No time to waste

Florida-based waste company Talismark faces deep re-questioning of its profitable sales model. Will such self-interrogation put the young company at too much risk?

For a company started in 1999, Talismark was showing all the right signs of success. From 2001 sales of $200K, the co-founders had boosted revenues to almost $7 million in 2008. Not bad for Charles Murzynski and Marshall Staimer, both defectors from American waste management giant BFI.

A dozen years after its launch, Talismark had found its niche in the $15 billion non-hazardous waste disposal segment – itself about one quarter of the $60 billion annual American waste disposal market. Talismark had no patented innovation, no revolutionary waste treatment process; rather, its success came from the sales savvy of its two founders, by their own admission: “…business guys in garbage, not garbage guys in business.”

The niche that the duo developed was based on a simple win-win proposition: save money for their clients, and retain some of the savings within Talismark. Like some Swiss watchmaker of waste, the Talismark sales force (all four of them) would identify clients, analyze in great depth their waste needs, and put on thinking caps to develop innovative solutions… and save money.

Some solutions might be straightforward logistical tweaking: different sized waste containers or different pick-up frequencies. Other solutions might involve smarter recycling or waste reselling, as was the case for the 14-location furniture retailer that saved 60% on its waste removal costs.

Talismark confronts some significant issues in its growth. A first issue is that waste haulage contracts are typically signed for long periods, for example ten years. So even if the sales force identifies and sells a new client, the activation of the client might not happen for several years, and sometimes in phases as different locations for a same client are activated.

A second problem has to do with the sub-optimal utilization of the sales force. Salespeople spend at least 75% of their time on administrative tasks such as customer service or the analysis of local regulatory requirements (which change from client to client depending on their location). Such tasks could be handled by less qualified (and lower paid) staff, and leave more time for salespeople to focus on new business development.

A final problem is the structure of the compensation to sales people. Perhaps because the owners had been top sales people at BFI, they had implemented a juicy structure for the Talismark salesforce: base salary plus a 15% commission based on gross profits for all active clients as long as their contracts were active.

Talismark’s financials (the case provides semi-detailed financials) reflect this generosity, with net profit before taxes showing lackluster performance. For the owners who might consider a sell-out option in the not-too-distant future, this is naturally of concern.

To boost growth and profitability, the co-owners are considering a re-engineering of the sales process. This re-hash would involve a more systematic breakdown of responsibilities, namely between sales and support, and the beefing up of information technology so as to facilitate the preparation of proposals and after-sales customer support.

Such an upheaval within a young and entrepreneurial company can have drastic effects. Will the salesforce rebel at the change of commission structure and re-allocation of responsibilities? Will the new IT systems require substantial investment and induce a period of sales inactivity?

Reference:
HBS 9-211-097
"Talismark"
Richard Ruback and Royce Yudkoff
Harvard Business School

Published May 2011 by Chris Fodor.