Climbing the pole

You could say that Nextbyte, Australia’s largest Apple reseller, started not with a jump but a stumble. In the mid-90s Adam Steinhardt, an Adelaide professional pole vaulter, ran his small Apple store in the mornings and left for training in the afternoons to practise for national and international tournaments.

In late 1995, the young salesman was approached by Tim Kleeman, another salesman with whom he had worked at a now-defunct Apple dealer called Random Access. After 15 years at Random Access, Kleeman was wondering whether they should form a partnership and build their own chain of Apple stores.

However, the Olympic Games in Atlanta were around the corner, and if Steinhardt won the national finals he would be flying to the US to represent Australia.

When the big day came, Steinhardt missed selection by nine centimetres – which, in a five-and-a-half metre jump, is the width of a whisker.

The next day he was back at work and when 2pm came he packed up for training.

Kleeman was confused. “I pointed out to him that he wasn’t going to Atlanta and [asked] why was he going training? He looked at me with a straight face and said, ‘There will be another one in four years.’ “I thought, at that moment, that I want to be in business with this man. This is mojo.”

Kleeman was himself a highly driven and successful salesman. He had won a BMW as Apple salesman of the year in 1989, thanks to some high-profile corporate clients including BHP, the Department of Defence, major banks and the Australian Submarine Corporation, which alone bought more than
1000 Macintoshes.

He also partially attributes his early success to a “very good”
sales engineer named Nick Hodge, who is now with Microsoft.
By the end of 1995, there seemed to be room within the reseller ranks to try something new. Kleeman saw Random Access repeating the same mistake committed by many other Apple resellers, which ran their businesses as if they were IT companies in their own right.

“They all formed consulting divisions and a propellerhead department and all of these highfalutin sections that thought they were going to be selling hundreds of boxes in one drop,” said Kleeman. “They forgot that their role was
to sell as many Apple computers as possible.”

So Kleeman and Steinhardt decided, from the outset, to turn Nextbyte into a nationwide Apple dealership, the biggest in Australia. Lofty ambitions given their starting point.

“At the time we were the smallest Apple dealer in South Australia. This probably meant we were the smallest Apple dealer in the world.” The two roped in a third – Crawford Giles, a Sydney-based chartered accountant – to serve as joint managing director and to manage the NSW stores.

Kleeman and his two partners designed Nextbyte from the ground up as a large national dealer and spent money on building systems that could co-ordinate inventory and finances for multiple stores on the system.

They bought a Navision accounting and contact management system for $1 million in 1999, “the best money we’ve ever spent”, said Kleeman.

Accompanying a solid backend was a belief that profitability was essential. “It seems to me that sometimes dealers who stayed as just one store in one location viewed a dealership as a vehicle to getting a wage, as opposed to a business needing to run on business principles and be profitable,” said Kleeman.

However, Nextbyte’s first decade of existence was one of the roughest for Apple resellers. During the 90s the vendor floundered with management infighting, uninspiring products and botched attempts at licensing hardware manufacture. Many, even diehards, had come to accept that the company was drawing its final gasps.

Why, then, did Nextbyte decide to invest and expand in the business while Apple was wandering in the wilderness, awaiting redemption?
Kleeman admits that, in 1995, Apple’s hardware line-up, “a disorganised range of 16 beige boxes”, was terrible.

“But we had a great deal of faith in the technology, we all used it. We also had quite a deal of faith in Steve Jobs, when he returned to Apple in the mid-90s. We thought that this guy has a propensity to surprise
us, and we wanted to be there when Apple had its resurgence. So we expanded.”

On such faith, religions – and successful dealerships – are born. Kleeman also pays tribute to the enormous self belief of his partners, Steinhardt and Giles, which helped Nextbyte through the lean years. “These guys don’t tolerate failure. It’s just not an acceptable option.”

And then, one day, when Apple did come out with something “totally out of left field and insanely great”, Nextbyte was in a strong position to ride the wave.

The first success came in 1998 with the eggshell, Bondi Blue iMac, when Nextbyte had grown to three stores. When the iPod came out in 2001 three years later, Nextbyte had swollen to eight stores.

“There were times in the early days when I would tell people I was an Apple dealer and they would offer me their deepest sympathies,” said Kleeman. “Nowadays, when you tell people you are Australia’s largest Apple dealer, they smile and say, ‘Wow, that must be great!’”

Exactly how good is business? The company, now comprising 16 stores and nearly 200 employees, will easily hit its financial year sales target of $100 million, said Kleeman. The only year Nextbyte hasn’t grown was two years ago when Steinhardt sold his share to start another business in graphic design and printing.

Nextbyte has worked hard at making things work. Apple is often criticised for the low labour fees it pays for servicing. Kleeman said that in the past these fees were stingy, and Nextbyte had to decide whether to get out of service entirely or make it a large part of its business.

The three MDs chose the latter, and now have one service centre in each of the six states to service the 16 stores.

The economies of scale introduced by this model make service a valuable addition to the bottom line. This is even more the case now that resellers can add service to the amount of revenue received from Apple, if certain performance benchmarks are met. “You’ve either got to commit or get out. Which is true of many things in life,” reflects Kleeman.

Those same economies of scale delivered by the 16 stores also squeeze the most out of Apple’s tight hardware margins.

Exactly how many stores you need before you achieve those economies of scale, Kleeman isn’t sure. But the number is irrelevant if it is not supported in the back-end by a robust, nationwide accounting and contact management system.

“Without that you are wasting your time. You are back in the mum and dad outlet, trying to run a business on MYOB and File Maker.”

Half of Nextbyte’s new stores are greenfield sites and the rest are acquisitions, which are far easier to develop, said Kleeman. “All we need is a rough idea of the sales revenue going through a store and we can make a decision within half an hour. We can roll that store to a Nextbyte store over a weekend.”

The secret to improving profitability is simple: systems and stock. While cautious of sounding arrogant, and acknowledging the many reasons behind the failure of a business, Kleeman said he does see common problems in
some acquisitions.

If an acquired store is profitable from day one with Nextbyte, the most usual reason is that it was underfunded and consequently unable to meet Apple’s requirements for credit limit and security.

Without financial guarantees, a store quickly finds itself understocked and unable to satisfy the demand.

Other failings are inadequate accounting and internal systems. Dealerships are often running on the MYOB and File Maker combination, said Kleeman, and “that’s not really good enough”.

“The staff are usually brilliant, that’s not the issue. We give them
the tools and the stock and the staff are just jumping out of their skin
the Monday after we take over,” said Kleeman.

There is no other computer manufacturer that comes within a country mile of Apple in the lifestyle sector. But there is a similar distance between Apple and the corporate market, which the vendor has done little to pursue since
the ‘90s when what market share it had totally evaporated.

Should Apple resellers follow suit and ignore the SME dollar?

“Not at all,” said Kleeman. Although the percentage of corporate sales at Nextbyte is not much more than 10-15 per cent, the sector is growing “and you ignore it at your peril”.

Apple’s move to the Intel chip last year has raised situations that were previously unthinkable. Kleeman said he is selling more copies of Windows these days, a strange position for an Apple dealer.

“Being able to run Windows is very useful to many of our clients, and it’s a safety blanket for the rest.” The switchover caused concern but Apple pulled it off within seven months and with minimal effort.