Our Most Diverse Panel Ever Shares Their Perspectives on Acquisitions, Challenges, Diversification, and More
Above, from left to right: Chelsey Bode, Tom Callinan, Robert Ferland, Darren Metz, Richard Van Dyke, Preston Woolfolk
Each year, we ask a different group of dealers to weigh in on a host of topics relevant to dealers. The intent is to provide different and diverse perspectives from across the country and from dealerships of different sizes. This year’s panel includes Chelsey Bode, president of Pearson-Kelly Technology (PKT) in Springfield, Missouri and the youngest woman leading a dealership in the country; Tom Callinan, president of FlexPrint LLC in Phoenix, Arizona, one of the largest dealerships in the country; Robert Ferland, CEO of Axion Business Technologies in Cranston, Rhode Island, whose dealership was acquired by Visual Edge Technologies in 2016; Darren Metz, president of Novatech, Inc. in Nashville, Tenn., another large dealer with a strong IT services offering; Richard Van Dyke, president of Advanced Office, a dealership with offices across Southern California; and Preston Woolfolk, co-president of DOCUmation in San Antonio, Texas, who along with his brother Hunter, are two more of the youngest dealers in the industry.
Our panel responds to a wide of questions, the challenges faced by their dealerships, diversification, their thoughts as to the viability of production and industrial print, and the one wish they’d like their manufacturers to grant them in the coming year. And be sure and check out www.thecannatareport.com later this month to see how the panel responds to questions on security and acquisitions.
CR: What is the biggest challenge your dealership is facing in the markets it serves and what are you doing to meet that challenge?
Bode: It has been challenging to remain competitively priced while hitting margin goals as most hardware operates fairly similarly.”¯We operate more like a boutique operation and pride ourselves on selling customer experience above anything else.”¯Historically, this has afforded us the ability to hold the necessary hardware, software, and aftermarket margins while still remaining competitive. We have experienced rapid growth since 2011 and although we haven’t seen a high percentage of employee turnover, we do have a lot of change occurring internally due to promotions and territory adjustments.
We’ve recognized the need to overcommunicate with our current customer base to ensure they don’t feel like they’re getting handed off to new faces.”¯The sales reps are held accountable for their PBRs (periodic business reviews) and are encouraged to include other specialists or PKT employees in these reviews to keep some of the same consistent faces in front our clients.”¯We have seen amazing growth in IT services and software sales by forcing the reps to include these specialists in their meetings.”¯As we continue to put a strong focus on managed services and solutions, we are beginning to gain control of our hardware margins again.
Callinan: There are a few areas that provide some headwinds to our business and they are primarily attributed to the device. Every year, the average unit selling price within segments decreases and this requires us to grow placements to offset the price decrease. Over the last 10-plus years, the migration to color has helped tremendously as placements moved to more expensive color devices, but I’m not sure how much more runway that has, as there is pretty good color penetration at this point. Moreover, as the price of the device decreases, we see more companies asking about cash purchases versus leasing. I believe this trend has the potential to cause the most damage to our business model. If we combine that low price with the fact that interest rates are rising””and from Fed’s direction it seems like they will rise at least 100 basis points over the next year””leasing will start to look less attractive as an option. We recently hired a strong vice president of leasing and we are working to educate the sales force on the benefits of leasing, something we haven’t had to do for 20 years. We are also better training our front-line managers on how to develop their team members so they have the skills to gain market share.
Ferland: With low unemployment, it is very tough to find “A” players in sales, service, and admin””sales being the most difficult. We do, however, find good people when we acquire companies in New England. Probably the best asset of the companies we’ve acquired is their top talent, which we retain, or by hiring folks that normally would not have made the jump if the company had not been sold. They’ve blended in well.
Metz: Our core legacy office copier business is experiencing a reduction in average selling price per unit, along with a drop in average copy volume.”¯Our response is two-fold””diversify our product offering and consolidate the struggling office copier channel.
Van Dyke: Winning net new business against the direct operations with their very low CPC rates will not get us the profitability we need long term. There are too many manufacturers and too much offshore manufacturing capability causing direct vendors to give away equipment and service in too many cases to maintain or grow their businesses.
At Advanced Office, we use a couple of different strategies to win this lower-margin business, especially when the companies we are targeting are within our sweet spot or are strategic for future sales of hardware, solutions, or MPS. One is a refusal to lose compensation where our sales representative, our manufacturer, and our company share in the pain to land these valuable growth accounts. Second, we’ve worked hard to build a very efficient operation, especially on the service and administrative side, to have significant aftermarket/service department margins to be able to add lower margin growth opportunities with net new customers.
Woolfolk: We believe the biggest challenge currently is continuing to differentiate value and low cost. Service from our competitors is at an all-time low and customers tend to chase the shiny objects (low cost). It takes several rounds of nightmare service issues for them to realize that great service is not provided by the lowest cost dealer. Our challenge is to quicken that cycle and educate them before they go down this route.
CR: How has your dealership diversified beyond selling traditional copier technology over the past few years and/or what technologies or services are you monitoring to see if they offer your dealership a valid diversification opportunity?
Bode: PKT saw a need to diversify while the copier division was still strong. After reviewing a few acquisition opportunities in the managed IT space we felt it was best for our dealership to develop that division organically and then pursue acquisition once we developed our own processes and programs. We engaged with a consultant, invested heavily in IT executives already familiar with the managed services space, and looked for outsourced partnerships to allow us to scale wisely.”¯We found a strong partner and continue to work on a hybrid approach, including internal and outsourced talent to give the client optimal attention, experience, and support.”¯I believe you can’t be successful with diversification if your core business is in shambles. It certainly won’t fix a broken business.”¯In fact, your core business needs to be stronger than ever.”¯In my opinion, it is also paramount that a clear message be sent to both employees and current customers alike stating you are dedicated to your core business daily and explaining the “why” behind diversification.”¯All that to say, we have seen incredible growth from our managed services division and so far, it is allowing us to hold better margins with less competition involved in our copier division.
Callinan: I agree that diversification needs to occur, but I don’t think it is as urgent as some believe. We are one of the five largest dealers in the country, yet we still have low market share, so we can easily double revenues simply by gaining share, even in a shrinking industry.”¯That is a tremendous opportunity, and we are not overlooking it to chase shiny objects.”¯The Flex Technology Group generates 50% of revenues from MPS and 50% from the traditional copier space, and one of our largest diversification opportunities is to bring that MPS knowledge developed at FlexPrint and Flo-Tech to our traditional copier customer base. We also have an opportunity in product extensions like production, where we are underpenetrated. We are launching a better planned and executed professional services offering in 2019 to sell more software and related services into our large customer base. After our employees, our largest asset is our customer base and most companies today are looking for fewer vendors that can handle more of their business process needs. We are targeting the first quarter 2020 to launch a managed IT initiative with our CIO and vice president of marketing conducting the necessary research to enter that space successfully. We need to logically grow our offerings, making sure whatever adjacency we enter, we do it with a solid plan and great execution.
Ferland: If you don’t diversify your products and services, it’s just a matter of when you’ll be picked off. You need to diversify your business practices as much as you practically can, every time you can. We just did an acquisition a few days ago; it came with an old-fashioned furniture company. You may snub your nose at furniture, but people still need furniture and it would be great to introduce another company [we acquired] to furniture. You walk into the guy’s company and the first thing you see is the receptionist’s desk, that’s ours. You see the cabling, that’s ours. You see the IT/MNS, that’s ours. The copiers, printers, the whole thing. That’s diversification, that’s what we try to do, and we hammer it with a team approach.
Metz: Ten years ago, 100% of our business was from core A3 office MFP equipment and service revenue. While still very important, revenues from the A3 office MFP is down to about 50% of our business. Today, we get half of our revenues from other sources, including 3D printers, IT services, wide format, and production. Many people are surprised to learn we are doing more than $10 million per year in 3D printers. A lot of dealers jumped into 3D early and got burned due to unreliable technology and a lack of customer demand.”¯We stayed the course and are at last seeing the results of our perseverance in 3D.
Van Dyke: Having many friends that own MNS companies that I met with regularly in a CEO group for years, they taught me how different and complex the MNS business can be. We just decided this was not a direction we wanted to go since it is not our core competency. We prefer to partner when appropriate. For us, MPS is an extension of our core business. Our direction in the technologies and services space revolve around simple solutions and more complex workflow and business process improvement offerings. We like solutions and while this is not a large amount of our gross revenue, these offerings make so much sense to our customers and enable us to add customers and grow within existing accounts. Growing this and becoming more capable to provide the professional services and post-sales support with our help desk and skilled IT team is a big part of our direction. This type of diversification is a better fit for us since all the technology we offer revolves around the document, which is at our core.
Woolfolk: Luckily, we decided to diversify back in 2012 and expand into managed IT services. Previous to that venture, we jumped on the document management bandwagon back in 2005. We personally believe there is still great growth to be seen in managed IT, but we’re keeping our eyes on the emerging technologies that are consolidating into our industry””voice, shredding, and coffee/water services. Strangely enough, we used to be in the water business back in the early 2000s, but we sold that venture off to a partner who wanted to dedicate his full attention to the water industry.
CR: The Cannata Report is a big advocate of industrial print. Have you given much thought to that segment and what factors are influencing your decision to pursue it or not to pursue it?
Bode: PKT currently resides only in secondary markets so at this time we are in the process of a market study to determine how much weight we want to throw behind this pursuit. It’s been interesting to observe the manufacturers investing so much R&D into this initiative.”¯It has definitely developed some internal dialog; however, our key focus is in a few different areas for the time being.
Callinan: Candidly, we aren’t doing a good job in production print and that is one of our top two growth initiatives in 2019. We are hiring a national production print leader and have hired a couple of strong local production specialists.”¯Our vice president of sales has production as a top priority for us and we will execute. Check back next year on industrial print as we simply aren’t ready for it today, but we are excited with the potential.
Ferland: We just hired a dedicated high-volume rep who will also sell into this environment.”¯For a couple of years, Konica Minolta was saying you should dedicate a rep to production print. My pushback to them was if you think it’s so great, why don’t you do what Xerox has done? So, they stepped up and funded [a portion] of the dedicated rep’s first-year salary. It’s been great. Konica Minolta’s dedicated rep is a superstar and meets with our guy every month, tracking new prospects and discussing how to go to market. Not only did we expand from production print, but Konica makes a lot of specialty products in that arena like devices that can print on plexiglass. Our production print rep [doesn’t have to be an expert], but he has to be able to talk enough about it in order to bring a Konica Minolta’s specialist in [if there’s interest]. We’ve partnered strongly with Konica Minolta, and I think we’re doing it right. We’re picking the premier print shops but want 90% of our business to be in the in-plant environment.
We are pleased with his pipeline coming out of the gate. This is incremental business. We just got a $90,000 deal last month with Konica machines in an account that was all net new””we took it away from Xerox. We got those incremental clicks and we’re psyched. I wish I did this years ago. Visual Edge gives us a little bit of a security blanket, and we’re able to get more from our manufacturers because they know the commitment and backing is there. Let’s face it, it’s a mature industry, we have to cherry-pick where we think there’s growth, for example, managed print services, production print, and MNS. That’s where you have to kill it to support the down-the-street copy growth. If we can do that, we’ll hit a home run. It’s just a matter of executing.
Metz: We agree 100% that industrial print is a huge opportunity for the traditional BTA channel. We were the first dealer to sell the Konica Minolta KM-1 digital press. We placed it in an industrial print environment [where] the customer is printing large volumes of carpet sample adhesive labels to use in point of purchase decisions.”¯Both end users and manufacturers need a viable channel to support new inkjet technologies for packaging and other industrial print applications. And the BTA channel has all of the logistical, technical, and personnel resources to fill the niche in the marketplace.
Van Dyke: While industrial print is a nice growth opportunity, it is not part of our core capabilities and at this time, it would be a distraction from growing our imaging business and solutions. We just can’t be all things to all customers and prefer to focus today on those core aspects that revolve around the document. We will leave industrial printing to those more willing to make serious investments.
Woolfolk: We are making some large pushes currently into more production equipment across our customer base. Industrial print is on our watchlist, but we haven’t made the dive just yet. It’s a major investment in terms of technical resources, so we want to be all-in before we take the leap. Our reputation for great service is more important to us than a quick win opportunity on the sales side.
CR: If your primary manufacturer(s) could grant you one wish in the coming year, what would that be?
Bode: Differentiation.”¯As technology advances, there seem to be fewer and fewer differences amongst hardware, software, pricing structures, etc. The manufacturers that are investing in the future and ways to help “us dealers” stay relevant in long term have my eye.
Callinan: We have very strong relationships with all our primary manufacturers and we have consistent dialog at the highest levels on how to better work with one another.”¯I’m not sure that could improve much as it truly is like having a conversation with someone in my family””open, honest, sincere. Strategically, my “wish” would be for them to get out of direct operations.”¯On the MPS side, we compete heavily against the OEMs, and our copier companies also find the directs to be the most competitive, not necessarily focused on profit like the dealer community.
Ferland: Keep your pricing as simple as you can. Do not overcomplicate my landed cost of M&A into my dealership [by providing] all sorts of gates and rebates to get me to where I need to be.
Metz: I wish both of our manufacturers, Konica Minolta Business Solutions and Canon, would have their direct organizations target national accounts exclusively and concede the local market small business space to us. It’s never made sense to me to have to duel it out with the manufacturer for a local one-machine account.
Van Dyke: If our primary manufacturer had the ability to easily offer CPC subsidies to enable us to offer low, competitive direct manufacturer-type CPC rates consistently, and we would generate modest aftermarket profitability to win significant net new business, this would make growth far easier. But then again, I recall someone telling me regularly, “Nothing is easy,” and this certainly will not be a silver bullet. It takes significant work on many fronts to grow profitably as all your readers know.
Woolfolk: More rebates, the dealer’s best friend.
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