|
Home
| Site Map
| Contact Us
| Press Room
|
|||||
| Consulting | M&A | Education | About Wasmer | Library | |
|
|
Knowledge BaseThe "Secrets" of High Performance ResellersA STUDY OF RESELLERS IN THE IT CHANNELThere are a select group of companies which, when compared to the general population, consistently exceed the others in profitability, financial strength and overall financial performance. These are the companies we have labeled "High Performance Resellers". The differentiating factor of these high performance resellers is that they produce an above average return on sales and equity.
Many of our consulting engagements have been with resellers earning 8% or 9% and even some in excess of 10% net income as a percentage of total revenue. When we perform these engagements we have always wondered, speculated and even studied, why these resellers outperform the industry. What are the secrets of these high performance resellers? What are they doing differently from the average, or typical reseller? The speculation grew beyond just idle curiosity into a full-blown quest to find the "Holy Grail".
After many years of analysis we came up with six subjective traits that tended to be consistent with most, if not all, of these high performance resellers. What was interesting is that under performing resellers tended to lack these subjective traits. We present the six subjective traits because we feel we can discover a lot about how we operate by taking a look at how others operate.
The traits are subjective and are based upon our observations and interpretations. Although, we can not guarantee that if you follow these six subjective traits you too will become a high performance reseller, we do feel that your company will most likely perform better than it currently is. So let's begin…
High performance resellers almost always tend to be organized. When you walk into their company you will find a neat, clean and orderly facility. The phrase "A place for everything and everything in its place" definitely applies. Conversely, struggling resellers seldom are organized.
Recently we were called out to do consulting for a reseller that was on the verge of bankruptcy. The place was a mess. The lobby was filled with junk; old magazines, boxes and even a dot matrix printer were occupying the chairs. When we were taken on a tour of the office we had to weave through boxes and old computers lining the hallway. Virtually every office was a mess to put it bluntly. Boxes, magazines, papers, old equipment, and the like filled each office and created a dismal work environment.
The next week we went to a high performance reseller. The lobby was spotless. When we received the nickel tour, the hallways were clean, the offices and work areas were neat and orderly. The owner's office was immaculate. In other words the two resellers were night and day by comparison.
It takes time and effort to deal with clutter. It's distracting. Virtually every time management book echoes this. Clutter wastes time.
High performance resellers are strategically inspired. They have a comprehensive written strategic plan and they follow it. It is their "road map to success". Another common phrase is very apropos; "companies don't plan to fail, they fail to plan." High performance resellers know where they have been, where they are today and where they are going tomorrow.
Over the last ten years, I can never remember preparing a strategic plan for a reseller that did not meet the definition of a high performance reseller or was close to it. At the same time, I can never remember a struggling reseller that had a written strategic plan. Unfortunately, most struggling resellers desperately need strategic planning but seldom think they do.
High performance resellers, on the other hand, know the value of strategic planning. I asked several of the high performance resellers why they developed strategic plans. They answered the question with a question. "How else am I going to stay a high performance reseller if I don't stay on top of where I am and where I am going?"
Generally, we see that high performance resellers go through the formal strategic planning process at least annually.
High performance resellers may be strategically inspired, but they are tactically driven. While strategic planning helps them "do the right things", being tactically driven insures that they "do things right". Being tactical also means concentrating on what needs to be done today and accomplishing those tasks first.
Resellers that are tactically driven have systems that are developed and procedures, which are well defined. Processes are documented so that the effects of turnover are minimized. Errors can quickly be identified and fixed. The cornerstone of a quality management system is the definition of the process. Being tactically driven means that the emphasis is on the blocking and tackling, not necessarily on the "touchdown". The logic is that the company that can block and tackle the best will generally win.
A subtle, but very powerful lesson can be learned from these resellers, that is, doing it right the first time, takes considerably less time. High performance resellers understand this phenomenon and invest time in training and educating employees. Although the training and education "costs" more initially, the long term savings in reduction of errors and increased productivity and performance is substantial.
Michael Porter in his book, Competitive Strategy, suggests that a business can follow one of three generic business strategies; low cost provider, differentiation and focus.
In order to effectively compete under the low cost model a reseller would have to have the capital base and volume to compete head to head with billion dollar publicly held companies. For the majority of resellers this is not possible. Differentiation is virtually impossible. Although most resellers would like to believe that they are "different" from the competition, the reality is we all sell the same general products and offer the same general services. If IBM can not truly differentiate its product from HP or Compaq, how can a reseller, with no proprietary products do so? Thus, we are left with the strategy of focus.
High performance resellers have adopted the strategy of focusing their business. A reseller could focus on its product or service offerings. For example, we know resellers who are loyal to one major vendor (IBM, HP, Apple, Sun, etc.). Because of this loyalty, the manufacturers tend to be more supportive of these resellers and the resellers tend to be more competitive in selling their "preferred" product.
Resellers could also focus on their customer. One reseller, who was struggling financially with about $3 million in annual revenues, changed the company's strategy to focus and over the next eighteen months grew the revenue to over $18 million run rate and was vastly more profitable. This financial turnaround came about when the reseller eliminated their retail storefront and shrunk the company's customer list from 5,500 to around 100. The company "focused" on these 100 customers and, as a result, could better serve their needs than the competition.
So, whether the focus is on a geographic region, a particular customer set, a specific product or service, high performance resellers tend to be very focused in their business.
Resellers who fall into the high performance category also tend to be relationship oriented. We can see a noticeable difference in the relationships high performance resellers have with their vendors, manufacturers, distributors, finance companies, leasing companies, customers and employees. They have learned that despite all of the sophisticated technology, we are still in a people business. Why else do companies buy from you when they can get virtually everything they need through the internet or through catalogs?
Establishing and nurturing relationships tends to pay long term dividends. When favors are needed, for example killer pricing, the relationship will generally win out over trying to "beat up the vendor". There are also more subtle ways the relationship helps. I asked one reseller how he always "knows" what is going on, his reply was very straightforward. He "likes" his vendor reps and they "like him". They are both interested in each other's mutual success and as a result, he is privy to certain critical information in advance of its general release. He can normally use this information to benefit his company.
Relationships with employees are also critical. I reviewed the compensation plan for a high performance reseller and found that the basic compensation package was not any higher than the typical reseller, but the quality of employees appeared much higher. Turnover was also very low compared to average. What we found was that the employees truly enjoyed working for this reseller. Many of the top employees had been, and were being, courted by competitors at much higher compensation packages, but they were not going to leave. They had too much of a "relationship" with this reseller. Does having a "relationship" with your employees mean that you can get by with paying them less? Not necessarily. What it does mean is that they will probably be more loyal and less likely to leave.
We purposely left this subjective trait for last because we are so passionate about it and is the reason behind this magazine. Most high performance resellers are financially astute or, they have someone at their disposal who is. They understand the financial and accounting side of the business. Too many times the struggling reseller simply does not understand basic accounting and finance.
One high performance reseller said it best when she said, "With the margins we are getting we are really in the finance business, so I had better know the numbers". Another way to look at it is: How can you expect to maximize your computing technology if you don't understand memory, processor speed, and interoperability issues? Likewise, how can you expect to maximize your profitability if you don't understand utilization rates, gross profit, debt to net worth, current ratios, leverage, and turnovers?
After going through the six subjective traits, I think you will agree that, if followed, you and your company will improve. However, does this mean that if you follow all six traits that you will become a high performance reseller? I don't think we can say that it will for certain. For this reason, we have developed six more "objective points" which, we feel will increase your overall profitability.
|
Education |
