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In the midst of sales forecasts, product development, salesforce retention efforts and quarterly planning, there’s another matter bearing down on direct selling industry leadership these days, and its prominence on radar screens is increasing as more baby boomers sail off into retirement.
While finding and acquiring top talent, especially at the executive level, is universally challenging throughout every industry, it can be especially tricky in the direct selling industry. Direct selling companies have a tendency to steer away from “outsiders” (those with no prior industry experience), a preference which inevitably shrinks the pool of available candidates.
That “hire from within” predisposition is accompanied by the exodus of baby boomers into retirement, a shrinking population of Gen X middle managers without the leadership skills required to step up to the plate, and a sharp increase in the workforce population of Gen Ys, some of whom are starting to make their way into the management ranks.
Many direct selling companies are still operating under a flattened management structure imposed during the height of the recession. Life has gotten meaner for middle management, as they caught the windfall of additional responsibilities. That often meant inheriting larger teams and devoting more of their time to people management. At the same time, thanks to strained budgets, middle managers haven’t necessarily been receiving the commensurate leadership training required to articulate shared goals and to inspire and motivate others.
The result? A gap. And while that’s by no means unique to direct selling, other industries generally cast a wider net for hires because they’re willing to consider a broader base of candidates.
Succession Planning: Not Just a Nice-to-Have
Consider just a few of the competitive advantages associated with a carefully considered, dynamic succession plan: a deep and well-trained pipeline of available talent who know your company inside and out; a stream of people who continually analyze, question and refine your processes and procedures, making you more effective within and outside company walls; and an enhanced reputation as a great place to work, which ultimately helps send more gifted candidates your way.
In order to create a strong pipeline, companies must master the fine art of finding, attracting and hiring executives in their 30s and 40s who have the potential to fill tomorrow’s C-suites—while keeping in mind the generational differences that shape candidates’ career goals.
It’s important to note that the best succession programs target leaders at all levels. “Leadership needs today are far broader and deeper than merely developing the next CEO or even building the C-suite pipeline,” according to the 2014 Deloitte Global Human Capital Trends report. “Companies face leadership gaps at every level of the organization. These gaps can only be filled through… a systemic commitment to leadership development that identifies potential leaders earlier, brings young leaders online faster, develops senior leaders later in their careers and keeps them on the job longer, and builds new leadership pipelines at every level of the company.” That report included the findings of a survey in which only 13 percent of companies rated themselves “excellent” in providing leadership programs at all levels—new leaders, next-generation leaders and senior leaders.
Too many companies are stuck in reactive mode when a member of their leadership team retires or moves to greener pastures. The approach is “She left, so we need to find someone to replace her.” By then, unfortunately, you’re well behind the eight ball. The process of identifying, grooming and training talent who ultimately will fill leadership positions requires sustained investment. It’s a never-ending cycle that always should be in motion, filling and backfilling with strong candidates who are likely to be found at the middle-management level.
“It’s virtually impossible to successfully promote someone unless there’s a trained person to take over the position being vacated,” says M. Dana Baldwin of the Center for Simplified Strategic Planning. He suggests that, to effectively implement a succession plan, companies should consider how the concept of succession planning fits into their strategies, and whether they’re concentrating their efforts in the areas where returns will be highest. He recommends companies identify the career paths that their most talented employees should be following. Those paths shouldn’t be “one size fits all,” but rather be customized to fit their respective abilities and talents. Further, “Should you wait for openings to appear before promoting someone, or should you make opportunities for each individual as they grow and mature, so that you can keep them challenged and stimulated, and not lose them to other, possibly faster-moving companies?” he asks. “Your plan should be proactive, with people moving into different areas for experience and training before they are needed in critical positions, rather than reactive—waiting for openings to occur, then scurrying around to find an appropriate candidate at the last second.”
The Social Security Administration predicted two years ago that by 2015, more than one-third of our workforce would be retiring. The baby boomer generation of 77 million, now in their 50s and 60s, is retiring at a rate of 10,000 every single day, taking with them decades of invaluable knowledge and experience critical to their companies’ success. According to Pew Research Center’s analysis of U.S. Census data, more than 1 in 3 American workers today are millennials (adults ages 18 to 34), and, this year, they’ve surpassed Generation X to become the largest share of the American workforce.
It used to be that you would hire someone who would one day replace you, or you would attempt to hire someone who was better than you—who would make you look good. Both of those practices in theory could build a pipeline of potential leaders. And then the recession occurred. If you were hiring at all, you certainly didn’t want to bring in someone who could very well replace you before you were ready. Reduced training budgets were spread out among midlevel managers, leaving them with fewer opportunities for professional development. Perhaps even more important, those managers simply didn’t have the time to leave the office for a multiday offsite conference; they were already doing much more with much less, and their plates were overflowing. All of these insecurities, along with hiring freezes and the general reluctance of anyone who then was employed to be crazy enough to consider jumping ship, exacerbated the succession planning problem.
A 2013 report issued by Harvard Business School Publishing, Danger in the Middle: Why Midlevel Managers Aren’t Ready to Lead, reveals that many organizations have invested heavily in training for senior executives and new managers, while paying little attention to the midlevel managerial corps. “This ‘barbell’ approach—heavy on the ends, light in the middle—has exacted a heavy price…. Unless organizations tackle this problem now, they will likely face bigger problems down the road at the senior leadership level,” say authors Robert McKinney, Michele McMahon and Peter Walsh. “With stronger midlevel management development programs in place, companies can improve morale in the managerial ranks, thereby increasing retention of top talent and enriching their leadership pipeline.”
Boomers and millennials may be where the media focuses the lion’s share of attention, but it’s the Gen Xers—to whom Pew Research has referred as the “Neglected Middle Child”—who hold the key to our future as an industry. Jill Pearson, Principal at Pearson Partners International, a global executive search and leadership consulting firm, says that companies whose succession plans are focused on moving Gen Xers into leadership roles are likely to have an edge over their competitors. And there’s a lot to be learned from our 34- to 49-year-olds. Having been raised by boomers, they tend to value hard work. They want a trusting employer who will give them freedom and autonomy to get the job done, and the flexibility to take personal time for their families. Like millennials, they want to be part of something bigger than a paycheck, representing an organization that makes a positive imprint on the world.
Though we’re not completely out of the woods yet, times have improved for many companies, and job boards are active once again. Flattened management structures and their associated challenges are still the norm at many companies, though. And that means ambitious midlevel managers may be less reluctant to look for greener pastures if they aren’t receiving adequate opportunities for growth. Companies who want to groom future leaders effectively would be wise to get them out in the field, let them learn through direct experience, and develop a deep understanding of your sales plan—not just how it works, but how it motivates the salesforce.
Investing in resources that offer ambitious employees the opportunity to take on expatriate assignments delivers on-the-job training that can broaden their scope and prepare them for the leadership functions of the C-suite. It’s also worth noting that the half-life of skills is much shorter these days, a fact that demands continuous learning and improvement among all of your employees. That said, online/mobile learning and mentorship programs are both relatively low-cost, employee-driven ways to increase future leaders’ preparedness.
Outsiders: the Pros, the Cons
Let’s say that, at a functional level, your company is humming along just fine. But what if the position you’re filling now demands something more—a leader well-versed in a particular discipline that you just can’t find within your walls? Here comes the age-old debate: Do you take your search to the outside? It’s often tough to reach a consensus among your executives on this topic.
So why do so many executives and boards shy away from outsiders, anyway? After all, we’ve got plenty of examples of accomplished leaders who came into direct selling from other industries and made great things happen.
First of all, regardless of industry, it’s somewhat human nature to hire what’s familiar, especially at companies where tenures tend to be longer. Whether inside or outside, either route has merit, but the decision really should boil down to a company’s goals, says Pearson. “If you’re trying to do something you’ve never done before, an outsider can bring fresh ideas. Maybe he or she has experience in developing overseas markets or rolling out a Customer Relationship Management system, for example.” On the other hand, “If you want to build something organic over time, a direct selling veteran might be a better choice.”
As we all know, direct selling is a different animal. Some sharp executives can walk in, learn your language and business model and become acclimated with time, while others just never seem to “get it.”
“Direct selling is not an easy thing to understand,” says Arbonne CEO Kay Napier, who spent years at Procter & Gamble and McDonald’s before coming into the industry. “You’re dealing with a complicated compensation structure and a robust product portfolio that’s always changing. But the decision to promote from within or go outside isn’t cut-and-dry; there are risks on both sides.”
There’s no denying that direct selling requires a shift in mindset. After all, it’s represented by an army of volunteers who share your products; and their success—your success—is largely dependent on how motivated they are. Napier says that her experience working in U.S. and European operations for McDonald’s was a great precursor to direct selling. “Eighty percent of stores were run by independent operators,” she says, “so they had significant skin in the game, and they were the smartest people in the room without question. I learned from them.”
Nerium International Co-CEO Jeff Dahl, who’s a great example of an outsider-turned-success-story, says, “It’s especially hard for those coming out of the CPG [consumer packaged goods] industry. The brand, the product strategy, carries the day. Now you’ve got a volunteer army carrying your story. They’re independent. You can have the best products, the best advertising in the world, but if you can’t motivate your salesforce, you won’t get very far.”
And, speaking of motivation, those direct selling events and all of their grandeur are known to produce a bit of culture shock among the uninitiated. Firing up the salesforce is top priority, with the assumption that the sales will follow. Dahl, who came to Nerium in 2014, recalls his first few months with Amway, where he served as President of the Latin America region after an extensive career with Coca-Cola and Lufthansa. “I went to events, and all I saw were tuxedos on stage. I kept asking ‘Where are the products?’ It was all about the business opportunity.”
Wooing outsiders to the direct selling industry can be challenging in and of itself. “When I onboarded with Amway,” Dahl recalls, “close friends tried to talk me out of it. The reputation of the industry as a whole wasn’t as good as it is today. For the first six months, I had one foot out the door.” Then the light bulb went on. He was on stage at an Amway event in Brazil, presenting a $22,000 check to a woman who had worked her way out of the country’s worst slums and into an apartment, paying for her children’s private school tuition with her direct sales income. “That was my epiphany,” he says. “You don’t need to invest thousands in a franchise or be born into the right family to be a successful business owner. We have to help outsiders understand the philosophy of what our companies are trying to do. So many direct selling companies out there are sincerely interested in helping people get better.”
The fact is that we’re still combating misconceptions about the industry. Significant opportunities remain to educate more people about the power of direct selling.
When Is It Time to Go Outside?
Amway’s Chief Human Resource Officer, Kelly Savage, names three instances in which it may be better to go outside:
- You have a major change in strategic direction, or you’re planning a major change in strategic direction. It’s time to look for candidates who have had direct experience with the challenges you’re about to encounter.
- You’re going through a period of fast growth. Sometimes your internal pipeline isn’t robust enough.
- You’re initiating an organizational redesign. For example, when Amway established four global regions, due to the sheer size of each and the expertise they would demand, the company hired two outsiders and promoted two employees from within. Collectively, these leaders brought the kinds of experiences that were absolutely imperative for the company’s success.
Within Amway’s executive team, where the newest member, Chief Financial Officer Mark Stevens, joined Amway from Apple just two weeks ago, “our ideal ratio is about 70 to 80 percent internal, 20 to 30 percent external,” Savage says. That mix is something she considers an absolute must; after all, “our competition isn’t necessarily coming from inside direct selling.”
There’s a definite place for outsiders in direct selling, Dahl says, pointing to his own company as a model. He calls Nerium the “perfect marriage of yin and yang,” with two CEOs at the helm. Dahl is joined by Jeff Olson, an industry insider who founded the company with a wealth of direct selling knowledge and experience. These two leaders deliver a combination of functional skills honed outside the industry, and years of on-the-job experience in the field—a keen understanding of what it takes to keep the salesforce motivated and excited. That blend of skill sets—especially when a similar hiring philosophy is incorporated throughout all levels of the organization—can take direct selling companies to the next level.
“A lot of folks started in this industry and don’t know anything else,” Dahl adds. “They don’t have the functional skills, like IT, finance or product marketing. They’re salespeople. Being articulate onstage is different than having these core functional skills. This industry is littered with salespeople trying to fill those functional roles. There are a lot of direct selling companies currently at the $200 million to $400 million range. Talent and technology are holding them back from reaching the $1 billion range. You need a balance of insiders and outsiders.”
What Separates Those Who ‘Get It’ from Those Who Don’t?
Savage can spot it the minute she sees it: the spirit of entrepreneurship. She recalls her interview with now-Regional President Candace Matthews. As the two spoke about Amway’s culture, its business model and its salesforce, “her face lit up. She immediately embraced it. She understood in that moment that we have a captive audience of entrepreneurs to work through. How powerful is that?”
One attribute that simply can’t be negotiable for any candidate? Innate respect, Napier says. “Consultants are very shrewd entrepreneurs—they can spot a disingenuous person quickly. This industry demands that you be a connector. You’ve got to be direct, honest and diplomatic with the field. It’s not a democracy, but we have to listen to the field and understand not just their words, but their intent.
“Increasingly, this business is about building and developing long-term brands, driving revenue—and a really bright person can learn anything,” she continues. “But, even with all of that, if you don’t have the ability to lead people from the top all the way to the bottom—treating everyone the same, regardless of title or status—you’ll fail. You have to create relationships. It’s not about just being chummy, though; you also have to make tough choices.”
Assuming that your outside candidate accepts the opportunity, how do you onboard him or her with your company’s vision? At Amway, new executives are encouraged to take the pressure off themselves and just listen—while they dive in with both feet, that is. “We get them in the field as soon as possible so they can begin to understand the business,” Savage says. We’ve all heard the expression that people don’t leave companies; they leave managers. With that in mind, you can be more confident hiring leaders from the outside if you know that your CEO and long-tenured executives will continually engage, guide and keep them in the fold. Amway’s retention rate among executives hired externally is 85 percent, and that’s in large part due to executives, like President Doug DeVos, who “provide that strategic umbrella and shepherd the values” to help welcome and acclimate newcomers, define the mission ahead and join them on the path.
“Companies have to be loyal to their employees and work to retain them. It’s a two-way street,” Napier says. “The best part of being a CEO is seeing employees grow and develop—watching them do things they never thought they could accomplish, and then do them better than I could.”
Regardless of where you find your next leader, it’s a seller’s market out there. It’s clear that the direct sellers who will lead this industry into the future are those who never stop attracting, developing and nurturing their pipeline of talent, both inside and outside the C-suite. That not only makes good business sense, but it’s also what this industry is all about.