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Everything I know about the free-market, I learned from David Mamet

June 24, 2011

First off, let me get a disclaimer off my chest.  I believe David Mamet is one of the greatest screenwriters to ever live.  His films (and plays, though I am not a big fan of that media) are some of the most thought-provoking and intelligently written works available to lovers of the big-screen.  Just check his writing and directing credentials out and you should easily recognize his brilliance (go to IMDB for his profile).

Okay, enough of that.  And it’s not fair to say everything I learned of the free-market I learned from Mr. Mamet, the more accurate title would be Everything I know about the free-market, I learned from Glengarry Glen Ross.  In my opinion, this is the best work in a long list of great works by Mamet.  If you haven’t seen it yet, you are a moron…seriously.

So what does Glengarry Glen Ross teach us?

I guess first I should explain the movie for the aforementioned morons who haven’t seen it yet.  Glengarry Glen Ross stars a who’s who of amazing actors – Al Pacino, Jack Lemmon, Alan Arkin, Ed Harris, Kevin Spacey, Johnathan Pryce and Alec Baldwin (in a bit part, but easily the most memorable).  They sell Florida real-estate in some crappy urban city, presumably New York.  Oh, and they are some shady bastards.  Like, really shady.

The movie encompasses one day in the life of these salesmen.  First we are treated to a “motivational” speech from Alec Baldwin to open the festivities.  The reason for the speech, most of these “salesman” suck.  Then we see them go about their night “going on sits” and all their shady “plays” that they try to use to convince people to “invest” in these plots of land.  About half-way through the film, the night ends and we fade to black.

The next day, we are treated to a shambles in the office where these men work.  Apparently, someone broke in and stole the Glengarry leads – high-priced lead cards that all the less than stellar salesmen were drooling to get, but weren’t allowed until they sold more.  I won’t explain more, cause I don’t want to give away the ending, but I feel I have explained enough for you to get the gist of the film.

Now, from my description, one probably can conclude I must have a pessimistic view of the free-market system.  Words like “shady” and “plays” and “stealing” usually don’t lend themselves to a fawning respect for anything, but the negatives of the movie are not the educational aspects of it.  If anything, they are a warning to how any system can be corrupted by people who are willing to use, if not illegal at least unethical, shortcuts.  Not to mention, David Mamet has a rather pessimistic view of humanity anyway which I take into account going in.

No, the lessons in Glengarry Glen Ross are all about sales in general.  No profession exists that better epitomizes the values, principles and workings of a free-market economy than that of a commission based salesperson.

ABC – Always Be Closing

What does a salesman do?  Many people would take the negative view of sales and answer, “They convince people to part with their money, usually through lying.”  I contend that is a wholly unwarranted description of one of the noblest professions in America.  What a good salesman actually does is, “Facilitate the transaction of goods/services from one party to another.”  A good salesman is not just a facilitator though, he is an expert in his product, a psychologist, a friend, a confidant, sometimes a shoulder to cry on, and in the utmost, ethical.

Salesmen are vital to a free-market economy.  Imagine the sheer volume of goods and services available to the average consumer – consumer electronics, home improvement, cars, boats, real-estate, insurance, etc.  Each one of those categories has numerous other categories with thousands of products offerings.  How is a consumer, with little to no knowledge of the product offerings, to make an informed decision?  The truth is, they can’t, and they usually get screwed in the process.  You are more apt to waste your money not working with a salesman, then you are to get “screwed” working with one.

And that is only at the consumer level.  Imagine if salesmen did not exist at the corporate level?  How much time and money would be wasted by companies having to research products and services that they seek to increase efficiency, streamline production, insure their employees, handle paperwork and payroll and the other countless things a company uses third-party equipment and services for?

Unfortunately, because of movies like Glengarry Glen Ross (yes David, you only showed the bad side of sales) and Boiler Room and countless other examples of poor salesmanship in the entertainment industry, the profession has gotten a very bad rap.

Coffee is for Closers!

Sales and the free-market, how they are alike.  First and foremost, you sell or you die.  There is no “social safety net” to catch a commission salesman when he can’t close a deal.  There is no minimum wage, or unemployment insurance or any of that mess.  If you can’t close, you are a waste of space.

The free-market is the exact same.  There is no set of steak knives for second place.  Okay, well second place usually ain’t too bad in the economy, but third place?  You’re fired!  The free-market measures your worth and tells you where you stand.  If you can’t hack it, it will tell you pretty quick.

In any sales force, the 80-20 law works almost universally.  80% of the income is earned by 20% of the force, and conversely, 20% of the income is earned by the leftover 80%.  So those few 20% at the top make the majority of the money, as it should be.  They are usually the hardest working, most professional and most ETHICAL workers in the force.  The rich get richer and they deserve every penny they get.

The leftover 80% are not all bad though.  They can be broken further down into little classes.  The middle-class would be around 40-50% of the force and they make an “average” salary for that profession.  They might work just as hard, or learn their product just as well, or be just as ethical as the top 20%, but they just can’t tie it all together to get them above the hump of being average.  Their life in sales is usually characterized by major swings of “fat” months and “lean” months, often predicated on their individual motivation for a specific time.  And that is typically the case, the average Joe’s in a sales force just can’t muster consistent motivation to get the job done on a regular basis.  This group is usually the one’s that survive the shortest in the game.

The last group, the lower-class, make-up about 30% of a sales force.  The easiest way to characterize these folks is – they bitch.  The “water cooler warriors” spend more time whining about whatever perceived reason exists for why they aren’t “making any money”, then they do being proactive and making themselves better salesmen.  They usually don’t know their product, dress like slobs, work the fewest hours and are most likely to be the “shady” salesmen we imagine all folks in sales to be.  They most often speak about how “lucky” and “shady” the top performers are as if that absolves these cellar-dwellers from any responsibility for their own failures (sound familiar?  “evil rich people!”).  These are the dudes who give the profession a bad name.

Do you see a correlation between the division of income of a sales force with that of the general economy?  The hardest working, smartest and most professional people earn the most and the laziest, least knowledgeable and unprofessional people earn the least.  It is not rocket science.

All we need is the leads!

If that were all Glengarry Glen Ross and sales taught us, it would be enough.  But the true education comes when we get beyond the reasons why salespeople excel or fail, and get to how companies can influence the results.

The first lesson teaches us about the law of unintended consequences.  Companies learned a long time ago to influence salesman behavior by offering incentives to sell certain products (think of our tax system and you are on the right track).  The problem is, and this is indicative of the greater problems of central planning, most companies can not accurately predict the results changing the commission system will have on the behavior of the sales force.  Usually, the unintended consequences require a return to the “old” system, or a new change that has its own consequences.

I will give an example from my own experience.  I used to work in consumer electronics.  I sold home theater equipment, televisions, dvd players, surround sound systems etc.  The biggest money-maker in that industry is the “Performance Guarantee”, also known as the extended warranty (which is not a bad deal, but you shouldn’t finance it).  It’s a money-maker because it’s practically all profit – most people never use a warranty even if they purchase it.

One of the companies I used to work for would pay us 20% commission on warranties as long as we sold $1000 in a month (in warranties).  That’s $200 bucks income for the math challenged.  Given the commoditization of consumer electronics (read, low margin), a salesman usually made more money selling the warranty on a television than the actual television would pay him.  The end result?  Crazy Eddie’s Discount Warehouse!  Profit margins on the equipment fell to the floor (they are low to start with, now they were practically nil) as salesmen became wheeler-dealers with the price of a TV just so they could get the warranty thrown on.  In some cases, certain tv’s had enough margin (in dollars) on them to practically throw in the warranty for free, and that happened quite a bit.

So what do we learn?  In an effort to get us to sell more warranties, the company undercut all the other profit-making components of its business model.  And the worst part is, once salesmen learned they could discount, they stopped actually trying to “sell” the warranty, they just did some shady math and told the customer they were throwing it in.  No attempt was made to sell the warranty and the television.  No attempt was made by the salesman to better their knowledge, or their delivery, or their professionalism and actually explain to the customer how the warranty was a good investment (which it actually is).  So in fact, the customer rarely saw the value in the “free” warranty they were receiving.  The company turned its sales force into a bunch of discounting warranty “whores”, and it showed.  Customers were left with a bad taste in their mouths about the “service” they were receiving, which is not the way to get repeat business.

This happens up and down the line.  A lot of companies like to play musical chairs with the commission programs of its salespeople, with catastrophic results.  As these companies seek to “centrally plan” the activities of its most free workers (salespeople are given a lot of rope) by constantly changing the way in which they get paid, the good ones usually leave for another company.  As in the regular economy, the producers work best when the rules to the game are not constantly changing.  Like the current recession, when people don’t know what the rules are going to be that govern their activity in a marketplace, they often choose the action of inaction and just sit it out till the “experts” pull their heads out of their asses.

I once worked for a company that changed its commission program 4 times in one year!  That means, every 3 months, the way I got paid was modified or replaced by something the company touted as “better”.  Needless to say that company no longer exists – the frequent changing of the rules were indicative of a business in its death throes, very similar to the current economy.

What else do companies do?  Well, they teach us that the free-market is universally stifled by bureaucracy.  Salespeople spend more time handling problems created by the other departments in a company than they ever do actually selling a product.  You see, salespeople, like a business in the general marketplace, understand their success, nay their livelihood, is tied directly with the satisfaction of their customers.  Customers can and often do cancel orders, return products or get online and bad-mouth any company that they feel treated them poorly (as they should), but it is rarely the salesperson’s fault a customer walks away unhappy – we don’t make money by pissing customers off.  No, what usually happens is some hourly employee whose income is in no way tied to the satisfaction of the customer, drops the ball, with the salesman being left to fix a mess he didn’t generate.  Usually, even if he can save the sale, it ends up costing him money either through lost time working with new clients, a loss of a repeat customer, or a discount to make the customer happy.  Yeah, that’s right, when we have to discount for customer service issues (even one’s we didn’t cause), we lose that part of the commission.

Is this scenario any different from the numerous bureaucratic hurdles companies have to jump through just to do business?  These government bureaucracies are in no way interested in some intangible “satisfaction” of a consumer, regardless of what their mission supposedly is.  Most people who work in them are a cog in a wheel, totally incognizant of the greater scheme in which they play.  But companies have to play the game and in so doing, they waste time and money dealing with the government – time or money better spent improving products or services or servicing customers, or improving their workforce.

Does a construction contractor get a free-pass when his customer gets pissed that a permit got revoked?  Nope, it costs him money, the customer doesn’t care whose fault it was.  Does a real-estate salesman get a free-pass when the title transfer company drops the ball?  Nope, he loses money.  Time is money folks, it ain’t just a saying.

I subscribe to the law of contrary public opinion…

Sales is a tough game, as is the free-market, which probably explains why most of the “experts” haven’t participated in either activity.  In sales, like in business, you stand or you fall on your own abilities and merits (unless you are GM or a solar-panel plant), there is no benefactor waiting in the wings to prop you up if you fail in the market.  And that is the way it should be.

If you have been fortunate enough to work with a great salesperson, you know the value these people bring to a company.  Through hard work and ability, they have proven the overriding precept of a free-market – that competition improves everyone’s lives.  As a sales force matures, the chaff is separated from the wheat, and the overall quality of its participants improves, just as in the market.  As a market matures, companies that can’t hack it take residence in the enormous dust-bin of failed enterprises, what we are left with is mature companies with processes that lower price and products that we generally want to purchase.  We don’t have to contend with “bad” companies who offer shoddy wares, because those companies usually cease to operate in short order.

But here is the real beauty of the free-market (socialists close your eyes), anyone can participate, just like in sales.  In sales, I have met 80-year-old grandfathers and 18-year-old kids out of high-school.  Masters degrees and GEDs.  I have met veterans and war-protesters.  The handicapped and ex-professional baseball players.  Black, white, brown, yellow, red; man, woman, gay; Christian, Jewish, Muslim, Buddhist.  You name it, I have worked with or been serviced by them.  Sales doesn’t discriminate, unless you can’t close.  The free-market doesn’t discriminate, unless you can’t close.

Coffee is for closers.  Our government would do well to learn that wisdom.

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10 Comments leave one →
  1. June 25, 2011 12:12 am

    I worked in sales at a department store 15 years ago. I have no aptitude for it whatsoever, and was absolutely miserable. So I quit after a few months, but some girls who didn’t do well worked there for years. I don’t understand why; they’d make the same money just being a cashier somewhere. That was during the dot-com boom, mind you, when all sorts of people without degrees made really well for themselves. There was certainly a lot of bitching about the company and the other salesgirls. Oh well, some people just want to be miserable.

    • June 25, 2011 1:46 am

      Was it total commission, or was there a minimum salary guaranteed? Usually, the hangers-on stick around because the minimum is enough for them. But I have seen straight commission peeps hang on for a long time, making no money whatsoever, so who knows? lol

      • June 25, 2011 5:15 pm

        It was minimum salary guarantied, but they could get the same salary, if not more, just working the register or answering phones somewhere. For some reason these women hung on for years.

      • June 25, 2011 7:35 pm

        There is quite a bit of freedom in the field of sales, unfortunately that also lends itself to a bit of laziness.

  2. June 25, 2011 12:52 pm

    In Reality, everyone is a salesperson. What I mean by that is that when ever you applied for whatever job, you had to sell the employer on hiring you. In a tough job market, the best “self-sellers” are usually the ones who get the job. Being in the construction trades, I’ve had to sell myself or my abilities a lot, ( get your mind outta the gutter. ;).

    Mike G.

    • June 25, 2011 1:35 pm

      Of course you are right, we have to sell ourselves and our ideas on a daily basis, whether to a future employer, or to our kids and how they “should eat their greens”.

  3. June 25, 2011 8:06 pm

    Though I hugely respect Mamet, truth be told, I learned a lot more from reading your post than from watching Glengarry Glen Ross.

    • June 25, 2011 11:29 pm

      Thanks. I have to admit the premise was a tad tenuous, but it made it fun to write at least. =)

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  1. Everything I know about the free-market, I learned from David Mamet (via Fleece Me) « That Mr. G Guy's Blog
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