Commando Consulting, April 2011

Does The Use Of Sales Commissions Fit Into Selling Consulting Services?

By Tom "Bald Dog" Varjan, Organisational Provocateur

Podcast: MP3 Version

The story started in 1983, when Vanessa Williams became the first African-American Miss America. Ten months after her crowning, she received an anonymous phone call, blackmailing her with some nude photos of her, which Tom Chiapel shot in 1982, when she worked as an assistant and makeup artist for Mount Kisco, New York.

Chiapel first tried to flog the photos to Playboy, but Hugh Hefner turned his offer down on ethical grounds. He explained to People Weekly that...

"Vanessa Williams is a beautiful woman. There was never any question of our interest in the photos. But they clearly weren't authorized and because they would be the source of considerable embarrassment to her, we decided not to publish them. We were also mindful that she was the first black Miss America."

Hugh made this decision in spite of knowing that publishing the photos would bring his magazine an obscene amount of money.

But the sleazeball photographer didn't take no for an answer, and kept looking for a buyer.

He found one in Bob Guccione, the publisher of Penthouse. As a true sleazeball himself, not being concerned with ethics or ruining a young woman's life, he announced that Penthouse would publish the photos in their September 1984 issue, and paid Chiapel for the rights to the photos without Williams' consent.

So, Guccione landed a nice $14 million windfall.

When the photos hit the news stand, sponsors threatened to pull out of the upcoming 1985 pageant. Then officials bullied Williams out of subsequent Pageants and gave the title to the first-runner up, another African-American, Suzette Charles.

Later Williams filed a $500 million lawsuit against Chiapel and Guccione but eventually dropped the suit to avoid further legal battles choosing to move on with her life. Later Williams was quoted as saying...

"The best revenge is success".

And she was right.

Today, Vanessa Williams is a highly respected and successful singer, actress and sought-after Broadway performer.

Playboy is still the leader in the "printed male entertainment" category, and Penthouse is highly unlikely to ever catch up.

So, in spite of the quick windfall of $14 million for Penthouse, Playboy is still more profitable. Hugh's initial rejection of the quick buck has paid off handsomely.

And what of Tom Chiapel? Well, a dirt bag is a dirt bag is a dirt bag, isn't it?

And I mentioned this story because over the years I have seen many times that otherwise reputable consulting firms are gradually destroying their brands and reputation by being obsessed with the quick buck.

And one sign of this obsession is that they hire commission-based salespeople.

Many consultants at many consulting firms have a negative stigma attached to the word "marketing" and "selling", so their "holier-than-thou" type self-delusion holds them back from engaging in anything that is non-billable activity.

"We are consultants, not sales grunts."

...they proclaim.

So, firm leaders come to the conclusion that they'd better hire some business development people to bring in some business. They also decide that to keep costs down, these business development people will be either on straight commission or on small flat salaries plus commission.

And here lies the first problem. So many consultants hold themselves at high-esteem, but if it were up to them they would die of starvation, for they are unable to land business for themselves.

They can pontificate all day how good they are in their methodologies, but if they can't sell those methodologies, then the whole exercise is pointless. Rather sooner than later they die of starvation because they can't get clients, thus can't get paid.

Let's face it, people who can "merely" deliver certain methodologies are widely available at competitive rates. For instance, many people can facilitate True Colours assessments, but only a very few of them know how to integrate the personality differences into the daily operation of managing partners or executive teams.

No, I'm not trivialising subject matter expertise, but without client acquisition skills, even if you're a kick-arse subject matter expert, you have to rely on others to bring in clients, and I'm dead sure that for that client acquisition expertise, they will take most of the money.

Look at most consulting firms, and what do you see? The partners are not the best subject matter experts but the best client acquisition experts.

Just listen to their interactions with buyers. They are obsessed with taking about their methodologies. Instead of using boardroom English, they use subject matter English.

IT consultants talk about firewalls; architects talk about brick walls; doctors talk about stomach walls.

They talk a kind of English that is totally alien to boardroom calibre people.

So, the trend seems to be to dump responsibility for the firm's financial success on commissioned salespeople who have just been hired off the streets or other unrelated jobs and are paid for short-term individual performance.

So, Why Do Firms Make This Separation?

Hell knows.

They all brag about helping their clients to create long-term success but it seems they most of all help themselves to reach as deep into their clients' wallets as possible and grab as much money as they can.

But the world of consulting has reached a point when the bullshit can no longer be swept under the carpet: Is McKinsey & Co. the Root of All Evil?

The idea behind the separation of business developers and consultants is that firms can get away with paying business development folks as little as possible, so the more money remains for the consultants.

The problem is that this approach requires money as the most important incentive for business development folks. And as we know, who are the people who regard money as their number 1 motivator?

Exactly. People at the bottom of the competency ladder.

Just look at unionised tradespeople who measure their success based on their hourly wages. If they were any good at what they do, they would make a very good living in the free market economy without the need of belonging to any union. They wouldn't need to join unions to bully society in order to can get privileged treatment and disproportionally high wages relative to their pittance of value contribution.

They work, first and foremost, for money.

Now let's think of Maslow's hierarchy pyramid...

Can you imagine that highly talented people, like Linus Torvalds (the creator of Linux) or Seth Godin do what they do for the money?

I find it hard to imagine. Yet, I dare to bet my bottom dollars that they both get paid very very well for their expertise.

And you know what?

Unlike the so-called gurus who love bragging about how many Ferraris they own and how many swimming pools they have in their homes, I've never heard Seth Godin talk about what car he drives, how big his home is or how much money he makes.

Now look at the pyramid above. Who do you think operates at a higher level on this pyramid? The chest-beating gurus or the true experts like Seth?

I put my penny on Seth, although I've learnt a lot from the gurus too. But while the gurus are in business to make pisspots of money, Seth is in business to serve a cause and to lead a movement for ethical marketing and business practices.

And now the question is this...

When you look at the pyramid, where do you think the commissioned salespeople operate?

Yes. In the "Biological and psychological needs" and/or "safety needs" section.

And now think of highly successful consultants? Is it fair to assume that they operate in the top region of the pyramid? I reckon so.

What it means is that for the kind of truly brilliant people you may want to recruit, financial incentives are meaningless. Yes, they get paid the biggest bucks, but they don't work for the money.

Yes, Tom Peters gets paid high five figures for one single speech, but he doesn't do what he does because he gets money. Hookers do that. Well, and many celebrities.

Tom roams the land to spread his "Excellence evangelism". That's a far cry from merely earning a living.

And just in case...

You Think Maslow's Pyramid Is Bullshit

I'll include this section because I've read it on a few HR blogs that Maslow was an idiot, and contrary to his moronic idea of self-actualisation, people work, first and foremost, for money.

I agree to a degree, and I'd like to refer to union labourers. Most of them hate their jobs, hate their bosses, hate their colleagues and hate their companies, but show up for work day after day because they get paid for it.

But here we talk about people whom we can call "talents".

In a 1997, organisational psychologist, Dr. Amy Wrzesniewski of Yale University School of Management, did an extensive study, and categorised employees into three groups. This grouping includes my observations too.

Group #1: These people view work as a job. Using direct response marketing expert, Dan Kennedy's words, "off to work they go to pay the bills they owe."

There is no pride and fulfilment in the work. It's merely another chore like taking out the rubbish or mowing the lawn. It's just another necessary evil to kill time between weekends. Commitment and dedication are non-existent. These people leave their companies for the smallest wage increase.

Group #2: These people view work as a career, but the main goal is still to elbow their ways to the next promotion and the next pay increase.

They work because it gives them social status, prestige and title power. These are the people who love using their designations after their names, often just to prove they are better than the rest of us. They also make significant investments in their careers and keep advancing their skills.

But their work satisfaction still depends on promotions and other external conditions (motivation), while the internal conditions (inspiration) are usually missing. When promotion stops, they move on to the competition.

You can easily recognise these people by their mobile phones permanently plugged into their ears and stand at attention whenever the phone rings. They just don't have high enough self-esteem to stay out of reach of their work. They feel they need to be plugged in permanently or "the job doesn't get done".

Group #3: They, ironically, just like terrorists, view their work as a higher calling. They do the work for the sake of work to advance a worthy cause. These people don't have balance in their lives. They seamlessly blend life and work. No they're not workaholics. Workaholics are driven by external motivation not by internal inspiration.

These people also have happy, healthy and fulfilling personal and family lives. They pull off miracles in their work but they also attend their sons' soccer trainings and their daughters' chorus recitals.

"Being completely involved in an activity for its own sake. The ego falls away. Time flies. Every action, movement, and thought follows inevitably from the previous one, like playing jazz. Your whole being is involved, and you're using your skills to the utmost."

And Now Let's Look At The Environment

Using Douglas McGregor's (American social psychologist) categorisation, people fall into either of two major behavioural categories...

As life goes by, society starts conditioning us to look out for number 1. Thanks to the manipulative and highly oppressive schooling system, by the age of 12, kids lose 50% of their creativity.

By the time they finish their schooling (erroneously called education), most people are properly brainwashed and "broken in" to be suitably conforming and obedient members of our mentally and emotionally crippled society, just standing and staring bovinely as life passes them by.

Does this sound far-fetched? Read on.

During his lifetime Adnrew Carnegie contributed lots of money to the education system. But not to improve it but to buy his influence over the education system. And he succeeded. But he wasn't the only one to manipulate the education system.

Sometimes in the early 1900s Carnegie wrote...

"Capitalists need compliant workers...willing to work for less than the value their productivity creates - this is profit....The answer to worker unrest is to build an educational industry designed to teach workers just enough to get them to cooperate."

In 1908 publisher Henry Holt said...

"There is too much enterprise, excessive overproduction of brains is the root cause...we must emasculate man's entrepreneurial energy."

Occasional Letter Number One from the mission statement of Rockefeller's General Education Board...

"In our dreams... people yield themselves with perfect docility to our molding hands. The present education conventions fade from their minds, and unhampered by tradition we work our own goodwill upon a grateful and responsive folk. We shall not try to make these people or any of their children into philosophers or men of learning or men of science. We have not to raise up from them authors, educators, poets or men of letters. We shall not search for embryo great artist, painters, statesmen, of whom we have an ample supply. The task is simple. We will organize children and teach them in a perfect way the things their fathers and mothers are doing in an imperfect way."

And, after graduation, as the freshly brainwashed people their careers, internal inspiration is replaced with external motivation; pride and self-esteem are replaced with acceptance of external societal or business-like (I don't mean professional) expectations, screaming...

"Join us or the societal steamroller runs you over and squeezes the crap out of you."

Have you thought about why so many successful people simply abandoned their schooling in order to dedicate their lives for real education?

Now back to McGregor...

Theory X: People are inherently lazy, dishonest, dodge responsibilities, dislike work, thus they must be tightly controlled, coerced, threatened and punished. People have little ambition, want unconditional work security and prefer to be directed, for they don't like thinking for themselves.

Theory Y: People inherently like challenge and responsibility. They are innovative and proud of their achievements. They can practise self-direction and self-control. They are willing to learn new skills, are creative and capable of thinking for themselves.

They don't need the typical boss to tell them how to do their work. Let's assume just for a moment, which is a frighteningly accurate assumption, that the typical boss is some incompetent nincompoop who is good at playing the corporate "kiss up and kick down" game. Of course, there are a few exceptions.

So, what happens at many consulting firms is that consultants are treated as "Y" people, whereas business development people are treated as "X" people.

I have recently completed a business development project for an IT firm, where one of the consultants openly admitted his resentment for marketing, for - in his opinion - it was all about lying, cheating and deceiving people, tricking them into buying what they don't want or need. Interestingly the consultant's mantra at the same firm was: "Stretch billable time whatever it takes." And the consultants thought that was perfectly ethical. But for them marketing was sleazy. Interesting.

So, Do Sales Commissions Create A Conflict Of Interest Between Buyers And Sellers

I reckon they do.

When you pay people commissions, you pay them for short-term individual performance. They lose their objectivity, a vital trait for consultants, and focus on making the sale no matter what.

Also, in a firm where consultants are paid salaries but business development people are paid commissions, they actually work against each other.

Consultants can relax and do their normal work, whereas the commission-based business development people are feverishly running around trying to land new business in order to put food on the table.

When I ask the audience at my presentations and workshops to describe salespeople, the message is always the same: "Do whatever it takes to make the sale."

Why do you think car salespeople and realtors have the lowest trust and respect of all sales professionals? Those industries are heavily commission-driven, and salespeople do anything - even at the expense of the colleagues - to get their money.

Some problems with paying commissions to business development people...

The firm's brand, integrity and reputation get undermined by forcing business development people into convenient expediency, and rationalising their opportunistic approaches to reach out to the quick buck. They will focus on the low-hanging fruit, even if taking them can ruin long-term opportunities.

Business development people do their work in such a way that is beneficial to them, but can be detrimental to their firms' long-term success. However, by the time the shit hits the fan, all the business development folks are gone, leaving the others to suffer from the consequences. When we consider the very high turnover rate of business development people, we can understand how little they truly care about their firms.

And why should they care? Do their firms care about them? Most often not.

And this is not because they are bad people. This is just a response to the initial dumb behaviour of their firms that treat them like fungible peddlers. Their firms started the process by sending them the wrong message. Do you remember the scene in the movie Ben Hur, when Quintus Arrius, the new consul goes down to the belly of the galley and makes an announcement to the slaves.

Interestingly, many consulting firms have this type of working environment for the business development people. Just the daily mind-numbing drudgery of rowing until retirement or death.

This is exactly the announcement many consulting firms send to their business development people.

"We tolerate you so long as you can make money for us, but don't expect us to treat you as a respectable professional. After all, you're just a fungible salesperson."

Business development people are forced to focus on short-term money-grabbing. Although this is congruent with most firms' focus.

And this leads me to a conclusion: Tell me about compensation methods at your firm, and I can tell your firm's values and vision pretty accurately. Money is a strong predictor in consulting firms. Your pricing strategy and compensation speak loud and clear as to whether your firm is a replaceable vendor or a respected industrial authority.

Commissioned business development folks can create immediate extra revenue for their firms, but neglect to deepen relationships with clients, thus ruining the chance of return business, thus undermining the firm's reputation. Sooner or later the firm will be regarded as a vulture, preying on clients by "twisting their arms" until they agree to pay.

"Look, our service is crap, but if you can find some fools and screw them out of their money, we will pay you for it."

If consulting firms' leaders don't believe in their own services, then they should get steady 9 to 5 jobs.

Business development people can find new leads and prospects, but more often than not it is the consultants who blow the deals, due to their sales-allergic mentality and lack of sales skills. But when the deal is blown, business development people suffer the consequences in the form of lost commission, while consultants enjoy their fix salaries regardless of their mistakes. They may lose a bit on profit sharing but nothing serious.

The commission structure also destroys morale within the firm by setting up a nazi-type system: The consultants (the superior race) at one end of the battlefield, and the commission-based people (the inferior race) at the other end. And they are in constant battle with each other.

Commission-based people focus on making the sale, even if they have to drastically reduce fees. They still get some commission, which may just be enough to pay the mortgage or the VISA balance. At the same time, consultants get frustrated for they work for lower than normal fees. That can easily create resentment for projects and even worse, resentment for clients.

And this lead to the problem that so many consulting firms don't have the emotional fortitude to fire inappropriate clients. After all, they say, any money is good money.

Your firm can have only 100% of its talents, resources and energies. You can direct them either outwards - quality service, marketing, client care, etc., or you can waste them internally in the forms of interoffice conflicts, multiple agendas, duplicity, "dilbertism", lying, cheating and stealing.

Summary

Now think about what we've discussed in the light of the fact that what consulting firms essentially sell is air. Therefore there must be a pretty high level of trust between buyers and sellers.

Do you think you can achieve this trust level through commissioned salespeople who operate like bomber pilots: They drop their sales pitches on their buyers and then move on to the next targets. I don't think this approach creates trust.

If a firm's culture is so "dilbertian" that firm leaders have to manipulate their people with conditional payment (which is the business equivalent of parents' manipulating their children with conditional love or conditional dinner), that firm, is really in deep shit.

As the saying goes "Fish rots from the head", and this is exactly what is happening to many firms. Leaders fail to create conducive cultures which excite, enthuse and empower their people to do their best every single moment.

Referring back to Theories X and Y, I personally believe most people are hard-working and conscientious by nature, and it's their firms' cultures - as set up by their leaders - that define what sort of people firms attract or repel.

There is one point here. Some experts say that past performance pretty accurately predicts future performance.

I don't think so because performance depends on several factors, including the person whose performance we assess.

Performance created when behaviours interact with processes.

Even though the behaviour is fairly constant for a given person, the process keeps changing either partially or wholly.

That's why a business development person can be a star in one culture but a disaster in another.

So, I would say, past behaviour pretty accurately predicts future behaviour. But even that's not 100% accurate.

And firm-wide behaviour comes down the firm's leader. It's like the concept of colony odour among ants.

Ants are covered with a layer of long-chain fatty acids called hydrocarbons. It is used to distinguish between nest mates from ants of other nests.

But besides the colony odour, many species of ants also have role odours, depending on their roles in the nest. Foragers have different odours from nursery workers. And this difference determines the communication among them.

Consulting firms have similar colony odours. One ingredient of this odour is the firm's overall culture, the other is the person's place in the firm's hierarchy.

And business development people, who are at the bottom of their firms' hierarchies, just can't behave the same way as the almighty "holier than thou" partners and senior consultants.

It reminds me of a scene from the British sitcom "Chef!", when the egomaniac Chef explains to Everton how low he is in the kitchen hierarchy, a few levels lower than rats and cockroaches.

So, they act out their hierarchical positions with outstanding dexterity. And due to their compensation structure, most of them act a tad too hungry for business. And when buyers sense this hunger, they run and hide.

As the saying goes, like attracts like. So, if a consulting firm has some undesirable people, then firm leaders should look at themselves. They'd attracted them in the first place, then hired them and still keeping them. There is nothing wrong with them. That is the type of people the firm's culture had asked for.

Anyway, you can't manage people. You can, however, create a great ecosystem in which people thrive without being managed.

Correction, you can manage highly schooled people.

As German Lutheran pastor and theologian, Dietrich Bonhoeffer wrote in his studies on Nazism...

"Schooled people are easier to lead and manipulate than non-schooled (but educated) people."

Anyway, you can't manage people. You can, however, create a great environment in which they thrive and do their best and beyond without being managed.

When managers have to walk around and prod people to perform better, that is not a consulting firm but a concentration camp. There may not be barbed wire, armed guards and gas chambers to terminate underperformers, but the atmosphere just as sinister.

Using Tom Peters' words...

"Leadership is the process of engaging people in creating a legacy of excellence."

And when the creation of this legacy of excellence is replaced by coercing, threatening and punishing people to make more sales, whatever it takes, that is the moment when firm leaders should hang themselves on the nearest cherry tree or lamppost for they failed their missions.

Business development dudes/dudettes are part of consulting teams and must be compensated in the same way as the so-called professionals. This is a very basic requirement of helping people to work towards the same vision.

Otherwise there will be a conflict of interest. Consultants want to build long-term, lasting relationships, but the business development folks focus on quick money-grabbing. And clients can sense that.

While I believe in having a business development co-ordinator on board, I also believe every single person on the payroll must contribute to business development. The premium consulting firm is the only form of business in which - ideally - the same person pitches and performs the work.

Unfortunately, following the examples of some accounting behemoths - some 95% of consulting firms do just that. Instead of consulting, they peddle shrink-wrapped, off-the shelf solutions. How sad.

In 1993 Alfie Kohn wrote in the Harvard Business Review (Nov/Dec 1993)...

"Pay your people well and fairly, and do your best to help them to forget about money."

Almost 20 years later, it's time to pay attention.

What do you think?

Come and let's discuss this newsletter issue on my blog...

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