contacts and start to drool.
Incentive-based pay is one of the greatest levers you can tweak to really drive the kind of behaviors that you’re seeking but unless you’re thinking about it the right way, they can absolutely cause your demise.
Do yourself and our Country a favor, if you have any friends in leadership positions with the Government who would benefit from reading this, forward them the link. It’s not exactly Tea Party-style rebellion but someone needs to say it. We’re incentivizing our Federal and State employees to not do anything to rock the boat, spend money with reckless abandon to ensure re-election of their bosses, and spend at least 100% if not more of their annual budgets to ensure that they don’t get their pay reduced the next year. Anyone else see a problem with this?
Here are some additional resources:
- Dave Kurlan on How to Get Salespeople to Perform
- Sandler Sales Institute on Why Salespeople Fail
- Jack Daly on Understanding the Personality of Salespeople
- Dave Kurlan’s Free Salesforce Grader
Tags: AIG, barack obama, Baseline Selling, by the book blog, Citibank, Clint Greenleaf, commission, Compensation, Dave Kurlan, david sandler, federal bail-out, federal employees, government employees, gross revenue, hiring, Inc Magazine, Incentive-based pay, incentivizing salespeople, Kurlan, net profit, OMG, Postmaster General, president's club, talent acquisition, TARP, topgrading methodology, understanding the salesforce, US Postal Service
Adding to the previous thoughts on salespeople and how difficult it is to hire predictably in Sales, I was recently forwarded these statistics (based on assessing 350,000 sales candidates) that were produced by Dave Kurlan, the Founder of the Objective Management Group. You might want to be sitting down before reading this if you’re a Sales Manager. If you’re a business owner, definitely sit down!
24% of all candidates will not prospect – at all!
Only 1% of all hunters have the complete Hunter Skill Set.
Only 8% of all candidates could be considered Hunters (and don’t you typically hire salespeople to prospect?)
Why? Salespeople who dislike prospecting dislike it for a reason. They have beliefs and fears that cause anxiety and physical reactions to even the thought of prospecting. So some won’t do it at all, some will have difficulty getting started and some will have difficulty finishing.
45% of all candidates will not close – at all!
Less than 1% of all candidates have the complete Closer Skill Set.
Why? Salespeople confuse asking with getting. Most salespeople know how to ask for the business but very few salespeople know how to get the business when prospects resist. As with hunting, there are beliefs and fears that impact their behavior and when salespeople aren’t comfortable saying the words you’ve taught them, they substitute words that make them more comfortable. What makes them comfortable?
Presenting features and benefits, actions that don’t put their prospects on the spot, that don’t create stalls, put-offs, objections and excuses, that they absolutely don’t want to deal with.
Bottom line: unless you have a recruiting, assessment and interviewing process that really helps you identify what really drives a Salesperson you’re likely going to end up, “Interviewing and offering a role to Brad Pitt but Borat will show up for the first day on the job” (Thanks K. Scheible for a tremendous word picture).
We’ve spent the last couple of months getting very familiar with sales recruiting and doing a lot of research as we’re seeing a huge up-tick in the number of sales roles we’re being asked to handle. It’s interesting that during a time of economic slowdown, companies feel like they can do the exact same things as they’ve always done from a recruiting perspective – but just hire more salespeople in the hopes that they might have better success.
Albert Einstein said that the definition of insanity is doing the same thing over and over and over again and expecting a different result. When it comes to sales recruiting – we feel like the time has come to make some changes.
The process that we feel like is far and away the best; it’s produced by the Objective Management Group. Dave Kurlan, the founder of the organization, wrote a book called Baseline Selling . His theories are simple: (a) if a salesperson thinks that $500 is a lot of money, how in the world are you going to get them to be successful at selling a $500,000 software package? (b) if a salesperson went to 8 car dealerships and researched online for 4 months and negotiated until he saved an extra $10 at one dealership over another, how can you convince them to not accept the statement “Let me think about it” from a prospect?
Dave’s got a great blog where he talks about his theories and views on the industry. My favorite line of his, “Chances are, the economy will loosen things up a little and there will be many more salespeople looking for positions as sales for products in their industries dry up. But employer beware, the first wave of available salespeople will usually be those that are least effective.”
This all brings me back to my original point: as the marketplace loosens up, and if you’re looking to hire new salespeople, make sure you’ve got a scorecard for measuring their past success, a process for really understanding what makes a prospective hire get up in the morning, and a compensation structure that guarantees that your top performers are paid what they deserve.