Last month, CRN hosted an exclusive roundtable under the banner ‘Secrets to Channel Success’. The guest list included members of the CRN Channel Elite – past CRN Fast50 winners who measure their revenues in the tens of millions of dollars and prove that smart operators can combine size with speed.
We were hoping for a straight-shooting discussion that would offer advice for the next crop of Fast50 winners as well as caution against any classic missteps. We were not disappointed.
ATTENDEES
Nick Verykios, Distribution Central
Sydney Borg, PCS Australia
Paul Hendry, Fujitsu
Jamie Warner, eNerds
Chris Young, UberGlobal
Craig Somerville, Somerville Group
Tim Gentry, Avaya
Ian Poole, UXC
Gary Marshall, Bulletproof
Mark Rook, Huawei
Craig Nielsen, McAfee
Andrew McHenry, Bridge Point
CRN Nick, Distribution Central must have a lot of conversations with resellers and system integrators of all sizes about strategies, technology road maps and business advice. What are your customers asking and what kind of advice are you giving them, especially in terms of growth?
Nick Verykios, Distribution Central
The advice that most resellers are looking for is how to run a business as an entrepreneur and how to fund it. You’ve got small resellers with significant expertise – enough expertise to win a significant deal. So how does a two-man shop with the smartest guys in the world when it comes to, say, ‘cluster storage’ – I don’t know if that’s even a real thing – that wins a $5 million deal get it funded? No distributor or vendor would give them that line of credit.
But there might four or five other instruments available to the reseller to allow them to do that deal that they don’t even know about. That’s key – how to fund big deals.
Also, be really careful who you listen to in terms of advice. If you are a fast-growing reseller, the only people you should be getting advice from is somebody who owns their own business. Resellers will constantly be serviced by really good vendor reps or distribution reps who work for someone. They have an agenda and that is to sell as much of their product as they possibly can.
CRN Syd, you have built up a business and must’ve had all sorts of people offering you advice. What’s the best and worst advice you’ve had during your career?
Syd Borg, PCS Australia
It’s probably the other way around for me. I’m usually giving the vendor and distributor advice, having been in the game too long.
They all want to tell you where the market’s moving. I listen – then I do the opposite. I guess that’s why I’m still successful.
Funding has never been an issue. Financing’s never been an issue. If you run a good organisation, you shouldn’t have a funding issue.
CRN What about financing support and leasing support and other ways vendors can work with resellers to try and foster that growth?
Paul Hendry, Fujitsu
It depends on the vendor. Fujitsu is in a strange position. We are very old but we are relatively new in the channel. Our process is to try and develop resellers rather than just find them and try to sell them kit.
So we’re trying to work on things like training them or sponsoring them. Sometimes very small amounts of sponsorship will help – $1500 in a niche market might be just what they need to get their website up and running.
Finance is a difficult one because the finance guys will ask a lot of awkward questions and then say ‘no’. The smaller you are, the harder it is.
So we’ve looked at how we can help them. Can we do that using MDF? Can we do that using some sort of promotion? Can we do some training for them? Can we work with them and their customers to build the business?
So those are the sort of issues we are trying to. We need to make sure that the people we are dealing with actually have a business. There’s no point selling stuff to people who are not going to be able to sell it on.
CRN Jamie, eNerds has been in the Fast50 four years in a row. How have you funded that growth?
Jamie Warner, eNerds
We have actually grown through cashflow. We haven’t had to take any external funding to enhance that growth, although in the future we might do. Where resellers and MSPs can grow is new business, so any new tactic or advice or strategy that a vendor can provide in terms of new business is always welcome. There was one we had a really great experience with years ago. That was Express Data.
They went down a road of doing telemarketing. The challenge for sustained growth is having a marketing engine that can generate sustained new business opportunities. If you are an annuity-based business, it’s obviously a little bit easier. But if you’re a transactional business only, finding new clients is of paramount importance.
CRN Craig, almost all your growth was funded out of working capital. Some say it is a better model to use some working capital and some finance. What’s the right mix?
Craig Somerville, Somerville Group
It depends where you are in the growth cycle. But why do we assess growth as success? We do it as an economy, as global economies. Vendors tell us to grow because they have to grow, because that’s how they assess their business. But in the last 30 odd years, we as a business have sat back and gone, ‘You know what, it’s not about growth, it’s about margins, it’s about profit.’
I think we need to focus on what’s profitable for our businesses. That doesn’t mean growth is the criteria to focus on. Vendors are into a different position, they need growth.
CRN One measure of success centres on acquisition. A lot of entrepreneurs want to be acquired. Tim, you work with NSC, which was recently acquired by Telstra. How can companies get themselves in the right shape to be acquired?
Tim Gentry, Avaya
Companies that we’ve worked with have put themselves in acquisition mode. That’s it: you can put yourself in acquisition mode.
Not to talk about any specific company, but when I’ve had these conversations with my partners, it’s usually their biggest growth year. They’re focused, they’re absolutely driven, and for me I benefit as a vendor, because I’m helping to build that momentum.
CRN How can resellers stay on top of their vendors and make sure they’re delivering on targets?
Tim Gentry We have quarterly business reviews, annual business reviews – whatever term you want. It’s an amazing powerful presentation of show and tell. You need to hold people accountable. When you walk out of a meeting, what are the four action items that I’m going to give to you, what are the four action items you’re going to give to me?
Syd Borg I’ve always tended to look at my disties and suppliers as partners in my business. I’ve always classified it as a marriage and the only argument is who’s on top and who’s underneath. But that’s becoming less of the case now.
I find that the vendors are getting more desperate and frustrated. They need more business. They need volume. The old saying is, ‘desperate men do desperate things’.
Craig Somerville Tim made a very important point earlier. You run a business completely differently in ‘running-a-business’ mode than you do in acquisition mode. If we were in acquisition mode, our business model would be vastly different to running it as a sustainable lifestyle business.
CRN What would you be doing differently?
Craig Somerville If you are going into acquisition, top line growth suddenly becomes God. If we were packaging to sell, the cost structure would change dramatically. Our remuneration packages as directors would probably change.
CRN Ian, can you offer some insight into what a business should do to get acquired?
Ian Poole, UXC Connect
I can give a couple of instances. Altogether UXC has made 50 or 60 acquisitions and I personally have done five or six. It really depends on how you construct the acquisition.
We tend to look at buying organisations that have reached, if you like, one chapter and want to continue into the next chapter. It could be a chapter of growth, where they need synergy and scale with somebody like UXC.
When people are in sell mode, there’s far more focus. It makes you think, ‘Well if they’re focusing so much during an earn-out period, why didn’t they focus more when they are running the business themselves?’ We typically structure deals around earn-outs, because we like to keep the management when we buy companies. During the earn-out period, we usually pay a multiple of profit, so organisations tend to be very focused on their profitability.
Does that mean it’s not sustainable? We work with them to make sure that it is sustainable, because they want to walk away in some cases and it’s our responsibility to make sure that it is sustainable.
Nick Verykios I don’t see a need to separate acquisition mode versus operating mode. You should always be for sale and that means that you should be making as much money as you possibly can.
I’ve sold two businesses, and I’m sure I’ll sell this one and it’s always been that case, make as much money as we possibly can.
Craig Somerville Of course we always run our business to make as much money as we can, but when you’re packaging for sale, you may make sales decisions that are not long-term sales decisions.
We’ve seen sales guys who have made sales decisions that as a business we sat back and said, “You know what, that’s not good for our long-term business.”
CRN Can you be specific?
Craig Somerville Good sales guys can sell an air conditioner to an Eskimo. So you could sell a SAN that is too big to a guy and justify it, until a competitor comes along who says, “You’ve been taken to the cleaners.” We see that all the time.
Ethical sales are really important for our business. We focus on saying, “Fit for purpose, guys, don’t gouge.” Every sales guy can gouge, but if we make smart decisions as a business, we will be long-term.
Syd Borg We are fortunate enough that we continue to grow off the back of our own client base. The reason is, exactly as Craig is saying, we don’t take them to the cleaners. While we are all entitled to make a profit you have to try and get that medium. Keep the client happy, and if can retain them for 10, 20, 30 years, then you milk it.
A good salesperson will go into that account, and once they’ve got it, they’ll will milk it for all it’s worth – you sell them the toilet rolls.
You’ll maximise every opportunity out of it and that gives you natural growth from within your own client base.
CRN Andrew, has it all been organic growth for your company?
Andrew McHenry, Bridge Point
We actually acquired a company two years ago – Servers Central – to increase our depth and breadth across data and augment our network business.
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