On the westernmost point of Alaska, forming the tip of the Aleutian Islands sits the small island of Attu. Attu has the distinction of simultaneously being the westernmost point in the United States and North America and also one of the easternmost points, (being that it is actually in the eastern hemisphere). Also, it was the site of the only land battle ever fought on U.S. soil during World War II.

On the morning of March 26, 1943, Admiral Charles H. McMorris (U.S. Navy) was patrolling the waters off Attu with a small convoy consisting of one heavy cruiser, the Salt Lake City, a light cruiser, the Richmond and four destroyers, the Bailey, Coghlan, Dale and Monaghan. The Japanese had been trying to occupy Attu and nearby Kiska in an effort to establish an airbase from which aerial attacks could be staged against the west coast of the United States.

In heavy cold and thick fog, the radar from the small American fleet picked up the signal of what McMorris believed to be one or two Japanese transports and no more than two destroyers at a position 180 miles to the west. The U.S. convoy gave pursuit, but as the fog cleared, morning broke and their distance closed, they were shocked to find that instead of one or two destroyers, they had a tiger by the tail. On the horizon were two Japanese heavy cruisers, two light cruisers and five destroyers. The enemy ships were faster, they had bigger guns and the Americans were outgunned two-to-one.

So Admiral McMorris had a decision to make. Would he pursue his enemy (outgunned) or would he retreat? I imagine the decision did not come lightly for him considering that the Salt Lake City was a precious commodity after the staggering losses of Pearl Harbor left few heavy cruisers in the U.S. Navy fleet.

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In the early days of our company, as a manufacturer and fabricator of large capital equipment for the water and wastewater industries, our predecessors also had a decision to make. Would they go to market with a direct sales force, or would they try to sell through third-party manufacturers’ representatives (agents)?

Being talented engineers, but not necessarily marketing geniuses, I imagine them setting out to do a comparative analysis between their two options.

What Are the Benefits of Selling Directly?

Direct sales personnel have intimate product knowledge — In many organizations, the sales department typically represents a separate career path from the traditional ladder-climb through management. Sales professionals who enjoy selling are often successful by choosing a sales career because the skill and talent required most closely match their abilities. Hiring a direct sales staff from within an organization gives the manufacturer the ability to choose from a pool of employees who have the dual benefit of keen product knowledge and sales skills. These chosen employees are the people who have been “drinking the punch.” Also, in the case of direct sales, the manufacturer has many more tools to motivate a sales team to achieve sales in any way they choose.

Direct sales personnel focus only on your products — To get 100 percent dedication to your product line will require a direct sales staff. Beware the sales agency that has 50 products on their line sheet. Especially beware if the other products they represent have little or no synergy with what you manufacture. On the other hand, an agency with a handful of products that are related to yours can actually be a good thing because it may create opportunities that otherwise wouldn’t have been there. But the bottom line is that the more products an agency represents, the more their time will be diluted.

Return customers — Return customers are the crown jewel of any sales organization. They represent lasting relationships and they are critical to long-term brand recognition. Return customers indicate product satisfaction. This base needs to be tended to and never ignored, but in many ways, they cost less to a sales department than cold-calls and chasing referrals. With a direct sales staff, a company is better aligned to build relationships with key accounts that can be counted on to place the repeat orders.

And What Are Some of the Benefits of Selling Through Agents?

They live in the territories they sell in — I’ve seen this advantage demonstrated many times. Markets tend to be regional. Take the Iron Belt, the Gulf Coast, or Silicon Valley as examples. Living inside a region, agents tend to gain credibility with an understanding of multiple different customers and key people within the industry. (Once, after terminating our agreement with an agency a few years ago, we were evaluating a new agent in the territory. During the evaluation period, we committed to commissions on a case-by-case basis. On our first project, during a particularly critical meeting with the owner’s engineer, I noticed that one of the reps for the firm we were evaluating was talking to one of the owner’s engineers. Apparently their daughters played basketball together on the same team! Needless to say, this new agency played a critical role in our company securing this order and later, impressed by their connections, we committed the line to them.)

Often they are experts in their field — This is related to living within the territory, but the advantage is clear. Sometimes the second stage of a career in engineering involves taking the experience and expertise gained over years in a specific industry and applying that skill set either as a consultant or as a sales representative. There are even representatives in our network whom we rely upon to advise us in technical matters. Once, in an effort to establish ourselves as a credible vendor in the coal industry, we hung a large banner over our exhibitor booth at a trade show. The banner read, “Lou knows coal and we know Lou.” By the way, Lou was also our rep. We were banking on the fact that Lou was so well-known in the industry that our affiliation with him would help us establish the credibility we needed to enter this market.

They do not represent a source of overhead to the manufacturer — This is a two-edged sword. As a manufacturer, the formula for profit is generally Sale Price – (Cost of Goods Sold + Overhead) = Profit. Because our competitors refuse to stop giving lower sales prices, we are forced to find ways to reduce both cost of goods and overhead! But, this can’t come at the expense of quality. Herein lies the allure of the manufacturer’s rep. If an agreement is mutually favorable, the agency covers its own costs and the manufacturer helps pay these indirectly within the commission structure. In a perfect world, it is a win-win situation. But as always, the devil is in the details. If the agent is ineffective, or, if the value and necessity of the agent is not clearly demonstrated to all levels of the manufacturer’s organization (and by clearly demonstrated I mean deeply infused in the living culture), then there will nearly always be some key players who question the value of reps and undermine the manufacturer-rep relationship.

In the late ’70s, our company’s founders came to the conclusion that they would do their best to build and attract the strongest rep network they possibly could. Being a relatively new company, they weren’t always able to get the attention of the best rep firms in the area. They made it a goal that over time they would attract the best reps by becoming a stronger organization.

From that day on, we have been a manufacturer that sells through agents. Working in the sales department has allowed me to see the effects of this decision from both the viewpoint of the agent and my colleagues that design, build and deliver our products.

At times it can be tempting to try to find a middle ground, to sell through agents when it’s convenient, but sell direct when it’s not.

Consider the following:

• Should we pay commission to a rep when a customer from their territory wants to place an order directly? Can you justify foregoing commissions by saying, “Our agent wasn’t doing their job?”
• How should we pay commissions for spare parts and service contracts? The agents don’t sell these services, do they?
• How do we handle “elephant orders” (large magnitude sales that come maybe once or twice a year) when the customer wants an “OEM” price?
• What about those coveted return customers? It may be tempting to think that the rep’s services are no longer required. Will we begin removing return accounts from the agreement so that we don’t have to continue to pay commissions on them?

The philosophical debate about whether it’s better to sell direct or through a rep network is not really the point.

My point is that to be successful selling through reps requires moral fortitude. It requires that you do what you say you’re going to do.

A quick real-life experience: For a brief period of time, at the launch of a particular new product, our company sold outside our rep structure. We rationalized this move by saying that to bring this product quickly to market, our reps would neither be trained nor in the best position to bring this product quickly to the market. Not to mention that a key part of our strategy would be delivering at a low price point. We decided that for just this product, we would sell direct. The problem was we did this in secret.

Obviously, before long, our reps started to discover these sales and were wondering about their commissions. So we had to ask ourselves once again, will we sell direct or will we honor the agreements we made? Long story short — we ended up going back and paying commissions anyway. What we lost was both respect from our rep partners, and the chance to capitalize on their involvement. In essence, we ended up paying them for nothing.

Another story: Some time ago, one of our agents told me that he brought on a new manufacturer who was relatively new to the market. He was able to secure a nice order through one of his long-time customers with a plant in his territory. The manufacturer paid him his due commissions and he thought he was on his way to a long-term relationship with them. A few months later he discovered that they took a repeat order from the same plant but chose not to tell him — and not to pay any commission on the order. Needless to say, he lost a lot of respect for them and not only did that end their relationship, but he has since found another line and is in a perfect position to sell against them because he knows their product well.

So what will you do when you have a tiger by the tail?

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Admiral McMorris decided that it was time to be bold. He made a fateful decision that despite the risk and the long odds, the stakes were too high. He chose to attack. Ordering the heavy cruiser Salt Lake City to the west, they immediately began firing on the Japanese flag ship Nachi and the other heavy cruiser Maya. Salvos of shots (nearly 1,000) rained down on the Salt Lake City, but miraculously she was able to land eight hits on the Nachi, while the Japanese were only able to score one glancing blow that exploded in the water off the stern. As smoke billowed up into the sky from the deck of the Nachi, the Salt Lake City suddenly sustained a hit and later lost power when sea water flooded the boiler fuel tanks. Her captain Bertram J Rodgers sent a message: “My speed zero.”

Fearing that the Salt Lake City would be a sitting duck, McMorris directed the Dale and Monaghan to lay smoke cover off the port quarter of the Salt Lake City. His next move was the most daring of all. He ordered the Bailey right in to the line of fire. With guns blazing at 28 knots the Bailey somehow managed to close the range on the second heavy cruiser and fire torpedoes that hit their mark. The torpedoes were only just away when the Bailey took two hits. Then, just like that, it was over. The Japanese fleet was heading west for home. They would never know how close they had come and McMorris, having stuck to his guns — pulled off a major victory.

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