Our Advisory Board addresses diversification, supply chain issues, and e-commerce.
Above, clockwise from top, AJ Baggott, Deb Dellaposta, Patrick Flesch, Jim George, Troy Olson, Doug Pitassi
The Cannata Report Advisory Board members are never shy about sharing their opinions with us. For our first virtual panel of the year, we’ve asked them to respond to three questions about three hot topics impacting the industry: diversification, supply chain issues, and e-commerce.
Our panel includes AJ Baggott, COO, RJ Young Company; Deb Dellaposta, president, Doing Better Business; Patrick Flesch, president, Gordon Flesch Company; Jim George, president, Donnellon McCarthy Enterprises; Troy Olson, owner/chief business development officer; Les Olson Company, and Doug Pitassi, president, POA. (Visit www.thecannatareport.com throughout the month of February to read how various vendors across the document imaging industry responded to similar questions.)
CR: What has been your most successful diversification opportunity beyond traditional office print during the past 5-10 years? Why were you successful?
Baggott: We have been very fortunate to find multiple areas of diverse revenue streams that have become successful parts of our business. The first is production print which is adjacent to the traditional core business but still quite different. We have grown this area significantly in a very healthy and profitable way over the past 7-8 years. We are expecting $12-15 million in true production hardware sales in 2022. Another area that is still relatively new for us is our Technology Solutions business which includes audio/visual, phones, and physical security systems. We launched this business in 2019, and over the past three years, it has grown to be a significant part of RJ Young’s business. In 2021, we finished the year with over $14 million in revenue in this division of the business taking double digits points to the bottom line. It’s been high growth and accretive for us, fueled in part by the pandemic offsetting some of the declines in aftermarket revenues we saw during the height of COVID.
Dellaposta: We were an early adopter of managed document services. Dedicating specialists to help craft new workflows and holding workshops with the end-users for greater customer buy-in [helped us be successful].
Flesch: By far, our most successful diversification has been entering the managed IT services space. However, it certainly didn’t happen overnight. And we learned a great deal along the way. When we were initially evaluating this business, we were faced with three options: build from scratch, partner with a service provider, or acquire. We decided to partner with Continuum at the time (2012). We had some success, and they were great to work with. But as we entered 2018, we had a feeling that an acquisition could really elevate our business. We met with several companies and ended up acquiring a local, Madison-based IT provider that also had a presence in Northeast Wisconsin and Milwaukee. It has been a home run. We have gained a great deal of operational expertise from this partnership, and it has taken our IT business to the next level. Last year we did $16 million in revenue, a 60% jump. Best of all, it’s profitable. We are all thrilled with where things are going for ElevITy (the name of our IT business).
George: We have expanded our servicing area through acquisitions and ramped up the hiring of new sales folks in those areas. Our largest area of growth by percentage is in the IT space and cybersecurity. We have just completed the acquisition of an IT provider in California. We were successful because we stuck to the plan that we devised six years ago. We will continue to seek out acquisitions that meet our high level of standards and are a great fit.
Olson: Managed IT Services. We have built a great team of 70 IT professionals. Our team includes both sales and technical support members. We have built two successful Les Olson IT Network Operations Centers so we can serve our clients with the best support possible.
Pitassi: While traditional A3 print is declining, the focus on printers and A4 has made up a significant percentage of our clicks. Reps are constantly finding printers in the field not under contract. Earning a customer through MPS has been a huge win for our business. Unified Communications (UC) is also making a huge impact. UC has consistently grown by 40% year-over-year for the past five years. Connecting remote workers has been top of mind for almost every business making this an easy conversation with prospects and existing customers. POA added over 9,000 phones to our UC portfolio just this year.
The Software as a Service models are very successful. Firewalls, servers, data back-up and redundancy all greatly increase our offerings to customers and are not affected by supply chain constraints. As threat heightens, many businesses, including POA have increased focus on cybersecurity, and this has proven to be an upcoming market opportunity.
CR: How is your dealership navigating supply chain issues?
Baggott: We’ve been incredibly fortunate that we own our own leasing portfolio, so we have been able to leverage our leased assets very easily for re-leases, used equipment sales, and getting creative with blended approaches to new/used hybrid transactions. It has made the pain from the supply chain disruption much more palatable. Additionally, most of our manufacturers have done a tremendous job of communicating, which we have in turn pushed to our customers. I think the transparency and communication about the issue are critical to navigating an issue that has so much uncertainty around it.
Dellaposta: We feel very lucky to have great relationships with our three major manufacturers. We have not been impacted much by the supply chain crisis. In some instances, especially A4, we have been able to fulfill those orders with refurbished equipment.
Flesch: The supply chain issues have been tough. We are struggling just like everyone else. I personally spend time on this challenge every single day. The most difficult part is that the vast majority of this issue is completely out of our control. However, we have been working very closely with our manufacturer partners to do the best we can to fill our backorder log. Thankfully, we have outstanding relationships with our three main lines—Canon, Ricoh, and Lexmark. Those relationships have helped us to make the best of the situation, which will not only benefit GFC but, more importantly, our customers. The first quarter is definitely going to be rough, but hopefully we can get caught up in the spring/summer. We’ll see.
George: We have had some supply chain issues which we easily remedied with a fleet of over 400 loaners ready to go at all times. We also have great relationships with our manufacturers Toshiba, Ricoh, Sharp, and Brother. We made sure we had inventory, and we continue to carry inventory which has helped us tremendously.
Olson: We have been very fortunate to represent Sharp. As most are aware, they have outperformed the market on being able to supply products and services during these difficult times. It’s been very important to have direct open communication with your partner manufacturers. We also have a very tenured staff in our order processing department that has done an outstanding job of watching our run rates, planning well, and forecasting closely with our sales teams. We have been carrying a bit more inventory than what we would normally. Wherever possible, be willing to pivot, in other words, sell what your partners have available.
Pitassi: All manufacturers have had different levels of difficulties with supply chain and I appreciate the partners who have been fully transparent with us. The only way we can effectively communicate the current state of deliverables to our sales teams and customers is through clear and consistent communication. We must work through these challenges transactionally. When working with a customer that knows we can make their older equipment last longer- we delay the delivery of new. If not, we have the ability to replace what they have with refurbished to bridge the gap. Some issues are larger than others, but we handle them one at a time. Supply chain issues have ironically helped create a sense of urgency among customers to put their orders in earlier. We look forward to this current challenge improving marginally month by month while we all get through this.
CR: Do you see value in adding an e-commerce component to your existing business model, particularly for selling more commoditized products such as lower-end A3 devices, A4, and printers? Why or why not?
Baggott: This is an interesting question, and one that I know is hot in the industry right now. I’ll be candid in saying that I think e-commerce in today’s business model is probably not all that valuable but will be as we continue to change and evolve the market. We have created e-commerce sites for some of our larger enterprise accounts that allow them to set specific configurations with predetermined service contracts in a menu/catalog style form for their nationwide sites. This has been a huge benefit to those customers and the efficiency of their rollouts. Further, as we have seen tremendous growth in our unlimited service plans and hardware-as-a-service contracts, I could see this model benefiting from an e-commerce platform.
Dellaposta: We have added an e-commerce site to our website. It is helpful to gain the transactional supply business. However, the lack of availability of A4 devices has slowed down any of those sales.
Flesch: The e-commerce component has certainly been discussed inside our four walls. We do see some upside for some of the more commoditized products like media, toner, etc. But we just don’t feel comfortable moving in a transactional direction as it relates to the devices we sell. We believe that the hardware sale is a complex sale, and we feel that we bring so much value to that transaction with the knowledge and expertise of our sales and technical support teams. We strive to make the customer experience above and beyond for our clients, and we feel that if we moved to an e-commerce platform, we would lose control of that entire experience. That said, we will continue to evaluate this opportunity and would never say never.
George: We currently have e-commerce on our website and have had it since the beginning of the pandemic. It has been very successful for our customers and us.
Olson: Most likely yes. It may help as well in large account management and other areas of our business.
Pitassi: e-commerce has its place in some markets and within certain products but our biggest asset as a company is our sales team of reps and engineers. Our job is to link technology, products and services to match a customer’s challenge. Essentially, we create an opportunity that didn’t exist prior to our conversation and bring them solutions they didn’t know they need. While most products cost between ten and thirty thousand dollars, buyers want to know they can count on not only the product they’re purchasing but also the support team behind it. Our customers know they can count on POA to make the technology work. e-commerce has a place, however, it cannot give the experience and care people are able to provide.
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