In Kyiv, there is the headquarters of a very well-known Ukrainian company that started its operations when five people got together and decided to “start some kind of business.” Each of them had certain connections, and after “negotiating” with customs and the tax authorities, they began importing something from abroad. (I won’t describe the product, as it would be like pointing fingers). At first, they transported goods in a minibus once a month, then once a week, then every other day, and eventually they got a truck… Now they have their own fleet, their own chain of stores, and a solid price advantage over competitors, thanks to the connections they maintained and the ways of “negotiating” that remained. However, every customer in their mega-store buys everything not from this company, but from some individual entrepreneur. So to speak, it’s tax evasion right in front of everyone. They don’t pay VAT, hardly pay any duties, and they have “no” profit. All of this allowed them to grow and expand at a rate akin to a cancerous tumor until the crisis hit.
The crisis didn’t make them more honest; it made their products less in demand. The sales volumes of their goods clearly correlated with the availability of long-term credit in the consumer credit market, and since the end of 2008, the founding partners began to feel a bit anxious. Why just a bit? Because they had forgotten how to truly worry. Even if the business were to fail, each of them is already set for life. Besides the profits from the company, they have also become quite adept at stealing from each other while keeping a smile on their faces.
At the same time, it’s important to understand that their success did not depend on their managerial abilities; rather, it happened in spite of them. They couldn’t, didn’t know how, and didn’t really want to manage their company properly, and the company essentially developed on its own, swaying slightly from the “managerial influences” of the management.
There was and still is plenty to manage there. Two simple facts: Customers are unable to make a purchase in their store within 10 minutes. Any purchase takes at least an hour. Even if you’re buying something small, you have to choose it from the seller, then pay at the cashier, then go to the warehouse (and sometimes even travel far to the warehouse), wait half an hour in line at the warehouse, and then spend another 20 minutes while they find the item and hand it over to you. This, of course, drives customers away; however, the prices they offered were too attractive, and people still came to them for their purchases. Naturally, smaller purchases were made elsewhere. It’s also clear that other suppliers emerged, offering customers the same products, just a bit more expensive than our company, but with delivery. It’s important to understand that delivery of goods in this market segment is a crucial part of the process.
The purchasing process for the customer now looked like this: They would go to the showroom, choose a model, write down the name, return home, and then visit an online store that, without the need for mega-accounting, mega-warehouses, and mega-showrooms, could sell the same product for almost the same price. The beauty of the process was enhanced by the fact that online stores often sourced their products from the same company’s warehouses.
Also, against this backdrop, the structure of the sales department looked quite impressive, although it could definitely use some improvement. At the very bottom level, the company has salespeople and “department heads.” The only difference between them is the fixed part of their salary, while everyone is supposed to earn a commission. Naturally, the department heads are always dreaming of improving the efficiency of their subordinates and “leaking” commissions to them. Yeah, right! It turns out that the heads, with their higher salaries, are not at all concerned about their subordinates; on the contrary, they try to direct the flow of clients to themselves. They view their role as a burden of passing down “management directives” from above, monitoring compliance with labor regulations, and dealing with various complications.
In these conditions, novice sellers are simply pushed aside by strong managerial shoulders in the process of making money, while experienced sellers gradually leave — it’s a natural process.
As we can see, with the onset of the crisis, one might consider how to increase sales and make them more efficient. Two solutions come to mind: a) implement a supermarket-style sales model, where the warehouse and checkout are in the same area, and b) change the system that regulates the relationship between sellers and their compensation. For example, let the manager receive “super commissions” from the sales of their subordinates and not receive their own commissions.
However, option a) practically deprives people of the opportunity to save on VAT, while option b) is seen by “talented managers” as an increase in overhead costs for sales—after all, they have to pay the commission twice. These talented managers forget that a 20% loss on VAT will be immediately offset by increased turnover and a reduction in unnecessary staff. Additionally, they do not consider that they are unnecessarily paying a fixed salary to young salespeople who, it turns out, are not selling but merely supporting the “senior” staff. They also fail to understand that the increased salary for the “senior” staff is not backed by the creation of any “added value.”
Talented managers approach it this way:
1. Fire the salespeople already (the seniors can handle it themselves. Yeah, right 🙂)
2. Attract new clients through mass advertising, which is essentially unnecessary. a) It doesn’t appeal to emotions—purchasing products in their segment is a considered decision, and b) it doesn’t enhance brand recognition—everyone in the country already knows this company and understands why it’s worth buying from them.
Now they have fewer salespeople in their salons, and surprise, surprise, the efficiency of the “senior” staff has somehow dropped, while the money poured into advertising, if you look at the scoreboard, has not led to any increase in sales. Meanwhile, the market correlating with their products has started to show what we now like to call “signs of revival.” Let’s congratulate the “winners” of the Darwin Award in business. No, they are unlikely to die off. They will survive as long as corruption is alive. But they will continue to lose market share. Day by day.
Oh, right, I completely forgot. They hire people just like a political party—based on personal recommendations. They’ve created quite the little terrarium of like-minded individuals over there. They started this practice of hiring by bringing in all their close and distant acquaintances into the company. relatives who, in turn, then arranged for their “trusted” people, and those would arrange for theirs.