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Many distributors, as their businesses gradually grow, often suffer huge losses due to careless hiring decisions. The root cause lies in the conservative mindset of Chinese businessmen. Once a business takes off, many immediately think of employing relatives, especially for finance-related positions, insisting on using only trusted family members. Others believe that since they have made money, they should help their relatives by giving them jobs. Because they are family, distributors trust them completely, believing they would never betray them. Yet, often it is precisely these people who cause them to stumble in business.

Valuing personal relationships may bring warmth and happiness elsewhere, but when applied to business management, it can be fatal. Favoritism creates many drawbacks, the most critical being the severe negative impact on the company's talent mechanism. Nepotism directly renders the HR management system ineffective, ultimately turning all management into a mere facade. Consider the following real case:

Case Review

Sister Li was a distributor in a county in Anhui Province. She was generous and enthusiastic, skilled at dealing with government agencies and manufacturers, and quickly became a well-known major operator in the area. However, recently Sister Li fell into operational difficulties. She found that although she earned a lot each year, she often faced cash flow problems, sometimes unable to withdraw funds for restocking, putting her business in a passive position.

After communicating with Sister Li, we discovered that although her business was large, she was busy with purchasing, dealing with manufacturers, sales, and delivery, so she entrusted cash management, warehouse management, and important tasks like purchasing and collecting payments to her biological sister. To uncover the root of the financial problems, Sister Li followed our advice and conducted a comprehensive audit and inventory of her business. She found that her sister had been running her own business behind her back and had recently spent over 300,000 yuan to build a new house without borrowing from anyone. Based on her sister's income, even if she saved every penny, she couldn't have built such a house so quickly. It seemed the store's cash flow problems were due to her sister. Helpless, Sister Li had to dismiss her sister and start re-planning her business and hiring new employees.

Diagnosis

This is a typical case of nepotism leading to betrayal by a relative, a scenario that may have occurred in your company. So, how should distributors hire? Should they use relatives?

In fact, distributors should first consider what kind of people they need, then rely on systems and processes to manage and constrain employees, rather than hiring relatives and leaving them unsupervised. In a sense, whether relatives or externally hired employees, problems can arise; the key is how distributors use management to regulate their behavior. If a distributor's company has strict systems and processes to constrain employee behavior, it is difficult for anyone, relative or outsider, to exploit loopholes. Conversely, if management is full of holes, relatives may take advantage of your trust to engage in opportunistic behavior and siphon off company resources. Below, we use the above case to elaborate on how distributors should approach hiring.

After dismissing her sister, Sister Li, with the assistance of manufacturer sales staff, began re-planning her business. First, she clarified the main direction of her company's future operations and management, adjusting the management model to a standardized corporate format. She reorganized and planned her brand portfolio, dropping unknown products from small manufacturers with poor management, and instead focusing on products from several larger manufacturers with good reputations in the industry. Next, Sister Li established the organizational structure for operations and management, and based on this, redefined staffing and job standards. After determining the staffing and standards for each department, Sister Li re-evaluated existing employees: those who passed the assessment were retained, others were dismissed, and she publicly recruited management personnel.

After redefining job roles, Sister Li initiated the most important reform: establishing management systems and processes for each department. First, she set up a process for inbound and outbound goods with financial verification. The daily quantities of outbound and inbound products had to match exactly; if discrepancies occurred, the warehouse keeper was responsible for full compensation. The warehouse keeper submitted daily inbound/outbound reports to finance, and salespeople had to hand over all cash based on the warehouse keeper's inbound/outbound slips. If amounts did not match, the salesperson bore full responsibility. If customers had outstanding debts, salespeople had to provide IOUs within their authority, signed by the customer, with repayment dates, and the salesperson was responsible for collection; otherwise, it was treated as embezzlement, and the loss was borne by the salesperson. This completely eliminated the previous chaos of unmanaged warehouses and unclear inventory, curbing employees' ability to take advantage.

Next, Sister Li reformed the company's salary system. Previously, she paid fixed salaries. This time, following the manufacturer sales staff's advice, she implemented a pay-for-performance system. Salespeople and drivers were assigned to specific territories with a "base salary + commission + other bonuses" structure. Each vehicle's driver and salesperson could form teams freely. Additionally, drivers received safety bonuses, and other support staff received a "base salary + performance pay" model.

This salary reform brought a qualitative change to Sister Li's management. Previously, she had to constantly urge salespeople to hit the market, but they rarely went out before 10 a.m. Now, employees became very proactive. Previously, she had to go to the market herself to understand conditions; now, salespeople actively reported on their "responsibility areas" upon return. Some even built close relationships with manufacturer reps, proactively sharing market information, seeking advice, and requesting support. Any slight change in competitor activity prompted immediate targeted responses. Since salespeople had to submit cash daily and had credit limits, Sister Li's company almost never faced bad debts, and cash flow returned quickly. The days of chasing customers for payments at year-end were gone.

We won't detail all the other systems and processes Sister Li implemented, but it's clear that the shift in her hiring philosophy brought new changes to her company. Sister Li no longer had to be busy every day; even when at home, her business ran smoothly. Notably, to prevent cash risks when she was away, she required finance to deposit money only into banks she designated, and she signed agreements with banks that, without her written authorization, finance could not withdraw cash directly but could only remit funds to accounts of the specific manufacturers she designated.

From Sister Li's case, it's evident that distributors must first correct their mindset and philosophy on hiring, and establish hiring standards based on systems and processes, to avoid the recurrence of such adverse events.

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