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Archive for the “Private Equity” Category

Last week I posted about my being both awed and a bit unsettled by a conference at The Capital Roundtable.  It is hard to argue the brilliance of top private equity operatives.  As far as I can tell, the PE vocation is populated by nothing but Mensa savants.  Mostly what these analytic glitteratti do is quite beyond my ken, as I reported last week.

Yet there is one area these portfolio managers find perplexing, as far as I can glean it.  That area is sales.

Sales, like entrepreneurship itself, is more of an art than a science.  And private equity portfolio managers don’t believe in art.  They believe in what they can measure.  They believe in quantification.  They believe in neatly tied, tightly controlled bundles of profit.  In most things they are great at unlocking value and in most things they exercise a salubrious effect on companies and the market.  But I understand why sales solutions can elude PE portfolio managers, much more than they do entrepreneurial company builders.

Good salesmen, again like good entrepreneurs, are creatures of individuality, subtlety and nuance.  And they are not molded solely by filthy lucre.  Good ones are intuitive, freedom-loving cowboys.  While a good salesman may be able to “sell ice to an Eskimo,”  but that does not mean he is so cynical he wants to do that or that it makes him happy, fulfilled, or incentivized to do that.

Contrary to popular myth, sales people are not amoral scoundrels and money grubbing rogues like “Blake” (portrayed by Alec Baldwin) in Glengarry Glen Ross or “Roy Walter” (portrayed by Nicholas Cage) in Matchstick Men.  They like being part of something that gives their life and their world meaning.

PE afficionados should note the recent work of happiness researchers Elizabeth Dunn and Michael Norton.  Dunn and Norton (NY Times, Sunday Review, July 8, 2012) have found that additional income buys us little additional happiness once we reach a comfortable living standard.  They quote a Princeton study using Gallup polling data from almost a half million American households that shows that money creates little beneficial effect after reaching the $75,000 mark.

So more monetary or other quantitative incentive is not necessarily the carrot that should be dangled before top salesmen to maintain and increase effort.  What needs to be maintained and augmented when PE managers take over an entrepreneurial venture is a sense of mission and purpose.  That is not an easy thing to sell to a sales staff that knows a portfolio company is probably being groomed for a quick sale.  The ultimate failure of “Chainsaw Al” Dunlop’s abrasive, cynical, short-term management style is surely a cautionary tale for all PE portfolio managers.

Sales has to be approached on the basis of long-term sustainability and corporate mission, not excessive near-term monetary motivation.

Pericles Mazarakis of Thomas H. Lee Parters, who was the Chairman of The Capital Roundtable seminar I attended last week, acknowledged a need for more non-monetary thinking around sales incentivization with a story of an incident he observed at Remington a number of years ago (I am reporting this from memory):  A certain sales director at Remington kept his staff’s efficiency and enthusiasm high, not by monetary carrots or demanding quotas, but by the simple expedient of placing a xeroxed sheet on the desks of salesmen who did well, saying, “Great job!  You are killing it!”  The consulting firm looking at the company found that these cheap xerox sheets were being framed by these salesmen and meant more than any quantitative reward.

There has to be a way to emphasize more the salesman’s need for meaning if PE companies want to maintain and expand sales force efficacy.  That means framing a non-quantitative sense of pride, belonging, and ownership, even with the shortened profitability timeline of PE managers. The Gordian Knot of sales maximization is really not amenable to the rough hewn solution of Alexander the Great. Even from the near term profitability perspective of the PE investor, there really is no quantitative silver bullet because the sales conundrum is the most immutably human of business problems.

PE portfolio managers, or anyone else seeking the silver bullet for successful, engaged sales solutions, long or short-term, might begin with Albert Schweitzer’s words about success.  He said, “Success is not the key to happiness.  Happiness is the key to success.  If you love what you are doing, you will be successful.”  Thank you, Albert.

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