High Sales Hiring Defect Rates Cause Family Owned Business Problems

Ed Marsh | Apr 19, 2024

Tl;dr - When a family member is hired for a sales position in a privately held business, the decision is effectively a permanent one. The complications that arise from trying to change are often untenable. The solution is to use empirical, predictively accurate data to assess all candidates. That validates appropriate family hires, removing any concern of bias. Further, it avoids incredibly costly mistakes.

Most Family Owned Business Problems Stem from Unpredictable Revenue

In Anna Karenina, Tolstoy wrote, "All happy families are alike; each unhappy family is unhappy in its own way."

That's likely true.

But it's also sadly true that successful family business often deteriorates into family discord. When you dig into root causes, unpredictable revenue underlies most family owned business problems.

The ability of the business to provide employment and growth opportunities for rising generations, lifestyle for current employees paid above market rates or those accustomed to significant dividends, and ongoing legacy affirmation all depend on continuous growth.

Yet, in many companies industrial manufacturing firms, marketing is largely overlooked, and sales is almost just assumed.

Common circumstances include:

  • inaccurate forecasts
  • large percentages of the sales team chronically underperforming against quota
  • unpredictable pipelines
  • loosely defined sales process
  • many deals lost to no decision
  • inconsistent sales methodology
  • inadequate (frequency and content) sales manager coaching and role playing

These aren't unique to family-owned businesses. Many industrial manufacturers manifest all of these.

There's often a gap between the rigor and precision with which operations and manufacturing operate vs. the casual approach to marketing and sales.

One way to begin closing the gap is to use common language. In the former, we track defect rates and move quickly to rectify incipient problems. In the latter, we talk in grandiose terms about the size of the pipeline.

Let's harmonize the language and start to discuss marketing and sales defect rates so we're positioned to take similar action when net quality output problems emerge on that side of the business.

One of the simplest is the sales hiring defect rate. Examples of this include:

  • % of the team chronically missing quota 
  • % turnover (very high and very low are both problems)
  • months to net profit contribution - onboarding and ramp efficiency
  • low activity levels (prospecting, meetings, qualified opportunity creation)
  • new account activity
  • lead follow up performance
  • sales manager coaching activity and impact

With target metrics for these team and individual KPIs, it's possible to identify hiring defects - in other words, sales reps, sales managers, and sales leaders (VPs) who shouldn't have been hired. 

Those are often unpleasant to address even when the defect rate is low and the culture expects sales excellence and accountability. But they create a uniquely challenging set of family owned business problems when the underperformers are family members.

Understanding and Quantifying the Impact of Sales Hiring Defects

Sales hiring mistakes carry direct and indirect costs. These include:

  • direct costs
    • recruiter fees
    • salary and benefits during onboarding & ramp
    • salary and benefits during periods of underperformance
    • management time spent trying to get the rep performing, supervising a PIP, etc.
    • management time spent recruiting
  • indirect costs
    • opportunity cost in underperforming and empty territories
    • lost orders
    • more discounting
    • longer sales cycles
    • wasted sales ops and sales engineering time (quotes for deals that will never happen)

A typical capital equipment sales rep hiring mistake can easily cost $500K. If that number sounds startlingly high, here's the background calculation.

It's important to note that this applies to internal hires as well as external ones. After hiring reps with industry experience but limited sales ability, perhaps the next most common defect is promoting a performing rep to sales manager.

Compounding Sales Hiring Mistakes - Family Owned Business Problems

All of those problems are obviously more acute when the mistake involves a family member. Once the decision is made and the person is hired, it's incredibly traumatic to unwind it. That action will often result in significant friction with other business stakeholders.

And back to where we started, the business success and profitability are really important to many family members. In addition to the intermediate challenges, poor hires threaten the foundation of the family business and the lifestyle and opportunity it provides.

So, for reasons of direct and indirect costs and to forestall animosity among shareholders and colleagues, it's even more important to avoid hiring mistakes involving family.

Reduce the Sales Hiring Defect Rate

hiring family members for sales roles is a source of many family owned business problems. Sales candidate assessments help to eliminate errorsTherefore, reducing the defect rate is critical. But root causes are often much more elusive in sales hiring than in product defects. How can we eliminate them?

First, let's understand where tolerances are excessive and invite defects. We make decisions based on bogus data. The predictive accuracy of many of our sales hiring reference tools is poor. These include (more here):

  • resumes - 18%
  • traditional interviews - 18%
  • behavioral assessments - 20%
  • personality assessments - 22%
  • reference checks - 23%
  • EQ tests - 23%
  • sales skills screenings - 23%
  • IQ - 51%

Add in the fact that the family member arrives already 80% of the way there, and it's really hard to avoid mistakes.

The solution is a predictively accurate sales candidate assessment. For instance, with 91% independently verified predictive accuracy, a methodology built on nearly 3,000,000 evaluations, and 21 sales specific competencies, the assessment I help companies use accurately predicts who WILL sell given the specifics of your market and product.

That means two things.

First, you hire better candidates for every role. You hire those who will perform. Interviews are for cultural and team fit, but the data provides the basic yes/no screen, and its predictive accuracy makes it very reliable.

Second, everyone takes the assessment as the first step in the process. That means that, as every family owned business wants to say, the best person gets the job (and those who aren't going to succeed, don't.)

Assessments should be used for all internal and external candidates, and the recruiting process should be optimized to attract superb talent. This includes the important step of a well written and inspiring job posting (describing the ideal candidate and their attributes/track record) instead of a boring, formulaic job description that lists aspects of the job. The posting will help to attract the right folks.

Solving for the Main Goal

The main goals of most family businesses are to provide a legacy, income, and ultimately a life-changing transaction. All of those hinge on consistent, growing, profitable revenue.

Many management responsibilities contribute to that, but the single biggest factor is superb sales talent. In today's competitive markets, that means true second —or third-standard deviation talent.

Hiring unqualified family members jeopardizes that main goal and then introduces countless other points of friction and disagreement - building upon inadequate performance. Everyone wins when we help put family members in roles well suited for them and avoid putting them in positions where everyone suffers if they're not.

Avoid those mistakes - whether you're hiring outside or internal, unrelated or family candidates.

The way to do that is to use an appropriate sales candidate assessment tool that is tailored for the role (seniority, transaction size, buyer profile, length of sales cycle, degree of competition, etc.)

Let's get as deliberate about slashing sales hiring defect rates as we are about production problems. And let's eliminate one of the most common causes of family owned business problems at the same time.