You survived a tough economic environment; let’s hope the toughest you’ll need to endure in your career. You made the necessary expense cuts and hopefully, you’ve optimized your service operations so you are experiencing returns greater than 52% (if not contact Mike Woodard at Strategy Development) and invested in an MPS program. Stay that course: keep driving down expenses, improving service returns, and growing your MPS program. But add to this growth in your equipment revenue line.
I am not suggesting you take the 1980’s approach and add a tremendous amount of sales headcount to sell equipment. That is an absolute losing proposition. What I am suggesting is that the extremely difficult economy of late 2008 and the entire 2009 has crippled some of your weaker competitors. Those that were too highly leveraged going into the “Great Recession” had to make expense reductions beyond the logical; they weren’t focused on reducing their general and administrative expenses (G&A) with improvements in workflow or automation—they were chopping heads to survive. Same goes for service, they didn’t have the benefit of a Mike Woodard helping them to improve their service returns with logical productivity improvements, recall ratio declines, and parts improvements, they were slashing and burning service payroll. When the unsuccessful sales professional quit—their lack of success probably partially due to poor territory design—they were not replaced to save the expense.
These companies will eventually sellout, and acquiring them is one solid strategy to grow your business. Frankly, they are selling for pennies on the dollar compared to four or five years ago. 5X EBITDA is a thing of the past—a small upfront fee and earn out is today’s benchmark. If you are not talking to the small local competitors you should start immediately.
You’ve read my posts and articles that there are fewer copier units sold year on year in the industry, but that doesn’t mean you need to sell fewer. Focus on market share gains that exceed the industry unit decline ratio. You have competitors that are impaired and will experience unit sales far below the industry decline—they cut too deep in the recession.
How do you achieve this growth? A well structured sales operations approach is the foundation. Start with territory design that uses machines in field (MIF) upgrade value. Without this information you don’t know if your reps are stars or flameouts. You also cannot be certain that your MIF is covered by a sales professional. After you have your territories structured on MIF add in the accounts in your territory that you don’t have as customers but want, and make certain you only add a quantity that can be managed by your reps. If you have six sales professionals it is not logical to add 10,000 accounts for them to target—they can never get to them and will therefore choose which ones to go after on their own. I would rather choose the accounts where I want my reps focused.
Next make certain your sales manager is focused on developing the employees and helping them to drive business into your current accounts and target accounts. Does MPS come into play? MPS can certainly help you sell more equipment but the assumption is that you are deploying MPS as your primary growth strategy; we are talking here about using your territory reps to grow your business as well.
If you want a blueprint to implement a sound sales operations approach attend BTA Sales Management Workshop, or if you are a Konica Minolta dealer the KMBS Sales Management training, both developed and instructed by Strategy Development.
Monday, June 28, 2010
Thursday, June 10, 2010
Understanding the Language of Sales
Business acumen, a critical area when selling in complex environments, with complex in this situation defined as multiple decision makers that can span functional areas within your prospect. This article is not about business acumen but I bring up the concept because I am going to be quoting CFO Magazine in this post and you might wonder if I spend my time searching for data; the answer is “No,” I read CFO along with Information Week, CRN, Fortune, Wall Street Journal, and other publications that provide me the insights I need to understand what is occurring in business, technology, and the economy. From past posts you know I stay informed on the imaging industry from reading reports from InfoTrends and publically available data from IDC and Gartner, as well as the day-to-day interaction I have with the scores of Strategy Development’s clients, the Strategy Development team of consultants, and industry players.
In the March issue of CFO (www.cfo.com/technology), David McCann wrote an article titled “A Sense of Agreement, how to bridge the finance-IT perception gap.” You should take the time to read the entire article since it is relevant to anybody selling into IT, whether as a member of the professional services, MPS/MS, or IT team at your dealer/reseller. One of the most profound statements was made by William Miller, CFO of a Nationwide Insurance subsidiary that manages the technology operations for the insurance company. “While the accounting profession is hundreds of years old, ….with a long heritage of very mature, well understood metrics, IT is in comparative infancy ‘still struggling to figure out basic norms and how to measure things with consistency.’” Miller also gives credence to IT’s common view of finance, “Too focused on cost, risk adverse in the extreme, and unwilling or unable to see the potential for a technology initiative to transform the company.”
Another CFO, Don Doherty, states that tightening the budget at MI Windows and Doors, a $200 million manufacturer has—in his opinion—improved the performance of their IT team. Doherty goes on to quote examples, including renegotiating service contracts: Great news for all of the MPS/MS providers in the market!
You’ve probably read some of my other posts in this blog on CFO-CIO alignment or reporting, and the May issue of CFO (I am on a long flight as I write this so I am catching up on my reading!) there is a box titled “Who’s The Boss? in the article “An Action Plan for IT.” Similar to the data found in Information Week’s annual survey, according to Gartner, the CIO reports to the CFO only 25% of the time. 38% of the time they report to the CEO and 19% to the COO; therefore, at least 57% of the time the CIO reports to the top operational officer (18% to other, which could include the Board).
Reading articles like this provides you great insight when you get into that meeting with both the CIO and CFO. You will gain a better understanding of reporting structures, executive interaction, key motivators of different functional leaders, all leading to more robust business discussions about your product or service. As Strategy Development teaches in our training, you need to be able to “speak the language” of those that you want to help acquire your product or service, and when there are multiple decision makers you need to be bilingual!
In the March issue of CFO (www.cfo.com/technology), David McCann wrote an article titled “A Sense of Agreement, how to bridge the finance-IT perception gap.” You should take the time to read the entire article since it is relevant to anybody selling into IT, whether as a member of the professional services, MPS/MS, or IT team at your dealer/reseller. One of the most profound statements was made by William Miller, CFO of a Nationwide Insurance subsidiary that manages the technology operations for the insurance company. “While the accounting profession is hundreds of years old, ….with a long heritage of very mature, well understood metrics, IT is in comparative infancy ‘still struggling to figure out basic norms and how to measure things with consistency.’” Miller also gives credence to IT’s common view of finance, “Too focused on cost, risk adverse in the extreme, and unwilling or unable to see the potential for a technology initiative to transform the company.”
Another CFO, Don Doherty, states that tightening the budget at MI Windows and Doors, a $200 million manufacturer has—in his opinion—improved the performance of their IT team. Doherty goes on to quote examples, including renegotiating service contracts: Great news for all of the MPS/MS providers in the market!
You’ve probably read some of my other posts in this blog on CFO-CIO alignment or reporting, and the May issue of CFO (I am on a long flight as I write this so I am catching up on my reading!) there is a box titled “Who’s The Boss? in the article “An Action Plan for IT.” Similar to the data found in Information Week’s annual survey, according to Gartner, the CIO reports to the CFO only 25% of the time. 38% of the time they report to the CEO and 19% to the COO; therefore, at least 57% of the time the CIO reports to the top operational officer (18% to other, which could include the Board).
Reading articles like this provides you great insight when you get into that meeting with both the CIO and CFO. You will gain a better understanding of reporting structures, executive interaction, key motivators of different functional leaders, all leading to more robust business discussions about your product or service. As Strategy Development teaches in our training, you need to be able to “speak the language” of those that you want to help acquire your product or service, and when there are multiple decision makers you need to be bilingual!
Thursday, June 3, 2010
MPSA Board would Benefit from a Service Perspective
The ability to market and sell managed print services (MPS) is clearly important; but it is the service operations that holds the key to a successful and ongoing MPS program.
Are you a member of the MPSA?
If so, our own Mike Woodard has been nominated to run for the Managed Print Services Association board. Please take a moment to vote for Mike.
Please hurry! Your vote must be in by June 11th.
BIO
Mike Woodard, a service consultant with Strategy Development, has 30+ years experience in all aspects of field service operations and service strategy development. Mike developed and leads a Service Management University workshop, which was part of the reason that Strategy Development was recently recognized with a leadership award for education & training from the MPSA. When he is not training MPS providers, Mike is a service consultant for Strategy Development, leading client engagements to a high quality, efficient, and productive service operations.
Throughout his career, Mike has led the implementations for a wide variety of strategic service initiatives that resulted in increased customer satisfaction, improved employee retention and morale, and a specific record of accomplishment including a 25% improvement in service productivity resulting in a 5-point increase in service profitability. Mike has developed and implemented strategic service initiatives aimed at enhancing the customer experience, advancing market differentiation, and improving service productivity:
• National service compensation program and career path
• International service recognition program
• Service specific performance management and appraisal process
• Customer feedback process
• Aftermarket pricing
• Technical support center deployment including help desk
• Call center dispatch automation
• National field service mobile wireless communication solution
• Service route optimization
• Remote equipment communication
• Knowledge management
• Customer retention
Mike has been responsible for operational leadership, P&L management and strategic direction of a $1.2B field service operation throughout the US and Canada. He was accountable for the quality of field service delivery provided by 5,000-field service professionals involved in 20,000 customer-facing events per day.
Mike is a recognized team player and consensus builder and has championed multiple Six Sigma projects, has extensive merger experience, and has served on corporate compensation and human resources review boards.
Companies & Titles
Throughout his career, Mike has led the implementations for a wide variety of strategic service initiatives that resulted in increased customer satisfaction, improved employee retention and morale, and a specific record of accomplishment including a 25% improvement in service productivity resulting in a 5-point increase in service profitability. Mike has developed and implemented strategic service initiatives aimed at enhancing the customer experience, advancing market differentiation, and improving service productivity:
• National service compensation program and career path
• International service recognition program
• Service specific performance management and appraisal process
• Customer feedback process
• Aftermarket pricing
• Technical support center deployment including help desk
• Call center dispatch automation
• National field service mobile wireless communication solution
• Service route optimization
• Remote equipment communication
• Knowledge management
• Customer retention
Mike has been responsible for operational leadership, P&L management and strategic direction of a $1.2B field service operation throughout the US and Canada. He was accountable for the quality of field service delivery provided by 5,000-field service professionals involved in 20,000 customer-facing events per day.
Mike is a recognized team player and consensus builder and has championed multiple Six Sigma projects, has extensive merger experience, and has served on corporate compensation and human resources review boards.
Companies & Titles
Strategy Development – 2 years
Service Consultant
IKON Office Solutions - 20 years
National VP, Field Service Strategy
National VP, Field Services
National VP, Field Service Operations
Regional VP, Field Services
Marketplace VP, Field Services
Xerox Corporation - 18 years
District Service Manager
Region Service Financial Planning & Analysis Manager
Region Quality Assurance Manager
Field Service Manager
Field Service Technician
Owner, Xerox Agency
Service Consultant
IKON Office Solutions - 20 years
National VP, Field Service Strategy
National VP, Field Services
National VP, Field Service Operations
Regional VP, Field Services
Marketplace VP, Field Services
Xerox Corporation - 18 years
District Service Manager
Region Service Financial Planning & Analysis Manager
Region Quality Assurance Manager
Field Service Manager
Field Service Technician
Owner, Xerox Agency
On a personal note, Mike attended the University of Colorado and San Diego City College with a focus on Business Management. He also served with the United States Marine Corps, is a Vietnam Veteran, and a recipient of the Navy Achievement Medal.
Why CIOs Are Last Among Equals
A fairly sensational title but not one that I penned; The Wall Street Journal, on May, 24, 2010, published an article under this title with the subtitle: Their perceived shortcomings are often real.
The title of the article wasn’t a surprise to me as the Strategy Development team has to spend time with most of our clients, and in all of our training programs, educating participants that the CIO is an executive of the company, just like the CFO or senior vice president of sales and marketing. Part of the confusion comes from “consultants” and “trainers” that are simply unqualified to be speaking about complex sales like MPS out speaking to dealers/resellers, and as the article subtitle indicates part of the confusion comes from the CIOs themselves.
The article’s authors—all academics—seem to lead an IT Leadership Program at Santa Clara University so they have deep insight, having exposure to hundreds of IT managers getting educated on leadership. Below are the skills they say are lacking in CIOs:
• Leadership
• Strategic Thinking
• Synthesis Skills—ability to pull together all the available information to solve a business problem or achieve a business goal
• Communication Skills
• Influence Skills
• Relationship Skills
The first three bullets would make it difficult for a CIO to sell a large scale strategic project to the rest of the senior team; a requirement in Corporate America. The last three bullets may provide barriers in smaller projects, like MPS, and are areas that your sales team needs to be able to overcome to close the sale and help the company realize the benefits of MPS.
To be effective in sales you need to understand the sales cycle and your prospect. The team at Strategy Development understands complex sales and takes the time to define the sales process in every space where we train and consult. If you truly want to be successful in MPS contact Strategy Development.
The title of the article wasn’t a surprise to me as the Strategy Development team has to spend time with most of our clients, and in all of our training programs, educating participants that the CIO is an executive of the company, just like the CFO or senior vice president of sales and marketing. Part of the confusion comes from “consultants” and “trainers” that are simply unqualified to be speaking about complex sales like MPS out speaking to dealers/resellers, and as the article subtitle indicates part of the confusion comes from the CIOs themselves.
The article’s authors—all academics—seem to lead an IT Leadership Program at Santa Clara University so they have deep insight, having exposure to hundreds of IT managers getting educated on leadership. Below are the skills they say are lacking in CIOs:
• Leadership
• Strategic Thinking
• Synthesis Skills—ability to pull together all the available information to solve a business problem or achieve a business goal
• Communication Skills
• Influence Skills
• Relationship Skills
The first three bullets would make it difficult for a CIO to sell a large scale strategic project to the rest of the senior team; a requirement in Corporate America. The last three bullets may provide barriers in smaller projects, like MPS, and are areas that your sales team needs to be able to overcome to close the sale and help the company realize the benefits of MPS.
To be effective in sales you need to understand the sales cycle and your prospect. The team at Strategy Development understands complex sales and takes the time to define the sales process in every space where we train and consult. If you truly want to be successful in MPS contact Strategy Development.
Saturday, May 29, 2010
Thoughts from the ELFA
I recently read an ELFA presentation (Equipment Leasing and Finance Association) titled, “As the drum turns….The World of used Copiers.” Can you picture 300 – 400 leasing company representatives in a large room listening to this stimulating presentation? The world of used copiers—where was I for this one!
IDC’s research was referenced throughout the presentation—and along with InfoTrends and Gartner—I consider IDC a reputable research firm. Clearly the point of the presentation was to highlight changes in the used copier space. That aspect of the presentation was eye opening for me simply from the perspective that used color MFDs from the same vintage as mono MFDs actually sell for less on the used market.
The presentation had numerous examples but I’ll simply take one that is representative: A Canon iR5570 with a list price of $17,100 had a “remarketer sale price” of $1,350, or 8% of the original equipment price (OEP) and a Canon iRC5870U, with a list price of $19,100 had a remarketer sale price of $300, 2% of OEP. With the lower lease approval rate driving increased rental of lease end devices I assume the remarketer sale price will continue to decrease, forcing leasing rates higher since residual value is part of the equation to determine lease rate.
Increasing lease rates won’t be any fun for those companies that still rely 100% on the “bigger better faster same price” model of moving your year on year aftermarket price increases over to the funding side of the lease to sell a new box and take care of the buyout, reducing your aftermarket revenue and generating a commission for a rep. But for those companies that still work on this zero sum game the good news is that according to IDC, as reported by the ELFA in this presentation, average unit sales prices (AUSP) have dropped precipitously. That drop will allow you to continue to fund the buyout of the swap and maintain the “bigger better faster new price” suicide march [not the point of this post but think about it….you are selling a MFD at a lower price than you did four years earlier, reducing the aftermarket rate to below what the current placement started at four years earlier (and far below the current rate with three years of compounded increases) and probably paying your sales rep the same amount as you did four years ago to place the other unit since it probably has about the same amount of “GP” in the deal….how’s that work financially?).
Just how big is that AUSP decrease? Let’s first talk about mono-connected boxes and use the seven year look that ELFA used in their analysis; this is an absolute seven year decrease and not a compounded annual decrease—in other words, it is the decrease from seven years back until 2009. Segment 2 (43%), segment 3 (30%), segment 4 (24%), segment 5 (27%) and segment 6 (12%). Even scarier was color, using the same methodology, segment 1 (49%), segment 2 (54%), segment 3 (55%), segment 4 (25%) and segment 5 (61%).
Strategy Development has spoken about using environmental information in your planning and in previous posts on this blog we have already highlighted some of the year on year unit placement decreases. Now you have information on unit placement decreases, there is indication that lease rates will rise (interest rates can’t stay at zero forever and used equipment pricing isn’t holding), and AUSP is decreasing. Juxtapose those issues against more and more non-contract devices moving to contracts (MPS) and your ability to reduce your general and administrative expense and increase your service margins and you have some great environmental issues on which to build a solid business plan.
We will be running our BTA Business Planning Workshop in October in the Miami area—hope to see you there so that you can seize the future!
IDC’s research was referenced throughout the presentation—and along with InfoTrends and Gartner—I consider IDC a reputable research firm. Clearly the point of the presentation was to highlight changes in the used copier space. That aspect of the presentation was eye opening for me simply from the perspective that used color MFDs from the same vintage as mono MFDs actually sell for less on the used market.
The presentation had numerous examples but I’ll simply take one that is representative: A Canon iR5570 with a list price of $17,100 had a “remarketer sale price” of $1,350, or 8% of the original equipment price (OEP) and a Canon iRC5870U, with a list price of $19,100 had a remarketer sale price of $300, 2% of OEP. With the lower lease approval rate driving increased rental of lease end devices I assume the remarketer sale price will continue to decrease, forcing leasing rates higher since residual value is part of the equation to determine lease rate.
Increasing lease rates won’t be any fun for those companies that still rely 100% on the “bigger better faster same price” model of moving your year on year aftermarket price increases over to the funding side of the lease to sell a new box and take care of the buyout, reducing your aftermarket revenue and generating a commission for a rep. But for those companies that still work on this zero sum game the good news is that according to IDC, as reported by the ELFA in this presentation, average unit sales prices (AUSP) have dropped precipitously. That drop will allow you to continue to fund the buyout of the swap and maintain the “bigger better faster new price” suicide march [not the point of this post but think about it….you are selling a MFD at a lower price than you did four years earlier, reducing the aftermarket rate to below what the current placement started at four years earlier (and far below the current rate with three years of compounded increases) and probably paying your sales rep the same amount as you did four years ago to place the other unit since it probably has about the same amount of “GP” in the deal….how’s that work financially?).
Just how big is that AUSP decrease? Let’s first talk about mono-connected boxes and use the seven year look that ELFA used in their analysis; this is an absolute seven year decrease and not a compounded annual decrease—in other words, it is the decrease from seven years back until 2009. Segment 2 (43%), segment 3 (30%), segment 4 (24%), segment 5 (27%) and segment 6 (12%). Even scarier was color, using the same methodology, segment 1 (49%), segment 2 (54%), segment 3 (55%), segment 4 (25%) and segment 5 (61%).
Strategy Development has spoken about using environmental information in your planning and in previous posts on this blog we have already highlighted some of the year on year unit placement decreases. Now you have information on unit placement decreases, there is indication that lease rates will rise (interest rates can’t stay at zero forever and used equipment pricing isn’t holding), and AUSP is decreasing. Juxtapose those issues against more and more non-contract devices moving to contracts (MPS) and your ability to reduce your general and administrative expense and increase your service margins and you have some great environmental issues on which to build a solid business plan.
We will be running our BTA Business Planning Workshop in October in the Miami area—hope to see you there so that you can seize the future!
Wednesday, May 26, 2010
Are You Maximizing Your Business Potential?
Greece’s fiscal crisis is a clear indication that the global economy is not totally out of the woods. The “Great Recession” came in with a roar after Lehman Brothers filed for bankruptcy in September, 2008, and by most economists and Government accounts ended in the second half of 2009. Today, the US appears to be experiencing some level of recovery in almost all sectors, albeit against week comparables from last year.
Strategy Development’s copier company clients are experiencing year on year equipment growth and year on year click growth, although against weak comparables from last year in the copier segment. The big question is sustainability—does the short-term growth result in a sustained growth run.
Unfortunately, many companies react based on what is occurring today rather than on sound planning. If business is down—throw some bodies at the problem and when that doesn’t work, and you’ve needlessly drained cash—take an ax to expenses. If business is going well don’t take the time to understand “why” simply enjoy the ride. Yet history demonstrates that without planning and innovation the good times end and the bad times usually get even uglier.
I would suggest that now is not the time to be euphoric about your growth against weak comparables. Enjoy the additional revenue, operating income, and cash flow, but take the time with your senior team to understand where the industry is headed and how your business can properly invest today to be a leader tomorrow. Moreover, don’t assume that “better” is “best,” look for areas to increase revenue, improve gross profit, and reduce general and administrative expense (G&A).
Those of you that have heard me speak on business planning know that I use a concept of “air cover,” where I look for short-term gains in high leverage areas to provide me the investment dollars to grow the business. Service and back office operations were always two of the areas I looked to leverage. Both back office operations and service are quasi production environments. Without deep understanding of these areas of the business it is difficult to maximize gross profit and minimize G&A; yet they usually provide the greatest opportunity to provide the “air cover” you need to invest in growth.
MPS adds complexity to back office operations and service because many aspects of the MPS agreement are foreign to employees of a copier company. E.g., there were 100 devices on the initial assessment, 104 at the first quarterly read—plus three totally different from the initial assessment—then on the second quarterly read there are 103 devices, two reappeared from the initial assessment, and two others are different from the prior reads. And oh yea, the rep added four devices, changed the minimum and CPP rate, and extended the lease out six more months! Service has to deal with five different vendors and 18 different models.
Let’s say service represents 40% of your revenue and with the correct processes you can improve margins by 5%: That added 2% to your bottom line. Let’s assume you are in the 19% - 22% G&A range of most dealers and with the correct back office processes you can reduce that by 2%. You now have 4% operating income improvement to invest in sales. Isn’t that a lot more logical than hoping the new sales employees can outrun their expense? After all that expense coverage from sales never happens but by taking the “air cover model” you now you have money to invest in growth without feeling the severe pinch of cash flow.
Unless you have a team of analyst to run off and research back office operations and service—or you want to go down the trial and error route—you’ll need help. Fortunately for you Mike Woodard, service consultant and Jim Boulden operations consultant from Strategy Development have the experience to help you get your air cover. Every dealer engagement Mike and Jim have entered has had a three to four month payback period with ongoing savings that could be invested in growth. These two guys provide you the air cover!
If you are nervous about entering a consulting engagement enroll your team members in one of the classes they put on through BTA: MPS Operations and Service or Service Management University (SMU). Jim also instructs, along with Ed Carroll and me, BTA’s business planning workshop.
What about MPS? Where do you think you’re going to make those investments! Our MPS clients also experienced year on year click decreases on a comparable basis (same customers) during the recession (keep in perspective we’ve been consulting in MPS since early 2006); but they experience substantial overall growth because they were continuously adding new customers. How is your MPS program going—honestly? I add that qualifier realizing that it is hard to be honest when everybody you speak to says they have an MPS program, and at least in public, tell you it is going “GREAT.”
Strategy Development consults for the most successful MPS providers in the country so we know what great looks like. You want the first indication that “GREAT” may not be that good? When you are quoted a quantity of prints they manage (our start-up MPS clients did that until the figure was bigger than McDonald’s hamburgers sold). Let’s be realistic here: That “3,000,000 print” contract actually means 50,000 prints per month or $750 per month (most companies use 5 years as the multiplier even if the contract is for 3). And “we’re managing 60,000,000 prints” means they manage (maybe) 1,000,000 prints per month or $20,000 per month: Decent revenue for one rep 12 months into the MPS business.
What is good? Hyper growth to simplify the answer but here’s a quick financial look. After 12 months—from dead start—a good MPS specialist will be managing $24,500 in monthly recurring aftermarket revenue. After two years that same single rep will be managing $64,500 in monthly recurring revenue and will have sold $360,000 in equipment the second year; in other words your single rep will be a $1 million plus business by the end of year two. Use these figures to really get successful in the space! If you want to realize these results attend BTA’s Managed Print Services Workshop or download licenses from InfoTrends MPS Sales eLearning workshop through the BTA website (at a discount to members) or directly from InfoTrends.
What about copiers? According to the research firms you will continue to see year on year unit decreases. That doesn’t mean you cannot grow; you will need to increase your market share with better programs or processes than your competitors. Attend our BTA Sales Management program, or if you are a KMBS dealer the KMBS Sales Management Workshop, subsidized by KMBS and instructed by Strategy Development.
Finally, to tie it all together BTA has the Business Planning Workshop.
You probably see a theme here in that Strategy Development and the BTA have a training program for every ailment. Believe me SD didn’t invent the ailments we simply developed training programs to help dealers/resellers overcome the issue they face. We are in the business of helping you achieve success. Primarily, Strategy Development accomplishes that through our consulting engagements but the seven of us cannot possibly think we can touch all 2,500+ dealers with our consulting. BTA is also focused on helping the dealer community achieve success and we choose each other as partners to help dealers thrive.
Things are good now because most companies have very easy comparables from last year but don’t take long-term success for granted. Whether or not you work with Strategy Development, take the time to put together a business plan and take into consideration the environmental issues affecting the industry.
Strategy Development’s copier company clients are experiencing year on year equipment growth and year on year click growth, although against weak comparables from last year in the copier segment. The big question is sustainability—does the short-term growth result in a sustained growth run.
Unfortunately, many companies react based on what is occurring today rather than on sound planning. If business is down—throw some bodies at the problem and when that doesn’t work, and you’ve needlessly drained cash—take an ax to expenses. If business is going well don’t take the time to understand “why” simply enjoy the ride. Yet history demonstrates that without planning and innovation the good times end and the bad times usually get even uglier.
I would suggest that now is not the time to be euphoric about your growth against weak comparables. Enjoy the additional revenue, operating income, and cash flow, but take the time with your senior team to understand where the industry is headed and how your business can properly invest today to be a leader tomorrow. Moreover, don’t assume that “better” is “best,” look for areas to increase revenue, improve gross profit, and reduce general and administrative expense (G&A).
Those of you that have heard me speak on business planning know that I use a concept of “air cover,” where I look for short-term gains in high leverage areas to provide me the investment dollars to grow the business. Service and back office operations were always two of the areas I looked to leverage. Both back office operations and service are quasi production environments. Without deep understanding of these areas of the business it is difficult to maximize gross profit and minimize G&A; yet they usually provide the greatest opportunity to provide the “air cover” you need to invest in growth.
MPS adds complexity to back office operations and service because many aspects of the MPS agreement are foreign to employees of a copier company. E.g., there were 100 devices on the initial assessment, 104 at the first quarterly read—plus three totally different from the initial assessment—then on the second quarterly read there are 103 devices, two reappeared from the initial assessment, and two others are different from the prior reads. And oh yea, the rep added four devices, changed the minimum and CPP rate, and extended the lease out six more months! Service has to deal with five different vendors and 18 different models.
Let’s say service represents 40% of your revenue and with the correct processes you can improve margins by 5%: That added 2% to your bottom line. Let’s assume you are in the 19% - 22% G&A range of most dealers and with the correct back office processes you can reduce that by 2%. You now have 4% operating income improvement to invest in sales. Isn’t that a lot more logical than hoping the new sales employees can outrun their expense? After all that expense coverage from sales never happens but by taking the “air cover model” you now you have money to invest in growth without feeling the severe pinch of cash flow.
Unless you have a team of analyst to run off and research back office operations and service—or you want to go down the trial and error route—you’ll need help. Fortunately for you Mike Woodard, service consultant and Jim Boulden operations consultant from Strategy Development have the experience to help you get your air cover. Every dealer engagement Mike and Jim have entered has had a three to four month payback period with ongoing savings that could be invested in growth. These two guys provide you the air cover!
If you are nervous about entering a consulting engagement enroll your team members in one of the classes they put on through BTA: MPS Operations and Service or Service Management University (SMU). Jim also instructs, along with Ed Carroll and me, BTA’s business planning workshop.
What about MPS? Where do you think you’re going to make those investments! Our MPS clients also experienced year on year click decreases on a comparable basis (same customers) during the recession (keep in perspective we’ve been consulting in MPS since early 2006); but they experience substantial overall growth because they were continuously adding new customers. How is your MPS program going—honestly? I add that qualifier realizing that it is hard to be honest when everybody you speak to says they have an MPS program, and at least in public, tell you it is going “GREAT.”
Strategy Development consults for the most successful MPS providers in the country so we know what great looks like. You want the first indication that “GREAT” may not be that good? When you are quoted a quantity of prints they manage (our start-up MPS clients did that until the figure was bigger than McDonald’s hamburgers sold). Let’s be realistic here: That “3,000,000 print” contract actually means 50,000 prints per month or $750 per month (most companies use 5 years as the multiplier even if the contract is for 3). And “we’re managing 60,000,000 prints” means they manage (maybe) 1,000,000 prints per month or $20,000 per month: Decent revenue for one rep 12 months into the MPS business.
What is good? Hyper growth to simplify the answer but here’s a quick financial look. After 12 months—from dead start—a good MPS specialist will be managing $24,500 in monthly recurring aftermarket revenue. After two years that same single rep will be managing $64,500 in monthly recurring revenue and will have sold $360,000 in equipment the second year; in other words your single rep will be a $1 million plus business by the end of year two. Use these figures to really get successful in the space! If you want to realize these results attend BTA’s Managed Print Services Workshop or download licenses from InfoTrends MPS Sales eLearning workshop through the BTA website (at a discount to members) or directly from InfoTrends.
What about copiers? According to the research firms you will continue to see year on year unit decreases. That doesn’t mean you cannot grow; you will need to increase your market share with better programs or processes than your competitors. Attend our BTA Sales Management program, or if you are a KMBS dealer the KMBS Sales Management Workshop, subsidized by KMBS and instructed by Strategy Development.
Finally, to tie it all together BTA has the Business Planning Workshop.
You probably see a theme here in that Strategy Development and the BTA have a training program for every ailment. Believe me SD didn’t invent the ailments we simply developed training programs to help dealers/resellers overcome the issue they face. We are in the business of helping you achieve success. Primarily, Strategy Development accomplishes that through our consulting engagements but the seven of us cannot possibly think we can touch all 2,500+ dealers with our consulting. BTA is also focused on helping the dealer community achieve success and we choose each other as partners to help dealers thrive.
Things are good now because most companies have very easy comparables from last year but don’t take long-term success for granted. Whether or not you work with Strategy Development, take the time to put together a business plan and take into consideration the environmental issues affecting the industry.
Tuesday, May 18, 2010
Should You Acquire Companies To Grow
There is a common belief that acquisitions are the sure fire method to growth: Are they? You first need to analyze logical reasons to acquire another company:
To enter a new geography: You want to expand geographically and your analysis demonstrates that acquiring a company will provide a faster return on investment (ROI) than a start-up operation
To gain new customers for your offering: You are in the copier business and believe that if you buy a company in an adjacent space you will be able to continue to sell them the products or services of the company you acquire as well as gain their copier business.
To expand your portfolio: This is the opposite of the gaining new customers for your offering in that you buy a company with the expectation that you will be able to sell their products or services into your accounts.
Selling into the acquired customer base and selling the acquired technology into your customer base are the most common and logical reasons to buy companies. You see this all of the time in the tech world, with examples including HP’s acquisition of EDS, Google’s acquisition of Double Click and AdMob, and Oracle’s dozens and Cisco’s hundreds of acquisitions.
The most common acquisition in the copier space today is undertaken with the goal of acquiring to gain base. At one point, when unit sales were increasing year over year that made a lot of sense— but does it today? If your only goal is to replace the MIF—and you aren’t a manufacturer so you aren’t gaining any economies of scale at the factory—I think it is difficult to justify. You are paying for 1,000 units of MIF to hopefully, and it is a risky assumption today, to sell 1,000 units over the next (four) years.
Price always matters, but in a declining year over year space price is paramount. If you buy a MIF of 1,000 units today you can almost bet it will be 800 in two or three years so make certain you take that into consideration when calculating out the value of the base you are buying. Don’t overpay or your payback period may stretch into a decade, which would be an unacceptable ROI.
If there is a small but competent MPS company in your area they may make for a good acquisition so you can bring their expertise into your copier base, assuming you have the correct type of companies in your base. If you are an MPS company you may consider acquiring a copier company that has the proper mix of customers. For an MPS company acquiring a managed services company for their expertise in the desktop IT space and remote monitoring and resolution is also a consideration.
The bottom line—acquisitions may be a great growth strategy for your company. Like all major business decisions give it careful consideration before jumping in.
To enter a new geography: You want to expand geographically and your analysis demonstrates that acquiring a company will provide a faster return on investment (ROI) than a start-up operation
To gain new customers for your offering: You are in the copier business and believe that if you buy a company in an adjacent space you will be able to continue to sell them the products or services of the company you acquire as well as gain their copier business.
To expand your portfolio: This is the opposite of the gaining new customers for your offering in that you buy a company with the expectation that you will be able to sell their products or services into your accounts.
Selling into the acquired customer base and selling the acquired technology into your customer base are the most common and logical reasons to buy companies. You see this all of the time in the tech world, with examples including HP’s acquisition of EDS, Google’s acquisition of Double Click and AdMob, and Oracle’s dozens and Cisco’s hundreds of acquisitions.
The most common acquisition in the copier space today is undertaken with the goal of acquiring to gain base. At one point, when unit sales were increasing year over year that made a lot of sense— but does it today? If your only goal is to replace the MIF—and you aren’t a manufacturer so you aren’t gaining any economies of scale at the factory—I think it is difficult to justify. You are paying for 1,000 units of MIF to hopefully, and it is a risky assumption today, to sell 1,000 units over the next (four) years.
Price always matters, but in a declining year over year space price is paramount. If you buy a MIF of 1,000 units today you can almost bet it will be 800 in two or three years so make certain you take that into consideration when calculating out the value of the base you are buying. Don’t overpay or your payback period may stretch into a decade, which would be an unacceptable ROI.
If there is a small but competent MPS company in your area they may make for a good acquisition so you can bring their expertise into your copier base, assuming you have the correct type of companies in your base. If you are an MPS company you may consider acquiring a copier company that has the proper mix of customers. For an MPS company acquiring a managed services company for their expertise in the desktop IT space and remote monitoring and resolution is also a consideration.
The bottom line—acquisitions may be a great growth strategy for your company. Like all major business decisions give it careful consideration before jumping in.
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