Q&A: Distribution Central Nick Verykios speaks exclusively to CRN about what he thinks resellers want

CRN: How’s business? How are you going revenue-wise at the moment?
Verykios: We’ve grown to a $54 million company in four years. That’s actually the fastest that any distributor has ever grown in this country – before that, the fastest was LAN Systems and before that, OneWorld. We’ve done it before, we know what happens and it allows us to defend the model. I have 54 million reasons to tell people why it does work. No-one gave us anything for free. Sure, we’ve [Verykios and company MD Scott Frew] got good contacts, but in distribution you’ve got to keep earning your contacts by saving or making vendors and resellers money. If you’re not doing this, and they could be your best mate, they don’t want to know about you. The pressure that every reseller is under reporting into someone or a bank, they are under immense pressure. Vendors are under even more pressure because they’re reporting not by the quarter but by the month now. When we first went to market, we were told that we were doing pretty radical things that had never been done before.

CRN: What sort of things are you talking about?
Verykios: The first thing was making the decision to not use anyone else’s systems but create our own [backend] system from scratch, and create a whole bunch of service products under an augmented model. As a result, when resellers find a deal we’re covering it with a service level agreement too. These are bold things for a distributor to do. And to separate the sales and marketing to keep the specialisation – right now we have about six different companies. All we are doing is meeting the market the way a vendor and a reseller work. Rather than having to tweak everything the reseller and vendor wants, we can give things to them at an absolute level and the system is designed for flexibility because what a vendor wants from you this week is different from what they want next month. We have to be in a position to move and we’ve built a business based on a variation.

CRN: Has that been the secret to your success up until now?
Verykios: The secret has been able to provide a vendor with all these things. We’ve grabbed a shit load of costs and provide a go-to-market model that gives them what they need. It’s also worked well from a reseller perspective too. Those resellers that we’ve known over the years have had to say no to a lot of deals because they haven’t had the expertise. When you do an augmentation model, the reseller will use us sometimes, not all the time so we’ve de-bundled the service. When the reseller needs our hardware replacement, they buy that, when they need pre-sales engineering services for a proof-of-concept, they buy that. So our products are still standard products. The reseller is only paying more if they are attaching more to it for a certain deal. From a systems perspective, we’ve been able to reduce order times. For instance, quotes for BlueCoat [products] used to take between 4 and 8 days for some of our resellers – it’s not down to minutes. We’re moving our backend from a server to a web-based system. We’re a customer of our own system. Our vendors are asking us to sell this system to other distributors around the world and other resellers are asking us to sell to their distributors and vendors.

CRN: What else are you developing at the moment?
Verykios: We have also created a web-based “annuity engine”, which we are just about to launch. It’s an asset management system. Over the last four years we’ve recorded everything about every piece of equipment and we’re the only distributor in the world that has done all that. If we place that information into a renewals engine, I can tell you what box you have, what firmware changes you have, the location of the machine, what it’s being used for etcetera. You know when it’s being renewed, if it’s out of commission, and you know if the asset is retired. It gives the reseller ownership of that renewal rather than a third party. The reseller has control and they know exactly when their renewals are up. We have five reseller pilot sites and we’ve got the renewal rate from about 60% to 93%. For the vendors, we increased the renewal rates from about 80% to 99%, which is big money. The system can even spit out of purchase order of the renewal and create one on us so we can process it for you.

CRN: Is this what resellers really want these days? Surely, tracking your annuity business is a part of a reseller’s job.
Verykios: It is part of your job but it’s such a costly, time-consuming job. We can invest the time and money to create the system because we’ve got a shit load of resellers who have got a shit load of customers each. Distribution has always made it more cost-effective to do this and it’s not just kit and logistics. We are “breaking bulk” on service and knowledge and bringing it back to where it is efficient. We’ve got enough customers to be able to do that efficiently, but no reseller does. If they do, the cost is astronomical, the end-user can’t afford it and suddenly all these IT solutions are irresponsible.

CRN: Are you a niche or broadband player?
Verykios: We’re not a niche player, we’re as broadband as you can get. We go from security to storage and everything in between but our business units are specialised. I don’t call it niche because they are specialised in everything that is necessary to be a security practice for example. If you’re a security-focused reseller, you’ll use a bit of us if you’re not and you need to lock down what you have just sold, you’ll use a lot. A reseller of ours doesn’t get visited by four people from Distribution Central, they get visited by one person from Firewall Systems and another person will talk to the networking people and another person from our SAN Systems business will talk to the storage people.
Different people are responsible for different technologies and we’ve met the market that way. There’s no overlap in where you normally see overlap.

People make ignorant comments and say that model doesn’t work because the reseller doesn’t want to see multiple people from one organisation. They are not seeing multiple people from the same distributor. He is judging our model based on what his [sales] reps do. Our reps don’t sit in front of a reseller and say, “This is what you bought this month, this is what you bought last month, why is there a gap?” They’re working on deals, and the security guys are working on different deals to the storage guys and the networking guys. The annuity guys are talking to a different bunch of people too. We’ve got outbound account managers who work on deals, inside sales people who work on the run-rate and administrators who process the orders. Sixty of our staff are not overlapping each other. We’ll do $110 million and we know where that is going to come from. We know what our vendors are looking for and know what part of the market share we have of each vendor.

CRN: Are distributors responsible for reseller profitability?
Verykios: Absolutely. Our job is to reduce their costs. If we can’t reduce their costs or increased their revenue, what are we doing? What is our role outside of that? Nothing. Resellers are completely in a position where they need to hold us accountable for reducing their costs first and foremost and finding opportunities to increase their revenue. We do that through the service model but also finding opportunities for them to make money.

CRN: It hasn’t always been that way has it?
Verykios: When you read one of those management books, they have been written by someone after they have been successful, not before. They can use any excuse as to why they got there and they all do. If you look at the IT industry, you’ll notice that people talk about things after the fact. Two years ago when we launched this model, we said “This is what we are going to do and this is why it’s going to be successful.” Then I shut up. Now I can say, “This is why it worked for all these reasons and this is why the market responded to it.” I have 54 million reasons why and that was $54 million that was available to someone else. In a mature market, you can’t get away with the old shit anymore. Resellers want to know what we’re doing so that they can decide whether to buy into it or not and vendors too. A good example is NetApp before we launched. We were in planning with them for four months.

CRN: You’ve copped a bit of criticism from the market. Why do you have these critics?
Verykios: Look at where they come from. We live in a country that kills its successful people. I’m going to give you way of looking at the “tall poppy syndrome” by looking at the IT industry. There are really no barriers of entry and there never have been. Anyone’s who tried and hasn’t done what we’ve done, all it’s doing is mirroring their own non-success. We have a culture in this country of making ourselves look good by making others look bad not by doing good things. I have a responsibility to 60 people and 300 highly active resellers and 25 vendors who have to sleep well on my watch. It’s a level of responsibility that we have taken on board and it’s worked. I don’t hear a lot of criticism from John Walters from Ingram, or Wendy [O’Keeffe] from Westcon or Laurie [Sellers] from itX or Ross [Cochrane] from Express Data. I’m hope I’m right in saying we have a high degree of mutual respect from one another and they’re all successful companies. I think it’s a shame that our critics have to insult reseller’s intelligence but I think that resellers have to start holding them accountable for what they say. I’ve sat in so many vendor conferences around the world where they bring in a special guest consultant to come and tell us how to run our businesses and I sit there and listen thinking “If I did that I’d be screwed. How dare they?” If you want to put your hand up and say that you want to guide a reseller in a certain way, you better know what you are bloody doing.

CRN: Broad-based distributors like Ingram are starting to specialise. Is that really their role? Are they trying to do too much?
Verykios: Firstly a point of clarity, we’re not specialised – we’re as broad-based as you want. There was a time when we either broad-based or time and place or you were specialist and value-add. The definitions are wrong. You either provide a level of service that stops at logistics or you go beyond it. Also, it’s not about the products you sell. You could be broad-based on one product. When you think of broad-based, you think of time and place and that’s where the confusion is. You have to add value as far as you want as a business. The market has got lost on definitions and confusion. The culprits are the same people who keep talking about it in terms of specialisation and this and that. We have to stop talking about it this way and actually look at what a distributor is doing; how far are they going down the value chain. Otherwise, we are going to make it too hard for resellers to work out how they are going to construct a deal.