By Louis LeBrun, PE
In Part 1 of this article, we discussed the origins and benefits of manufacturers' representative (rep) firms. We also discussed how a combination of external forces such as a decade-long recession, industry maturation, consolidation, technology changes, and an aging workforce are pushing many of these rep firms ever closer to extinction. Even so, for many small to medium-sized technology providers, reps remain both an economical workforce multiplier and a crucial link to the market and customers.
Our challenge, then, is to move beyond criticizing reps for all they are not to helping save the best remaining firms and make them what we need them to be. With this in mind, below is a short list of thoughts and potential strategies to begin discussing what's next for reps and our industry.
Succession Planning
Barring any other changes, existing rep firms need to develop concrete succession plans for how their businesses will continue; at least a few of the larger firms already have such plans in place. While no plan can ever provide 100-percent certainty, the planning process at least shows that a firm is looking to what the future might hold and how best to adapt.
As principal companies, we should each review our current rep force with an eye to the future. Firms that cannot -- or will not -- develop succession plans should be given lengthy "sunset" windows to make the need for such planning abundantly clear: Either plan within your existing firm, or we will plan with another one. While such conversations may be painful in the short run, better planning for the long-term is essential to the success of our industry. There are no real challenges to this option aside from the time and effort needed to make it happen.
Regional Consolidation
A trend toward regional consolidation of rep firms is already underway in some areas of the country. Retirements and acquisitions of older firms have allowed manufacturers to seek and find better options. In at least two cases, some younger rep firms have combined forces regionally to broaden both the depth of their line card and their geographic reach. Managed properly by both the reps and principals, this can have a very synergistic effect across a broad territory.
As principals, we should look for opportunities to encourage and facilitate cooperation, partnerships and consolidations across territories, as they potentially benefit all parties.
Super Reps
At various times, consolidation in our industry has resulted in "Super Reps" having either massive territories, huge line sheets or both. Today, the idea of consolidating representation into a series of national-scale Super Reps has increasing merit.
Analogous to other consolidation trends in our industry, Super Reps could be easier to manage from a technology provider standpoint. They would have the national coverage needed to influence "center of excellence" offices within a similarly consolidating engineering community, while also providing continuity down to the regional office and end-client level. This is the coverage that every manufacturer wants but that most can't afford to have in-house.
The biggest challenges to the Super Rep model are business and line-card rivalries within the existing rep community. Manufacturers might help resolve both issues by forcing cooperation across larger territories and/or facilitating consolidation where it might be beneficial. Regardless of other factors, this type of cooperation across the U.S. is going to be necessary in the long term. Some fairly tough decisions will need to be made, but as business leaders on both sides of the table, we must address these issues proactively to gain the greatest benefit for all parties.
Manufacturer Cooperation
In many ways analogous to Super Reps, small groups of manufacturers with complimentary, or at least non-competing, technologies might begin to form alliances. Such efforts could better position firms with each other and within the rep community as a whole. In such an arrangement, several manufacturers might determine that having common reps provides them the best overall competitive position.
Here, the rationalization of "reps" and "territories" is left almost entirely to the manufacturers via some executive decision across the companies. This might also serve as a first step toward forcing cooperation or consolidation in a longer-term Super Rep model. Many such informal arrangements already exist; however, formalizing them could benefit all parties though greater voice and focus.
Frankly, the biggest challenge to this model is securing management buy-in and consistently keeping corporate egos and expectations in check. Fortunately, the Water and Wastewater Equipment Manufacturers Association (WWEMA) and other industry associations are serving as a forum where such cooperation might begin to take shape.
Staffing Support
Much like in the early days of the industry, manufacturers might consider plans to help facilitate moving existing corporate staff into the rep force. In the simplest example, talented employees without a clear path for upward advancement could be encouraged to move into a rep role. As an incentive, manufacturers could provide partial salary and benefits for a trial period to help make a move more manageable for everyone involved. Under such an arrangement, rep firms would benefit from having access to qualified new staff at reduced cost, employees would have a path for upward mobility at lower risk, and manufacturers would help support their rep force at minimal cost.
While certainly not without its challenges, some aspects of this model have worked in the past and could probably succeed today. There seems to be little standing in the way of advancing staffing programs other than manufacturer support. Here, the biggest challenge is framing such a program as a real opportunity to employees with the entrepreneurial drive and spirit to embrace them.
Financial Support
As another throwback to the early days of our industry, manufacturers might provide some type of financial support to seed sales activities and growth with selected reps. Such support might come in the form of a short-term retainer or stipend with an associated reduction in commission rate on future sales. Other forms might include extending eligibility to corporate benefit programs (such as insurance, 401k, travel discounts, etc.) to the rep network. The latter example would help reduce operating cost to the rep with little direct cost to manufacturer.
Naturally, the carrot of any such financial support needs to come with an associated stick. To make financial support work, rep firms would need to agree to very specific performance targets to demonstrate commitment. Financial support would represent some buy-in from the manufacturer and could provide them with greater influence on the part of the rep firm. Such arrangements were common in the past and could be important going forward. The two biggest challenges to this model are corporate buy-in and potential legal hurdles, both of which could be difficult to overcome in today's business environment.
Some or All of the Above
The most obvious extension to the discussion presented here is a combination of "some of the above." For example, a group of complementary manufacturers might work together to establish a new Super Rep for a large territory. In doing so, they might pool resources to both seed and pay for several employee salaries in a new firm. The new rep firm would provide national representation for all of the sponsoring manufacturers and would have some very specific sales targets and a fixed commission structure. Under such an arrangement, each manufacturer receives national sales coverage at a fraction of the cost and complexity needed to do so alone. Further, the firm would have clear focus on achieving its goals with reduced financial risks over the short term.
For the past 40 years, our industry's network of commissioned independent reps has provided an incredibly clever and cost-effective way for technology companies to take products to market. Despite immense pressure from consolidation, economics and demographics, reps can still play a vital role in connecting manufacturers to the marketplace.
The list above is incomplete. It is, however, a departure point for further debate and discussion. With any luck, an even better set of options and potential solutions will emerge. The critical thing for us to consider -- while there is still time to take action -- is what the loss of reps could mean for our individual companies and for our industry. Rather than stand by to witness their extinction, we should embrace this as a critical opportunity to help rep firms continue to be a part of the evolution of our industry. The ball is in our court… at least for a little while longer.
About the Author: Louis LeBrun is vice president of Pinnacle Ozone Solutions and is a member of the WWEMA board of directors.
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