By Louis LeBrun
For the past four decades, our industry's network of independent sales representatives, or "reps," has served as the crucial link between technology and equipment providers and the engineering/end-client community. Though perspectives vary, many engineers have come to view reps as an unnecessary holdover from days past. This concept is shared by some manufacturers who see the rep model not only as outdated but also as generating excessive sales cost. If current demographic, economic and industry trends persist, it's fair to say that most rep firms as we know them today won't exist within a decade.
As we emerge from an extraordinarily difficult decade of industry consolidation and economic challenges, many view the passing of reps as akin to the extinction of dinosaurs whose time has come. However, a closer examination may show this to be a shortsighted view, since manufacturer reps can still play a vital role in the continuing evolution of our industry.
So, how did the water and wastewater industry arrive at using a group of independent, commission-based, third-party salespeople to sell some of the most technically complex and capital-intensive solutions for socially and environmentally critical infrastructure applications to a group of the most politically and commercially challenging customers on earth?
This alarmingly complex question has a surprisingly simple answer: Until recently, independent reps were the simplest -- and least expensive -- way to sell equipment in our industry. Some might debate this answer, so let's explore a little further.
The water/wastewater/environmental industry that we know today was effectively born with the passage of the Clean Water Act (CWA) in October 1972. Interestingly and often forgotten, the CWA became law only after overwhelming bipartisan support (299-35) overturned President Nixon's initial veto of the legislation. Unthinkable in today's political climate, the entire process of creating one of the most important pieces of environmental legislation to ever exist took less than one year to complete and became law because of close universal political support.
Once passed, the CWA effectively created an entirely new industry for treatment equipment and engineering services to meet a new set of regulations. As the emerging industry grew, a handful of companies immediately faced the daunting challenge of selling to 25,000+ municipal accounts, at least as many industrial accounts, and hundreds of engineering companies scattered across all 50 states and 3.8 million square miles.
Though a seemingly a trivial problem with today's technology, managing 100,000 to 200,000 potential customers across 50 states was a monumental task in the days of the Rolodex, typewriter and snail mail. Optimistically, assuming that a good salesperson could cover a territory of one to four states, it's easy to see a technology company needing 10 to 15 salespeople to fully cover the U.S. Worse, given our industry's notorious 18- to 36-month sales cycles, these new companies would need to incur about two full years of sales costs before any real revenues started rolling in.
You don't have to know much about accounting to realize that this wasn't a business model that was going to work -- at least not for very long. In order to survive, these new environmental companies needed to find a way to take the majority of salaries off the payroll without reducing the sales force… but how?
Put in perspective, the idea to establish a network of independent commission-only sales representatives was a rather brilliant idea. To help establish good reps in the most important territories, many companies gladly paid advances on future sales. Still, other companies helped staff and financially supported their most entrepreneurial salespeople as a means to help them start many of the rep firms and networks that still exist today.
New reps were encouraged and well motivated to build a broad range of complimentary products into their sales portfolio in an effort to serve as many customers as possible. Best of all, reps were highly motivated to sell, and manufacturers were left with cash to finance product development and growth. If there was ever a true synergistic win-win, this had to be it.
Over the next 20+ years, a series of increasingly stringent regulations focused on further reducing pollution and improving the environment. This fueled a stream of new technologies and engineered solutions to meet the growing need. By the mid- to late-1990s, the industry's steady growth sparked a series of consolidation as firms clamored to expand their offerings and become more competitive, which later carried over into the engineering community.
Over that same period, competition, consolidation and corporate restructuring put significant pressure on operating margins across the industry. Interestingly, demographics and other industry changes made the need for rep support at the end-client level greater than ever.
Rationalizing the past 10 years of change and navigating the decade ahead are the greatest challenges facing our industry. The most important financial problems reps help our industry solve are even more prevalent today than they were 20, 30 or even 40 years ago. Our sales cycles are only getting longer, our margins thinner and our business risk higher.
While the Internet and social media tools can easily manage communications with millions of potential clients, few in our industry would argue the need for contacts and credibility. Managing accounts, engaging clients and winning highly technical sales remains an issue of contact and credibility. Selling in our industry fundamentally remains a person-to-person effort.
Without reps, small- to medium-sized technology companies stand little chance of advancing new technologies into the environmental market. The sales cycles are simply too long and the sales costs too high. Like it or not, we still need reps -- at least for now.
Editor's Note: Watch for the next installment of this two-part article in our April issue, where the author will present some options for revitalizing the existing rep community before it's too late.
About the Author: Louis LeBrun, P.E., is vice president of Pinnacle Ozone Solutions, LLC, Cocoa, Fla. He serves on the board of directors of the Water and Wastewater Equipment Manufacturers (WWEMA).
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