I made that up, Sinking Stock Syndrome, from some interactions I have had recently with a couple of small business owners.  Both owners suffered from this syndrome which had disastrously negative effects on their company, both in revenue and morale.

Here is how I define my newly-minted syndrome – an irrational hope that a grossly underperforming salesperson will miraculously turn things around and become a sales superstar.

It rarely happens.

The problem stems from the business owner who has invested in this failing salesperson.  Notice I used “business owners” – I do believe this syndrome is more prevalent among this group as they are closely tied to the business (i.e. financially, emotionally, historically).  They usually have a relatively accurate count of the resources invested in this salesperson.

The sinking stock analogy will be understandable to anyone who buys and sells stock.  When you purchase a stock, you expect (hope) it increases in value.  When it goes the other way, you encounter a sinking feeling as you have now lost money.  It is at this point that you need to make cold, objective decisions about the stock.  Is it going to rebound in an acceptable time frame or did you make a bad investment?

The temptation is to hang on to the stock with the expectation it will turnaround and at least get back to the buy price you paid so you can break even.  While you wait, the stock drops further and you have now lost more money.

Hope keeps you from dumping the stock.  The desire to earn back what you have lost keeps you from making the tough decision to sell.

Business owners can get caught in this same trap.  They know a salesperson is not performing and that they are losing money by continuing to keep them in the role.  Other employees see that this salesperson is not closing deals and they start to become upset.  This salesperson stays on the payroll even though it is clear that he/she cannot do the job.  At some point, the tough decision has to be made.  It can be to put together a get-well plan for the salesperson.  However, most times it is to part ways…or should I say cut your losses?

It is difficult, almost an admission of failure that hits the owner directly.  But it has to be done.

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No, I’m not talking about Star Trek but rather a common drive amongst leaders that can get them in trouble.  I’ve seen this drive recently in a couple of different business-owning customers.  My definition of it is a fast-acting, emotionally-driven decision.

I think there is some value to it especially in the early, entrepreneurial stages of a company.  Start-ups certainly need to be nimble to compete against larger, established competitors with deeper pockets.  However, the impulse drive can outlive its value if the owner/founder overuses it as his/her company grows larger.

One example is an owner who developed an idea for a new service offering and went full out to establish it.  He paid lawyers to help formulate the legal side of the offering, operations people to put it into practice and advertising people to promote it.  Unfortunately, he pursued these expensive resources before getting any market feedback or sales feedback on the viability of the offering.  Once he reached out for that information, he received data that didn’t support his impulsive decision.

He rejected the feedback and pressed on anyway.  He felt this offering would be wildly successful.

It wasn’t.  In fact, he sold zero.  It has now disappeared from his service offerings.

That is a painful lesson in costs, time, effort, etc.  The impulse drive has to be tempered has companies mature and grow.  Owners have to cede some control to the people they have hired to take the company to the next level.  Resist the impulsive decisions that masquerade as entrepreneurial initiatives.

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Warning – psychology babble coming your way from Fast Company.  I encounter this effect often with clients:

That judgment is what’s called, in psychology, the Fundamental Attribution Error. Meaning that we tend to attribute people’s behavior to their core character rather than to their situation. So when somebody cuts you off in traffic, you think, “What a jerk!” You don’t think, “I wonder situation he’s in that’s causing him to drive so crazy.” Even though in those times when YOU have driven crazily, it was almost certainly because of the situation you were in—you were late for a job interview or a date.

May I make a suggestion?  The use of assessments introduces objective measurement into the situation which helps to limit fundamental attribution error.  Limiting subjectivity generally leads to better hiring especially with salespeople.

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If you are not familiar with poker parlance, a tell is a subtle but detectable change in a player’s appearance, movement or expression.  In essence, it is a clue as to the strength of the cards they are holding.  Poker players are masters of reading body language and movement for these signs.  I find this information fascinating in the context of hiring.  When is a candidate lying?  What signs can you read to know when they are stretching the truth?

I’ve seen a new tell that I think has legs – marketing approaches of decision makers.  Here is where this thought developed; the top executive at one of our customers is dabbling in the marketing plan for his company and has reworked the marketing message.

This executive is…well, cheap.  His revenue is down and he wants to role out new services.  This company is woefully inept on the marketing side so they have no market data or feedback.  In essence, they are marketing in a vacuum.  So this executive designs his new offering based solely on price.  No understanding of the price point in the market, no understanding of their differentiating value, no understanding of the market demand – a total shot in the dark.

Unfortunately, this is the second time he has made a move like this in the past 6 months.  The first one was an absolute failure – it literally generated no revenue.  Now he is back with a lower offering.  I’m afraid the results will be the same.

The tell here is that he is cheap so his automatic assumption is that the market is price-driven (i.e. cheap).  I’m no expert in that market, but price has not garnered any success recently, if ever.  However, you cannot contribute to this executive.  He is convinced it is a pricing issue.

My thought is that a person’s first move in an unverified/undefined/unknown market is to assuage their own style hence the “tell.”  Watch their decision making and see where they move first.  This approach will reveal their hidden weaknesses.

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I had this thought when talking to a customer – he has an employee to whom he pays a set wage (hourly pay, but same number of hours every pay period).  Week in and week out, there is no discernable, tangible output of work from this employee.  Does this fact make this employee’s pay infinite per hour?

Just a thought.

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Remember back a few years ago when Radio Shack fired employees via email?  Well, here comes another tone-deaf approach by retail management.  I think the title of the Inc.com article explains it well – PetSmart Fires Employee Who Brought Dog to Work.

Here it is:

Eric Favetta, a 31-year-old PetSmart employee, was fired for "theft of services" after bringing his dog to work during an overnight shift he’d picked up as a favor to his manager, according to the Newark Star-Ledger.

…

Favetta – a former military dog handler who’d worked at PetSmart for 18 months – didn’t want his 3-year-old Belgian Malinois, Gizmo, to be home alone all day and night. So he put Gizmo in the Secaucus, New Jersey store’s doggie day care facility. The store was empty, and Favetta checked in on his pet every 15 minutes.

Two weeks later, store and district managers requested a written report of his overnight shift. He complied – and promptly was fired for "theft of service."

“I was shocked,” Favetta told the Star Ledger. “It makes me sick that because I brought my dog to work with me when the store was closed to do the company a favor, I was called a thief and terminated.” "Theft of service" was just a convenient excuse to axe him because he didn’t get along with his manager, he argues, noting that he opened the store and handled money without incident.

Astounding.  In all fairness to PetSmart, they did change course and offer Mr. Favetta his job back and a transfer to another store.  I am still amazed that the corporate people did not see the irony and idiocy of this situation.

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I have had the opportunity to work for many different sales managers over my career.  I’ve seen many styles, but I think this article in SalesHQ.com hits upon the most dangerous style:

The Good Buddy is everyone’s friend. Managing is a popularity contest that he intends to win. He’ll be a great drinking buddy, a top notch shoulder to cry on, a guy you can trust to cover for you. He’ll make sure the office atmosphere is loose, that everyone feels welcome, that the office is a fun place to be.

Discipline? Well, that’s not something you’ll find in his office. An insistence on hitting quota? Something else that isn’t a priority. Coaching? Nope. Lots of back slapping and high fiving, but no coaching. Decisions? Don’t expect The Good Buddy to make the hard decisions because he might hurt someone’s feelings.

The Good Buddy is weak and lets his team members run the office. Ultimately, most everyone in his office ends up unhappy.

The reason this style is so dangerous is that the first order of sales management is holding salespeople accountable.  Accountable to their forecasts, their activities, their communication, their sales, etc.  It is the ultimate coaching position that requires the leader to have earned the respect of his or her team.

The Good Buddy I worked for used to hold court in his office for most of the day.  It was always stories, jokes, happy hour plans, etc.  Lunches were 2 hour investments.  Sales discussions were minimal.  Strategy discussions were non-existent.  We were simply expected to do our job, make our numbers and don’t bother him.  It was completely dysfunctional and ineffective.

The sales manager was eventually fired, but the damage was done to the company.  It eventually folded in the mid-1990’s.

This style is one of the reasons why objective assessments are a critical piece to any successful sales manager hiring process.

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The stresses of this economy are affecting entire sales departments from the leadership down to the trenches.  One piece I have noticed is a distinct aversion towards customer relationship management software.  Interestingly, the resistance is coming from sales managers.

What I believe I am seeing are sales managers with less than solid forecasts…and they know it.  However, one of the oldest games in sales is fudging the forecast.  Sales managers typically inflate the forecast to buy time.  They know certain deals are soft, to say the least, but they are hopeful they can cover those loses with new, undiscovered opportunities.  It is some twisted logic for sure.

I once worked for a sales manager who knew – knew – his forecast was inflated by at least 33%.  However, he also knew that if he reported the real forecast to the overseas headquarters, his department would be slashed within a month.  He figured the remoteness of the corporate headquarters would make it difficult for them to get a clear view of the veracity of his numbers.

The obfuscation approach has a tendency to buy time, but the sales manager has to pay either by not making the number or by creating doubt about their knowledge of the pipeline.  If they make the number, upper management tends to view it as luck, whether right or wrong.

One of the simple, critical steps in managing revenue in this economy is to conduct a scheduled, thorough pipeline analysis.  This analysis must include the salespeople responsible for the opportunities along with the sales manager to whom those salespeople report.  The end of the calendar year is a natural time to analyze every opportunity presently in the pipeline and those on the horizon too.

Failure to look at these opportunities under a microscope will place a certain amount of hazy ambiguity into your 2010 revenue estimates.

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It has been a hectic week of crashed computers, new blogs set up, new video integrations, business deals, etc.  Suffice to say, I have been worn out by the myriad of tasks.

In the middle of this busy week, I talked to a strong salesperson I know who has been quite successful in an industry that normally would suffer during this economy.  Unfortunately, he is starting to fade in his current position.  What I mean is that the company is grinding him down to where he is looking for another opportunity.

The main reason is disgustingly simple – he can successfully close deals in this economy, but his company struggles to deliver the product/solution.  The owner is absent from critical, time-related decisions.  The production department misses deadlines.  Installations fail due to installer error.

I met with this salesperson for coffee to discuss the situation and you could see the light fading in his eyes.  I’ve seen this scenario play out many times.  Companies want to hire strong salespeople, but they do not have the structure to support them.

The key here is to make sure you have the proper structure in place before hiring a strong hunter.  These hunters will stretch your company in new directions.  They will expect fast responses.  They will prefer to pass along the deal to a support person while they track the next deal.  These principles are simple to understand but difficult to put into action.

If you have strong salespeople today, be sure to monitor their internal company tasks.  What areas are slowing them down?  What could be done to be more efficient?  Don’t allow lethargic internal procedures to wear down the drive of a deal-closing hunter.

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This story will do down in the annals of management malfeasance.  A good friend of mine works for a small company that had an atrocious employee.  This employee couldn’t show up on time (if at all), didn’t seem to know what she was doing and created great dissent within the team.  Unfortunately, the owner made the emotional hire and didn’t want to admit his error, at least not in a timely manner.

So this employee continued her employment with my friend’s company for almost 6 mos. and the stories that surrounded her were almost unbelievable.  She missed work all together and offered these excuses:

• overslept
• reaction to medication
• robbed while she slept
• didn’t know she worked that day

You get the idea.  To top it off, money was missing from the petty cash – something that had never happened before her arrival.  A terrible hire and a worse employee.  The owner finally came to grips with the situation and terminated her employment on a Friday.

Later that same day, the former employee sent a text into one of the employees to say she was mad that the employee had posted something on Facebook regarding her termination. The employee did not know what she was talking about.  The employee had not posted anything of the sort.

The former employee would not back down via text and know that something had been posted.  It took a day to sort out the complaint, but they did discover someone had posted something about the termination on Facebook.

It was the owner.

He ended up removing the post and apologized to the former employee.  Unbelievable.

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