Somewhere around mid 2007, Frank, the VP of sales, in a 130-person hardware manufacturing company was about to hire some new salespeople.
Frank’s idea was to hire some salespeople on straight commission, so they can start producing but their employment doesn’t cost a penny for the company. And this is pretty much the route many IT companies take. Frank wanted to mitigate the initial risks of hiring new people, so he put the new people on full commission.
This has always the tradition at Frank’s company. Everyone was on annual salary or hourly wages, but the salespeople have always been on straight commission.
And bit by bit the problems started, and one day Frank opened his eyes…
He was evaluating one of the salespeople, Julia’s performance…
“Julia, you’ve told me about some big deals you have in your pipeline, but there is nothing. What’s happening?”
And Julia’s answer shocked Frank…
“Frank, I’ve got some big deals all right. Actually, some of those projects have already started. But instead of giving them automatically to your company, I’ve given it to another company that’s more qualified and paid me higher commission.”
Then Julia went on explaining to Frank that when she was hired she was told that the more she would produce, the more she would earn. But she also realised that she was hired on a swim or sink basis. While she swims, the company would give her some chickenfeed, but when she sinks, she shouldn’t expect help, support or mercy from the company.
So, she never felt loyal to the company. For Julia, her employer was one of the several means of achieving her ends, that is, increasing her personal wealth. So, every time she would dig up an opportunity, instead of giving the opportunity to her employer, she sought out the highest bidder for the work. It was all about optimising her production.
When Julia was hired on straight commission, she was asked to assume 100% of the risk, do 100% of the work and invest 100% of her money to pursue opportunities. And all for a small 15% commission.
She assumed the risk, made the investment and did the pursuit. But at the end of the day, she – rightfully – didn’t feel obligated to bring these opportunities to her employer.
From salesperson mode, she clicked into broker mode, and brokered out the deal to the better qualified company that paid her more than her employer would have.
According to Julia, a business has two parts: 1) Production of the goods and 2) Production of clients. So, a 50-50 split between the two is fair, and her share of 15% should be a tad more.
So she sent out 10 RFPs to her employer and nine competitors, and selected the most suitable company. And then she hired the most suitable company, as her subcontractor, to do the work under her management.
Of course, Frank was fuming with anger, and decided to lay Julia off.
On that note, Julia notified all the clients she’d ever brought to the company, explained the situation to them, and some 95% of those clients followed her to greener pastures.
And then I got an email from Frank asking for some help…
Frank asked me what I thought about Julia’s behaviour to steal those clients.
And I told him Julia didn’t steal those clients because they are her clients. Realistically, clients are free to choose, so no one “owns” them. She acquired them and leased them to the company for the period of her employment. They were Julia’s clients, the fruit of her hard work and investment. She deserves to have them as long as they want to stay with her.
There was no stealing because those clients never belonged to the company.
What I also told Frank was that a company without an internal client acquisition system is not a business but merely a glorified hobby.
A business that expects to last long can’t place its future in the hands of salespeople who come and go at an annual rate of 43%.
What do you think about the client stealing nonsense?