Common mistakes to avoid in growing a wholesale business
As we discussed last month, planning for growth is an important part of actually growing. Some companies are just lucky and find themselves growing without any focus on the process. They sometimes grow in spite of themselves. Most wholesalers are not that lucky and will need to plan for, invest time and resources in growth and face tough odds since other local wholesalers and some large nationals may have designs on the same opportunities.
As you plan for growth, there are some common mistakes that you may be able to avoid:
Forgetting that it’s all about the people
For years, we have reminded readers that most growth is limited by the wholesaler’s ability to find or develop the people needed to support that growth. Even with tighter financial controls, the capital is still available for reasonable ventures … and even some unreasonable ones. There are almost always manufacturers looking for wholesalers who will love their lines more than their current wholesalers. Prime real estate is almost always available, but, currently, is very reasonable in many markets. There are even profitable operating wholesale businesses for sale for the right price. Plus a bunch of distressed businesses that are for sale at a low price. (Note: We didn’t say “bargain” price because a lot of these low-priced opportunities are far from being bargains.)
With so many of the puzzle pieces falling into place, growth might seem like a slam-dunk. Even with the right team it is not. With substandard people, the odds are really against you.
Thinking you can buy the team you need off the shelf
As we have worked with wholesalers who are on the acquisition trail, the smart acquirers are all about the team. They want a well-oiled machine that can send big buckets of money back to HQ in support of the beautiful HQ building, the company jets, the large distribution centers and, sometimes, even the shareholders. They have learned hard lessons over time: that distressed businesses often have sicknesses that are not easily cured. It would be a mistake to think that your medicine has magic that will allow you to easily cure a sick business. To make matters worse, sometimes the sick businesses you buy may dilute your resources available to the healthy locations or, even worse, be contagious and infect some of your healthy locations.
Thinking that you will not have to pay your dues
We have covered this before. Thinking that the hard work and investment that you have made in your existing markets will somehow allow you to skip having to earn every bit of the business you get in a new market. Your reputation seldom precedes you. Hopefully, you start with a neutral reputation and get a fair opportunity to build your street cred. Sometimes your competitors will pollute the market with true or untrue information about your company dooming you to start with a damaged reputation.
Promoting the unsuitable or delegating to the unworthy
Growth often requires additional managers, inventory administrators and inside and outside sales people. Growth can often cause wholesalers to promote individuals prematurely or even beyond their abilities. When someone is promoted beyond their abilities, it mostly ends badly. If they are given a new location, it will suffer. If they are given a healthy location to maintain, it may transition from healthy/profitable to sick/unprofitable. We are in favor of giving promotable individuals assignments that stretch them professionally but whenever you do that, there must be a manager behind them to evaluate their performance, to coach them and, as needed, remove them from the experiment before there is a disaster.
Assuming supervisors can only be promoted from within
Finding the right raw material might require looking both inside and outside our industry. With proper training and education great people can learn our business.
Not properly training first-line supervisors
First-line supervisors are the heart of a growing business. They must balance their relationship with leading and coaching their team and their obligations for achieving corporate goals. This is not easy. Training is sometimes passed down by their first-line supervisor’s great example, but, frankly, in our experience very few people have had the benefit of a really good supervisory example. We perpetuate mediocre supervisors, training and being the example for the next generation of mediocre supervisors. The better wholesalers send their folks to some real training either inside or outside the industry to help them really understand what the role involves.
If you don’t provide real training and promote from within, expect perpetuation of the same.
Not walking the talk on good supervisory training
As we said in the last point, providing formal training is part of the solution, but most trained folks come back to a situation where the ideas presented in the training are neither understood nor supported by the rest of the team. One manager told a supervisor upon his return, “Yeah, I went to that training several years ago and you can pretty much forget what they told you because nobody here will allow you to do any of the stuff you learned.” When the senior management team does not understand, reinforce and support the concepts presented in the training, much of the potential value is lost.
Not making first line supervisors feel like part of the management team
First-line supervisors are the heart of a growing business. (It’s not an editing error … it bears repeating.) It is a lonely job since they are no longer considered to be a co-worker by their team and often not considered to be a manager by the management team. It is critical to make them feel like they are in the management team so when push comes to shove, they push and shove in the company’s favor. Of course, the good ones are champions for their team, but they also feel a commitment to the company’s goals.
Delegating hiring without teaching how to hire
Many businesses’ past success was pretty directly related to the founders’ ability to surround themselves with good people. This skill is not easily transferred to someone else in the organization. It can be done, but not by osmosis.
In addition to selecting people, founders were also the ones who trained and coached the supervisors and players. They conveyed the lessons along with the urgency and background (depth) of knowledge required to properly use available information to synthesize plans and solutions to the myriad of the business issues that they face every day.
Not testing employment candidates
We have urged/nagged wholesalers to test potential employees in order to improve their odds of hiring a successful employee. As a reminder, there are numerous variables and unknowns in the hiring process. It helps greatly to know that the candidate has the mental “horsepower” needed to perform the job and is, ideally, promotable to higher level jobs within the company. We also think that drug testing can help to protect the company from people who will, potentially, be operating your machines, your fork lifts, your trucks and your cars under the influence. If you aren’t using these valuable information sources as additional data in the hiring process, you are making a huge mistake. There are always other factors to consider, including serious reference checks. As always, you must insure that your labor attorney approves your processes for administering and using the information.
After you have committed to an informed hiring process. It is a mistake to delegate it to anyone who is not absolutely committed to administering and using the data fairly and properly to improve the quality of people being hired. We have seen well-meaning testers help candidates improve their test scores, which resulted in hiring people who, statistically, could not perform the job they were hired for. Hiring is always difficult, but when the tester corrupts the testing process and results, it is worse than no testing information.
Allowing the HR department to devolve to a “warm body” hiring approach
HR is not just getting warm bodies slotted into job openings. Some HR organizations have, for various reasons, forgotten that they are filter systems that bring in only the best and brightest talent into company. With all the time required to remain in compliance and to complete labor reporting, it is easy to get distracted from this critical mission and overlook talent even when it is put in their laps. Of course, compliance and reporting are absolutely required, but they cannot become the department’s only accomplishment. When the required activities no longer allow time to identify, hire and develop talent, a change is needed.
Assuming that supervisors are looking for the very best raw material for their team
The hiring process should include the supervisors but, over the years, we have witnessed blatant actions by supervisors to prevent the company from hiring candidates that they considered to be smarter than themselves. They either explicitly or unconsciously reject really good candidates. Some rationalize it thinking that hiring “smart guys” is just asking for trouble. They ask a lot questions that challenge the way we do things. They have lots of ideas about doing things better. A lot of supervisors want guys that ask, “How high?” when they say “Jump!” In some ways this sort of supervisor is right; smart employees do challenge “the ways that companies have always done things.” They ask why we do it that way … sometimes because they want to understand so they can do it really well. Some of these “smart guys” actually want to help the company get better. Can you imagine?
Not scouting the territory
If Custer had known that a million angry Native Americans were awaiting his arrival, he might have changed his plans. Certainly this applies to any geographical expansion, but it really is prudent whenever you are planning any sort of growth initiative. Take time to do your homework. We are always astounded when companies expand into geographies that senior managers have only seen from 30,000 feet. When the decision is made solely from market research and no boots on the ground, looking at competition, talking to prospective customers and understanding the customs of the market, the risks are a lot higher.
Perpetuating bad pricing
If you introduce bad pricing into new markets, keep in mind that you will have to operate a business in the market you just trashed. Even dogs are smart enough not to sleep in their mess.
Wholesaling is not for wimps!
With all these potential mistakes, you might feel like staying in bed with the covers over your head. We are not recommending that in any way, just that as you build your plan for growing, you try to avoid some of these common pitfalls. Growth without control or planning can be a lot like a runaway train. Just avoiding a couple will put you in a better position than a lot of your competitors.