Donnellon McCarthy Enterprises is growing revenues and expanding its footprint throughout Ohio, but the ultimate goal is to expand nationwide.
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This month, we highlight Modern Office Methods and Donnellon McCarthy Enterprises, two of the three dealers we visited during our dealer tour of Cincinnati in April. We are presenting our tour in the order we visited each dealer and will conclude our coverage with an article on Prosource in our July/August issue. Each of these three dealers has a rich history, has achieved success in the Cincinnati market and beyond, and possess strong visions for positioning their dealerships to compete in the future.
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Tony Donnellon, vice president, operations; Jim George, president; CJ Cannata; Jim Donnellon, CEO; and Frank Cannata
As we wound our way through Cincinnati, our second day was spent with owner Jim Donnellon and President Jim George of Donnellon McCarthy Enterprises (DME), learning about their business and taking a grand tour of their facility.
DME is Toshiba’s top dealer in the Midwest and its fourth largest dealer in the country. It’s also one of Savin/Ricoh’s fastest growing dealers in the U.S. DME also represents Sharp. While DME continues to have a strong hardware business, the company has been steadily expanding its services business with managed print services, managed network services, and managed document services. DME added mailing equipment from FP Mailing solutions a few years ago, which has emerged as one of fastest growing segments of its business.
In December 2012, Jim Donnellon acquired DME, previously known as Donnellon McCarthy, Inc. (DMI), a dealership originally founded in 1957, from his siblings who owned the business. At that time, the dealership was experiencing its fair share of growing pains, dealing with the challenges of keeping up with an evolving industry, and was in need of a strategic leader to help it find solid ground. Donnellon wasn’t coming into owning the dealership blind. He also owned another company, Andrew Belmont Sargeant (ABS) Business Products, prior to acquiring DMI. On Jan. 1, 2014, he combined ABS and DMI to create Donnellon McCarthy Enterprises, a company with combined revenues of $23.5 million.
Realizing synergies between the two companies, among Donnellon’s first moves were to cut DMI’s payroll from $7.5 million to $4.1 million, implement e-automate print management software and Compass sales management software, establish best business practices, and blend the two companies’ cultures together.
These initiatives would prove to be more difficult than Donnellon had imagined. After two years, he hired Jim George as president of DME’s Columbus location and a year later promoted him to president of DME. Under the leadership of these two savvy businessmen, DME has built a strong services business in its six locations, including DME’s Cincinnati corporate headquarters, a sales office in Cincinnati, a Digital Solutions Center in Cincinnati, and sales offices in Lima, Dayton, and Columbus, Ohio. The company currently has 131 employees and as its business continues to grow, the plan is to add more talent to the organization.
In 2017, DME revenues were holding steady at $24 million. For 2018, George happily informed us the dealership’s run rate is trending toward $30 million.
Growing in a competitive marketplace has been achieved through acquisitions and diversification such as the aforementioned services and mailing equipment.
“Everything works when you develop a go-to-market approach that says you have to work on the concept that capturing all of the customer’s needs is the objective,” said Donnellon.
“Sell it all from the wall to the internet,” noted George.
A vibrant managed network services business has made a big difference in how the company is perceived in the marketplace. DME is viewed as more than just an office technology provider. Its transition to offering MNS was accomplished through a combination of acquisition””an MNS company and an NOC””as well as internal and external hires. DME also partners with an IT company that George says no one else in the industry is working with.
“Prior to that, we crashed and burned a couple of times,” acknowledged George. “The key there is if you’re [just] trying to sell hardware, you’re done. They’ll find it online for less.”
Finding MNS customers hasn’t been all that challenging since many of those have been DME’s existing hardware customers. As DME discovered, IT contracts are highly profitable with margins of 40% to 45%, which are higher than other segments of the business. George expects contract renewals in this segment of the business to be high as well.
As the dealership evolves, the expectations are for traditional hardware sales to decline by 25% over the next five years, while MNS and MPS are poised to grow by 20%.
“If you’re living on equipment sales alone, it’s the kiss of death,” said George. “Our ultimate goal is to have $100 million in revenue with locations from coast to coast. We will be an all-encompassing service solution provider with fewer competitors.”
To stretch its footprint nationwide, DME is acquiring dealerships. Mostly, the company has been targeting dealerships of $5 million and under. Dealerships of this size tend to be easier to find and less likely to be acquisition targets for some of the venture capital-backed organizations that often hone in on larger dealerships. DME’s most recent acquisition was Columbus Office Solutions and Systems in April. DME expects at least three more acquisitions to close before the end of the year, if not sooner. Within five years, George expects DME to have a presence in more than 20 states.
With their services business projected to grow by 20% in 2018, it’s easy to see why DME’s leadership is so bullish about their future. The repeated references of providing value to customers by ensuring they are addressing all their needs indicates a horizontal approach to the market. The aim appears to be extracting greater revenue per customer, which offers the potential to offset erosion of margin on the hardware side.
DME company remains steadfast in its strong commitment not only to its customers but also to its employees. DME was recently acknowledged as one of the “Best Places to Work” in Cincinnati by The Cincinnati Enquirer for the second consecutive year. Contributing to that honor is recognition of its employees and creating a culture that allows them to feel they are important parts of the team.
When it comes to business planning and strategy, DME maintains an aggressive attitude to the marketplace and that can lead to some big wins. The leadership team is confident they can deal whatever comes their way in the future. Both Donnellon and George firmly grasp that profitability is the linchpin in the success of this aggressive strategy.
In wrapping up our meeting, the discussion turned to OEMs.
“I would ask the manufacturers to stick to making stuff and allow the dealer channel to service it,” he said. “I see too many cities with over 20 competitors in town. I think that is overkill.”
After spending the day with Donnellon and George, we better understand what it takes to build a sustainable business model. With full engagement in the present, this team remains mindful of the future. Though they may not be able to full predict what the business and industry will look like five years from now, DME’s leadership team is optimistic the company will have sufficient resource to manage through any changes or opportunities that come its way.
Donnellon McCarthy Enterprises showroom
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DME’s Revenue Breakdown
Hardware: 50%
MPS: 20%
MNS: 10%
Production print: 10%
Mailing: 5%
Software: 5%
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Card Sharks
During our conversations with Donnellon and George, they both referenced manufacturer spiff programs that incentivize sales reps and the owners of the dealership with credit cards. Donnellon told us he believes those spiff funds should not be put into the owner’s pockets, but rather used to invest, acquire, and build new income revenue streams to ensure profitability for the business.
That is not the first time we have heard this from a dealer. We have no doubt there are some dealers who would put that money in their pockets; however, DME is not one of them. Donnellon and George want to grow and take care of their employees. They also understand that without the necessary levels of profit, none of this can work.
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Food Truck Stop
On the day we visited, we had the opportunity to see firsthand how DME understands how to engage its employees. For lunch, Jim George had designated it as “Food Truck Day.” Three trucks, each with a different kind of offering, sponsored by DME’s leasing partner U.S. Bank, arrived to cater for DME’s employees. George believes events like these help develop intra-company camaraderie and are a nice way to show employees that management values their contributions. Along with the employees, we had a great time.
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Dealer of the Year Recognition
At Toshiba’s Lead Conference in 2017, DME was recognized as its Dealer of the Year. We asked Larry White, chief revenue officer, Toshiba America Business Solutions, what DME accomplished to earn that kind of recognition.
“DME was our “˜Dealer of the Year’ in 2016,” said White. “They grew their business with Toshiba by over $3,000,000 in 2016″”the fastest growth for any of our larger dealers for the year. In addition, DME is a huge advocate of giving back to the community.”
Among the charitable organizations DME supports are the American Heart Association, Cincinnati Public Library, Free Store/Food Bank, Toys for Tots, and Salvation Army.
“I believe Donnellon McCarthy typifies what Toshiba looks for in its “˜Dealer of the Year’ and Toshiba is proud to be a partner with them,” added White.
