Crisis Equals Opportunity: A Proactive Perspective for Distributors Facing an Economic Downturn

By Mark Roberts

John F Kennedy once said, “When written in Chinese, the word ‘crisis’ is composed of two characters. One represents danger, and the other represents opportunity.” This ability to process and plan for two opposite results still rings true, while enduring today’s rocky economic climate. Likewise, Thomas P Gale, CEO of MDM, in his latest piece, Don’t Let Turbulence Go to Waste, agrees.

Too many businesses, sales teams, and c-suite executives use volatility or the threat of a market downturn to justify poor performance. Moreover, market predictions are not guaranteed, so while I agree that watchfulness is prudent, there’s no reason why distributors shouldn’t both plan for growth and the worst-case scenario. I’d argue that both types of plans share a few similar elements.

Experts agree with my inclination citing a study by BCG Henderson Institute, who surveyed all US public companies with annual sales greater than 50 million over the last five downturns. 14% of companies were able to not only accelerate growth but increase profitability. BCG also notes competitive volatility rose by 30% (averaging three percentage points of margin growth before EBIT), suggesting an opportunity for those who make the right moves. Encouragingly, during downturns, the rate at which businesses enter or leave the Fortune 100 rises by 50%, reflecting an opportunity to use the recession to your competitive advantage. Additionally, investment opportunities, including mergers and acquisitions, generally become cheaper. And some forward-thinking companies use the opportunity to unleash significant internal change. 

Additional Threats and Disruption

Along with the threat of a downturn, other factors are disrupting business to the extent that companies are wondering if this turmoil is genuinely, the new normal. These factors include:

●      Complexity- Distributors, in particular, operate in environments of increasing complexity. Thousands of SKUs to track, dozens of product lines, multiple locations, and teams of sales reps. Pricing complexity has become its own beast. Consider the business with 10,000 items, five markets, and 1,000 customers. The number of possible price combinations is 50 million! While it is unlikely that 50 million prices will actually be required, it points to the problem of complexity that exists in the wholesale distributor ecosystem.

●      Amazon- One of my colleagues, Mark McGready, discusses Amazon’s effect on distribution as “a disruptor for small, medium-sized distribution, rather than a threat. Amazon sells everything and is the answer to ‘I need to get this NOW.’ Businesses order from Amazon if they can’t get the item(s) locally. Amazon is the #1 source for unforeseen items. However, their same-day capabilities are quite limited. Consider them a threat to your high profit, low-cost items. Unfortunately, Amazons turn distributors into 7-11s.”

●      Sales- B2B sales have changed drastically over the last two decades because of the internet. With the information easily found, buyers no longer need to rely on sales reps as their primary source of product information. Buyers conduct their own research, meaning when they finally do engage with a salesperson, they are more educated, requiring the sales rep to use a new set of skills to engage and close. Research confirms that 54% of B2B buyers begin the buying process with their own informal research. And buyers are 66% to 90% through their buying journey before they reach out to a vendor.

●      Buyers- In addition to self-serving themselves to your company’s online information, buyers are investing in upskilling their proficiencies in areas such as negotiation. The sales funnel has been turned on its ear, and now it’s all about the buyer’s journey. The problem is, sales teams are still lagging behind. Sales teams must become trusted advisors and buyer centric if they wish to survive.

Preparing, Overcoming and Thriving

Now, let’s circle back to the 14% of companies who transform volatility into opportunity. 

How do they do it? 

What’s their secret? 

The companies that weather downturns successfully tended to respond differently on a few key dimensions:

●      They acted proactively, rather than reactively- While it’s tempting to hunker down until the storm is over. Beyond defensive actions such as cost-cutting, companies should move preemptively when making the changes that will enable them to survive. The previously cited research shows that the most crucial observable success factor in transformation is how early the program was started. Leaders must recognize threats early and instill a sense-of-urgency within their organizations to ensure the necessary activities are started before financial or competitive harm can occur. For instance, it is widely accepted that pricing is the lever that most affects bottom-line growth for distributors. In a downturn, to protect growth, distributors often embrace discounts and other haphazard price-cutting efforts to preserve revenue. These scattershot methods often cause more harm (to margin) than good. Distributors who have leveraged formal, on-going, expert-led price optimization efforts, have seen growth regardless of market turmoil. 

●      They used technological change and disruption to transform your market- Distributors are learning to embrace the benefits of digital transformation. Many are reshaping the way that they do business using analytics and reporting to support and target the sales organizations. One useful type of analytical reporting, the Whale Curve Report, is an excellent way to rank your clients by net profitability. Once this ranking is achieved, strategies can be developed to mitigate profit leakers, and highly profitable clients can be profiled. These profiles can be used to target prospecting efforts, so sales efforts are spent on high-probability-to-close opportunities. Distributors will need to use analytics to pursue their long-term agenda to keep up with the pace of technology.  

●      They accessed and upskilled your sales organization- We’ve previously discussed the metamorphosis of the B2B sales engagement and how sophisticated buyers frequently outmaneuver sales reps. The average company spends $10,000 to $15,000, hiring an individual and only $2,000 a year in sales training. Because of technology adoption, savvy sales managers now measure each micro-step in the sales process and use the resulting data to identify which salespeople aren’t performing a particular task well. They can also spot the sales reps that are best at that task and use them to provide peer coaching to weaker performers. Many sales leaders find using external sales expertise to assist with assessment and filling skills gaps an effective use of budget. I’ve seen the research that suggests 40% of salespeople who don’t receive formal training fail in their first 18 months. Additionally, organizations should explore different types of sales training, such as negotiation training or communication skills. Forward-thinking distributors are understanding their sales teams are on a generational/knowledge gap cliff, and the boomer/millennial hand-off will require a good deal of training, coaching, and support. 

The next economic downturn will challenge many distributors, but a few will emerge stronger, competitively, and financially. Leaders who leverage lessons learned from the winners in previous recessions, as well as leveraging the unique features of today’s environment, will be in the best position to succeed and grow.

What changes and shifts have your distributors experienced in the last 24 months?

As a distributor, do you have the right data to make strategic growth decisions?

Do your salespeople have the skills and mindset to grow sales profitably today and into the future?

What new skills will distribution salespeople need to be successful in the future?