The 5-Generation Legacy Rule

The 5-Generation Legacy Rule

In Baltimore City, Maryland, my father owned two 20-foot refrigerated displays in a store that sold meat. His five children learned how to develop a strong moral character from him. As an example of hard work and good business practices, he led us by example. As we age, we still adhere to those principles despite being in our 70s. This legacy he left his five children reminded me of the 5 Generation Legacy Rule.

The Five-Generation Rule

What some call the “five-generation rule” refers to the effect of how a parent raises their child on future generations. The love they give, the values they teach, the emotional environment they offer, and the education they provide. This can all influence not only their children but the four generations to follow, either for good or evil.

Furthermore, in an article by Larry Ballard, he discusses how radically different generational outcomes can be depending on the parents’ actions. He describes how American educator A.E. Winship traced the descendants of Jonathan Edwards almost 150 years after his death. Alternatively, his findings are remarkable, especially when compared to the ancestors of another man from the same time period known as Max Jukes.

Multi-Generational Success

Jonathan Edwards a puritan preacher, in the 1700s, was one of the most respected preachers of his day. He attended Yale University at the age of thirteen and later went on to become the president of Princeton College.

Further, Edwards’ 5 Generational Legacy includes 1 U.S. vice-president, 1 dean of a law school, 1 dean of a medical school, 3 U.S. Senators, 3 governors, 3 mayors, 13 college presidents, 30 judges, 60 doctors, 65 professors, 75 Military officers, 80 public office holders, 100 lawyers, 100 clergymen, and 285 college graduates.

Multi-Generational Dysfunction

In contrast, Max Jukes’ legacy came to people’s attention when the family trees of 42 different men in the New York prison system were traced back to him. He lived in New York at about the same time as Edwards. The Jukes family originally was studied by sociologist Richard L. Dugdale in 1877.

In addition, Jukes’ 5 generations of descendants included: 7 murderers, 60 thieves, 190 prostitutes, 150 other convicts, 310 paupers, and 440 who were physically wrecked by addiction to alcohol. Of the 1,200 descendants that were studied, 300 died prematurely.

The Legacy You Leave

Lastly, Ballard concludes his discussion by asking — If someone studied your descendants four generations later, what would you want them to discover?  The life you live will determine the legacy you leave. In both your personal and professional life, lead by a good example and create a path to success for 5 generations.

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Customer Outcomes

Customer Outcomes

B2B buyers are doing a lot of purchasing online these days — about $1.6 trillion annually according to projections by Digital Commerce 360. Are buyers happy with these transactions?  A survey of digital buyers from 150 companies finds that 97% of online buyers experience some pain point during the eCommerce purchasing process. And 94% of B2B buyers agree their company prefers to work with suppliers that continuously evolve their digital capabilities. Be sure you are paying attention to more than just the online sales figure. What are your actual customer outcomes?

Be Customer-Centric

I have been reading a lot on the topic of online purchasing that supports the findings above. The impersonal nature of online selling and its related pain points represent an opportunity for the independent distributor who knows his customers. As the post-pandemic business model moves toward more digital commerce, the distributor must become even more customer-centric.

Customer Experience

In a recent post, business innovation expert Mark Dancer explains that distributors often say that they are becoming customer experience (CX) companies. He defines CX as how customers interact with brands, products, and services. CX business models gaze inward. They are designed to optimize the processes under which the supplier operates to serve its customers.

Customer Outcomes

Customer outcomes (CO), on the other hand, measure customer satisfaction with the purchasing process. Good customer outcomes ensure that the supply chain prospers only if customers prosper. According to Dancer, the future of distribution is the relentless pursuit of CO, not CX.

Dancer finds most leaders say they’re customer-centric, but if everything they measure is CX, how could that be true? Revenue, growth, and other Key Performance Indicators (KPIs) measure how customers perform for the company. Organizations that wish to be customer-centric —and maximize growth—must also measure how the company is performing for its customers (CO).

Be Effective

Finally, distributors need to become a flexible resource that enables ever-better business results and innovations in the customer’s business.  To do so, evolve your digital capabilities. As Dancer suggests, these should yield better customer outcomes. The right ERP, CRM, and AI-driven customer analytics can provide customer-centric support.  And Lastly, Partner with your customers to build more effective KPIs for customer outcomes and eliminate their online purchasing pain.

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Workforce Ecosystems

Workforce Ecosystems

My son-in-law works in the motion picture industry. The film projects he works on were staffed with people from multiple companies as well as independent contractors. Making a film requires a complex network of interconnected systems, known as a workforce ecosystem.

Digital integration

In addition, to being intermediaries in a value chain, distributors are a part of a workforce ecosystem. As part of a complex and critical supply chain, they handle detailed information. Additionally, product and service identity, pricing, inventory location, and delivery are all part of a chain. Above all, this will help the end user get their work done. Suddenly, workplace ecosystems have been changing at a high rate in recent years. Now that companies are more digitally integrated and forced to be responsive as a result of this shift. Now, to be competitive in today’s workforce ecosystem you need to operate with the latest software and digital tools and platforms.

Mining data

According to Mark Dancer, “Companies that buy products from distributors will always seek to create value for them. And the users that use them will often measure the total cost of ownership, worker productivity, and the quality of the products and services needed for the end user. What’s new is, realizing that doing this can be an extension of the supply chain. With offerings not based on vague value propositions but through the value to create and measure new, and more comprehensive data.” Furthermore, he adds, “No matter what the delivery mechanism is, supply chain companies are at the center of providing this capability.” Independent distributors should consider using their ERPs to mine data downstream of customer orders. However, ERP technology distributors can solve problems and provide the right product based on data collected from actual client interactions.

Be competitive

To conclude, local distributors are at the center of these complex supply chains, which continue to evolve.  To remain competitive in the workplace ecosystem, you must create added-value product offerings and services based on the comprehensive data available through your digital technology platforms.

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The High-Value Customer

The High-Value Customer

How to Measure Success

While VP of Sales, I oversaw a hospital account that was among our leading 10 customers. Their purchases topped the charts. Yet our CFO questioned the account’s profitability when their contract came up every 5 years. Due to the competitive pressures in healthcare, the pricing of the products was not increasing from contract to contract. The volume was tremendous and the product mix carried some of the best gross margins. The question kept coming up about the account’s net profit. How do you measure your high-value customers in today’s diverse marketplace?

Determining Profitability

In the seminal book, “Choose Your Customer”, Jonathan Byrnes and John Wass state: “determining the true profitability of our customers is one of the biggest problems for companies today.” They described the shift from the Age of Mass Markets, where managers had a clear responsibility to look after their unique department, to the Age of Diverse Markets in which managers are responsible for net profit contribution. With today’s robust digital ERP capabilities a company can perform transaction-based profit metrics and analytics across multiple fields.

Byrnes and Wass explain, “Instead of assuming that revenue maximization is the objective of the account management process, leading managers now understand that directly maximizing all-in customer net profitability is the right objective.”

The Net Profit Viewpoint

Additionally, In the Age of Diverse Markets, it is feasible to look at each transaction from a net profit viewpoint. This is accomplished by digitally collecting all cost aspects of each transaction. In the opening hospital illustration, there were exorbitant distribution costs involved in making deliveries to multiple locations. Furthermore, deliveries consumed a driver’s full day on multiple days each week.  Additional costs accrued by having to correct persistent administrative and billing issues unique to the account. All costs considered, the hospital account produced negative net profits. It was not a high-value account and was reclassified as a profit drain.

Sales Effectiveness

Lastly, with digitally evaluated transaction-based profit metrics and analytics, companies can move to the ultimate level of sales effectiveness. High-value customers should no longer be appraised on revenues, or gross margins, but on their net profit contribution.

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What Should I Do With My Business Now?

What Should I Do With My Business Now?

Get Organized

Twenty years ago, as the VP of Sales for industrial gas and welding supply company, I started writing a monthly column, “The Art of Sales,” for CryoGas International (now Gasworld). The magazine focused on the industrial gas distribution business. My articles were directed at that audience and contained sales tips and stories. Today I am a consultant to that sector, have my own blog and continue to contribute to industry publications. While I still write on sales skills, I have noted that the rapid and critical change in commerce has prompted the need to concentrate more on digital and organizational practices. Many clients are asking, “What should I do with my business now?”

The Digital Transformation

Furthermore, much of my writing relates to how to deal with the marketplace disruption caused by the pandemic. For example, consultants no longer spend their time on planes in order to make face-to-face meetings. Appointments are now virtual.  Also, COVID accelerated the digital transformation, and the distribution business, like all others, is feeling the shift.

Advanced ERPs, eCommerce, and virtual product content have radically changed sales responsibilities. Furthermore, Reps have moved from product presentations, quoting, checking inventory, and tracking orders, to added-value consulting and answering questions about products the customer procurement team has already researched online. Also, the distributor faces the added challenge of competing with manufacturers that can sell directly to customers, or through marketplace alternatives.

Business Choices

These facts beg the question – what do I do with my independent distributorship now? I have observed three typical responses:

  1. Sell out to a conglomerate
  2. Transfer the business to your employees through stock ownership programs, such as ESOPs
  3. Hire a qualified consultant to bring your company up to date

Primary Priorities

Regarding option 3, there are qualified senior executives with years of experience who know how to navigate the distributor’s challenges in the digital marketplace. Thus, The most essential primary priorities are to apply organic/systemic organizational skills nimbly and invest in digital proficiency. The most effective means to accomplish this urgent progression is finding people that understand your business ­– those who have “walked in your shoes.” Henceforth, talent can be developed internally or externally. You probably already have employees who have unidentified digital skills that could be enhancing your business.

In conclusion, what should you do with your business to compete in today’s marketplace? Develop your organizational skills and digital proficiency … and do it now.

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The Distributor Differentiation

The Distributor Differentiation

A lot to Consider

As an independent regional distributor, you need to take a close look at where to invest your digital dollars. In a recent MDM webcast, Alex Moazed and Nick Johnson talk about distributors entering the digital domain. They discuss the recent proliferation of industrial-specific verticals: Berkshire e-Supply (industrial products), Bluon (HVAC), Parts Town (OEM foodservice equipment), Volition (industrial parts), and ODP Corp.’s Varis platform (office products). Moazed and Johnson emphasize that digital B2B marketplaces aren’t for everyone. Before getting involved, consider your distributor differentiation.

A Small Slice of the Pie

Moazed and Johnson point out, that while the level of investment in digital marketplaces from distributors is undoubtedly accelerated in recent years, it’s still coming from just a very small slice of the pie. In the atmospheric gases industry, a few forward-thinking companies got into marketplace verticals early. Most have found the margins slim. Furthermore, digital sales appear to be an alternative to buying from the company’s mortar and brick stores and are regional in nature.

Focus on Analytics

The historical strength of the independent distributor is in its local resources and relationship to its customer base. Rather than investing in buying platforms, focus on improving your technical skills, facilities, and personnel. Additionally, the best investment you can make is in digitizing and growing your analytics. As Jonathan Byrnes and John Wass suggest in their book, “Choose Your Customer”, take a close look at your high-profit customers through transaction-based profit metrics. Track their erosion and growth. Byrnes and Wass suggest marking these accounts in the database so that your customer contact people know who they are. Build teams within your organization that focus on your relationship with these customers.

Walk in their Shoes

Lastly, find ways to walk in your high-profit customers’ shoes. Join with select clients to identify and develop new value footprint opportunities, ones that may not be obvious initially. Your high-profit customer relationship is your distributor differentiation.

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