I’ve been on the road this week and the topic of turnarounds that resulted from bone-headed CEO moves came up. In my youth, I had no filter when it came to telling a top executive they were doing something stupid. I, surprisingly, survived better than the executives did. Still it didn’t exactly help my career and often the company didn’t survive the mistake. Being right and having to find a new job anyway really wasn’t an ideal outcome, so I thought I’d share some things I’ve learned. Here are five things I’ve seen executives do, repeatedly, that are company-killers.
[ Related: Most CEOs are planning to kill their companies ]
1. Forgetting how commissions work
This is painful to watch for me given that two of my degrees were tied to human behavior, motivation, and the impact of compensation. Apparently, these are topics a lot of executives missed in school and they didn’t figure it out later. The rule is that money sucks as a motivator, but is like a superconductor when it comes to being a demotivator.
This means giving people more money doesn’t have that big an impact outside of initially attracting them to the job in the first place, it does not increase productivity. However, taking money away from someone is like slamming on the brakes to productivity. This is compensation 101. Now you can also have a really happy underpaid employee, but if they find out they are underpaid they’ll likely turn into a problem really fast regardless of whether they need the money or how much they make.
What CEOs often do is decide that sales people are making too much commission and either change the commission plan so they don’t do as well or do some kind of flip where they increase base compensation (salary) and reduce commission thinking they’ll fool the rep into thinking they are getting, not losing something. I witnessed a CEO turn a $750 million company into a $250 million company in a few months by doing this (he also lost all his top-performing sales reps).
2. Thinking more salespeople = more sales
I’ve seen this happen on several occasions. In one case an IBM senior vice president of sales joined a company selling to the food industry that was relatively profitable but growing slowly. He staffed the hell out of the salesforce and within a year the company declared bankruptcy. Bodies don’t equal sales, there is the aspects of demand and available market, proper staffing, and training to consider. If the market is saturated and in equilibrium, hiring more sales reps will just increase overhead, but not significantly increase sales unless you aggressively discount which, in a market in equilibrium, will likely force you to collapse your margins both turning your profitable company into a massively unprofitable one.
Salespeople are only one aspect of sales performance and the only time more people equals more sales is where demand exists that is being unmet by the existing sales staff and you can’t address that additional demand with sales staff profitably. In short it is a far more complex calculation than simple staffing, otherwise everyone would have as many salepeople as they could manage and they don’t.
3. Adding products increases success
Another mistake is thinking that adding more products incrementally increases sales and profits. It can, but only if the products have synergy in the sales process otherwise they can tend to cannibalize existing sales or have little or no impact other than to reduce the productivity of the salesperson. Adding products comes with costs. One of them is they then compete for the salesperson’s time.
Salespeople will tend to favor products that they know and products that they are well-compensated for. Good salespeople optimize their time focused on those two vectors and they don’t care about profits (unless this is also part of their commission plan). This means if they know product A and are being well-compensated for it, they will sell product A over any other product that they know less well or are less well-compensated for. Now, if you’ve given them a new product, C, and give them a huge bonus for selling it they will, but likely at the cost of then not focusing on the old product A.