This is the 18th in a number of articles serializing The Sales Force — Working With Reps by Charles Cohon, MANA’s president and CEO. The entire book may be found in the member area of MANA’s website.

Fred Richardson owned the rep company where George worked, and his call to Jim was prompt. Jim had asked Fred to drop by Jim’s office to discuss the rep system, but Fred had another suggestion.

“If you want to learn about reps,” Fred said, “I’d suggest that you come visit our office. After all,” Fred joked, “when Jane Goodall wanted to study chimpanzees, she watched them in their natural habitat. I think you’d learn more about us if you saw our operation than if I just described it. Why don’t you come by our office for lunch on Tuesday?”

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Jim wasn’t quite sure what to expect when he arrived at the rep company, and he wasn’t quite sure what to make of what he saw. The office was about 2,000-square feet in a well-kept office building, and looked no different from any office he’d seen at Bigglie, Troothe or any of the customers he visited. A busy inside salesperson was the first person he saw as he entered. She acknowledged him with a nod and a quick wave, but she was so deeply immersed in a telephone conversation with a customer that she couldn’t break away immediately. Seconds later a man jumped up from one of the dozen desks in the open office space and walked up to greet him.

“Hi, I’m Fred Richardson. Are you Jim?”

“Hi, Fred, nice to meet you.” Jim noticed that many of the desks were unoccupied. “Looks a little bit empty in here today.”

“It’s always like that, Jim,” Fred replied. “Half of those desks belong to our outside salespeople, and each one of them is in the office no more than one day a week. I want them in front of decision makers in our clients’ offices, not sitting at a desk here in our office.”

The office tour was short. Fred showed Jim the room where samples and sales literature were neatly organized and the area where the firm kept its state-of-the-art computer server and the firewall protecting their high-speed Internet connection. Fred demonstrated their sales force automation software, impressing Jim with the high degree of integration between the office staff’s desktop units and the personal digital assistants (PDAs) deployed with the field sales force. Finally, Fred ushered Jim into a sunny, well-appointed conference room. One of the walls was almost completely covered with sales awards, trophies and plaques from companies the firm represented.

“I really appreciate your time today, Fred. The whole concept of a manufacturers’ rep is new to me, and I was hoping that your explanation could start on the most fundamental level. What it is, how it works, why it works, that kind of thing.”

“Fair enough, Jim. I can’t tell you authoritatively how the first manufacturers’ representative company came to be, but it’s probably fair to assume it was launched to allow several small manufacturers of complementary but non-competing products to share the cost of a salesperson. It’s likely that those companies saw this arrangement as a temporary measure as they worked to grow large enough to afford a sales force that wouldn’t have to be shared. This would be the same sort of situation that might motivate three companies to pool their funds to purchase a building they could share, with each manufacturer anticipating growth that eventually would allow it to purchase a building it would use exclusively.

“Some of the manufacturers who made this sort of arrangement went on to hire their own sales forces, but others discovered that there were some unanticipated economies and efficiencies in the manufacturers’ representative system that they couldn’t duplicate with their own sales forces.

“The most important of these benefits has come to be known as synergy. There are many examples of synergy in the manufacturers’ representative system, but I’ll just pick two to give you an idea of what I mean.

“One example is that a manufacturer fielding a sales force of reps offers its customers the efficiency and convenience of a single meeting with a single salesperson who can discuss multiple product lines. So, the customer has just one visitor to discuss perhaps three different manufacturers’ products instead of three separate meetings with three different salespeople.

“Another is the level of familiarity a rep will have with a particular account. A salesperson who represents multiple manufacturers will be called for meetings whenever issues about any of those manufacturers become important, so he visits the customer more frequently and meets more people in more departments than a salesperson who is the customer’s contact for only a single manufacturer. These frequent visits can create an intimate knowledge of the customer’s production processes and special requirements, making the salesperson a more valuable resource to the customer and providing encouragement for mutual respect and friendship between the rep and the customer’s employees.”

“So the manufacturers’ rep system probably developed as a way to share salespeople,” said Jim, “and it was only long after it had been in use that the synergy of this system became apparent.”

“Exactly,” Fred replied, “but that’s just why the system is attractive to manufacturers. If you’re concerned about the caliber of people you’d draw into the talent pool of manufacturers’ representatives, you’d probably want to know why the system is attractive to salespeople. After all, if it was much less appealing to work as a rep than as a direct employee of a manufacturer, then you’d find yourself in a situation where everybody tried to get jobs with the manufacturer, and the dregs who couldn’t find work with manufacturers ended up as reps. This definitely is not the case.

“One of the main draws of working as a manufacturers’ rep is autonomy. In fact, that’s often why new rep companies embrace the risk and hardship that entrepreneurs routinely face during their start-up period. We want to be our own boss, at least to some degree. Whether or not the average rep has read Milton, they agree with him: ‘Better to reign in Hell than serve in Heaven.’*

“The rep system’s financial model also makes a lot of sense to someone with a long-term perspective, for at least a couple of reasons,” Fred continued. “The first one is pretty straightforward. When you work for a traditional manufacturer, your fortunes ebb and flow with that company’s success. It’s like having your money in the stock market, but you only own one company’s stock. If it does well, you do well, but your holdings aren’t diversified.

“As a manufacturers’ rep, you really are working for a group of companies in your product line portfolio. As economists would say, when the results of these companies are not correlated, and your income is dependent on the group instead of one company, your income is much more stable than it would be working for just one manufacturer. If one manufacturer goes out on strike, or its factory burns down, or its product becomes obsolete, your income goes down only to the degree that it comes from that one manufacturer, while your gains from successes with other companies can more than offset that loss.

“This diversification works to the manufacturer’s benefit, too. If you have one super-star salesperson working exclusively for you, that person can quit unexpectedly or make unreasonable demands. On the other hand, if you have five super-stars at one rep company — each giving you some percentage of their time — then if one leaves the others can fill in. Another benefit to the manufacturer from the reps’ diversification is that if your plant goes on strike you can ask the rep company to divert its efforts to other principals during that period and come back on line when the strike ends. Compare this with the financial drain of a large salaried direct sales force during a strike. You don’t want the sales force to bring in new orders, but getting new orders is the first bullet point in their job description, so during a strike there’s little or nothing for them to do. Then you have to decide whether or not to lay off salespeople, knowing that if you let salespeople go, your competitors who aren’t on strike will snap them up and capitalize not only on your inability to ship but also on your ex-salespeople’s knowledge and contacts.”

Jim nodded. “We had considered some of those points, but this is really helpful.”

“I’m glad to be helpful, but there is one bitter pill to swallow when you get your rep force up to full strength. Eventually, some of your existing employees will want to participate as reps instead of direct employees. They’ll see how the reps operate, interact with them on a regular basis, and some of them will find the idea of autonomy to be very seductive. It’s just a case of market forces operating to draw resources to the places where they can be utilized and rewarded best — and in some cases those resources will be your own employees drawn to the rep side of the business. It may be painful to have these people outside your direction and control, but if they will do more for you as an independent manufacturers’ rep than as an employee, then you should be glad to get the extra results.”

Jim didn’t like the idea that he might lose a salesperson or two to the rep system, but he bit his tongue. He’d been such a strong proponent of letting market forces operate that he’d have to accept this bitter pill.

To be continued next month.

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