Top 7 Managed Productivity
Service Providers' profiles
MPS is dying! Long live "Managed Technology Services' providers that drive productivity improvement for customers. We profile the Top 7 independent resellers that are leading the US market and making regional acquisitions to fuel expansion... Complete
The office equipment dealer channel has undergone tremendous transformation since its early days of selling typewriters, calculators, and office furniture. This transformation has not always been easy. One significant challenge was the shift from analog to digital. This transformation took several years, requiring big changes in infrastructure as well as investments in new technical talent. This evolution brought dealers to a new level, enabling them to tackle IT related environments.
Today, the focus is shifting to bigger output equipment, IT services, and even future office technologies outside of the document industry. The journey has been difficult for some; acquisitions as well as competitive pressures have drastically reduced the number of office equipment dealers. There are now just over 2,000 dealers, compared to 7,000-plus in the heyday of the 1980s.
But the dealer community is stronger than ever, with strong levels of sophistication as well as profitability. And while competition is still strong, some view the office equipment dealer channel as being the strongest community of independent channels of any industry. Its local presence, family culture, and robust fleet of service and IT feet on the street give it a unique combination of strengths no other channel can provide.
Then there are the mega dealers in the US (those that generate more than $100M in annual revenue). Over the last five years, these organizations have grown in number from three to 13—and more are on the way. These dealers, like many others, have fascinating roots and a history of success. Much of this success has come through organic growth, but in many cases acquisitions have also played a role.
Top 7 MTS reseller profiles
1. FlexTechnology Group (FTG based Mesa, AZ)
“There have been two milestones in the history of our company,” said Frank Gaspari (pic right), CEO of Flex Technology Group. “The first was when we opened our doors in 2005 with the goal of being a nationwide organization that’s clearly focused on MPS, particularly with enterprise accounts. The next occurred nine years later when we reached the $50 million revenue mark. At that time, we decided to aggressively expand our infrastructure and business model through our relationship with Oval Partners.”
The entrepreneurial spirit burns bright in him: During his 20s, Gaspari founded a couple of office technology companies in Chicago—Column Office Equipment and Image Manufacturing, an MPS house. He sold both to Global Imaging in 1999 and 2004, respectively.
And the results of the past three years? Today, FTG has become a $255 million operation, with over 1,000 employees, compared to a mere 200 employees in 2015. The company has its eye on reaching the $500 million milestone sometime in 2020. “It’s not a race, but we feel like it’s a realistic goal that we will exceed,” Gaspari said. “We’ve done four acquisitions in 2018 and we’d like to bring on $100 million more with new partners next year. The pipeline is made up primarily of dealers with $15 million to over $100 million in revenue.”
The company’s acquisition strategy is simple: FTG seeks like-minded businesses that are interested in reinvesting in the parent company—entrepreneurs that are passionate about the future and open to reinventing themselves. The continued success of the FTG M&A team can be attributed to its early involvement in the process. From onboarding to shared operations, the company supports the continued success of the acquired organizations rather than make any attempt to rebuild them. Today, all of FTG’s partners are singularly focused on organic growth initiatives and manage the concept of “low leverage, high profitability” with passionate employees who will fuel business. (Ron Neilson, Sales & Marketing chief, pic right)
Gaspari has a long history of growing business organically. During the ’08 recession, FTG went from $10 million to $15 million in revenue. As Gaspari explained, some verticals aren’t affected by recessions, so the best bet is to hound them. Conversely, when life is great, don’t be afraid to make difficult decisions, otherwise there will be double the amount of work at the next downturn.
The company sustained consistent growth for the following six years. By the time FTG had attained $50 million in revenue, it was the biggest privately held MPS organization in the US. At that time the company was providing MPS support in all 50 states, covering nearly 5,000 cities, according to Gaspari. That’s when Oval Partners entered the picture. FTG had always had an “MPS first” mentality, but with more capitol came more acquisitions, including Caltronics and the Connecticut-based MPS house Flo-Tech (CEO Leo Bonetti, pic below right).
FTG’s mission is to increase revenue organically by 10 percent a year, top line. The company initiated a theme, FTG OG (organic growth) that all the companies have rallied around. The core source of organic revenue growth for the company will be office hardware, MPS, and production print, which Gaspari is confident will take a $15 million leap forward in 2019, thanks to partnerships with Canon, Konica Minolta, and Ricoh.
While many of FTG’s mega dealer peers have deep roots in managed IT, that’s one area that the company isn’t focused on today. “You can’t dabble in managed IT—you have to invest in it, have the right, experienced people, and stay committed to its success,” Gaspari said. “We understand you can’t be great at everything and that there’s a need for managed IT, but we’ve identified other spaces to pursue. Our train is rolling down the tracks really fast so we don’t want to derail it, and I’m comfortable with that.”
MPS is a $130 million a year practice for FTG, and it shows no signs of slowing down. Even though the profit pool has been shifting more toward hardware as a result of bringing more legacy copier dealers under the FTG flag, with its MPS expertise, it’s very clear that these same dealers will become skilled in selling MPS by leveraging FTG-proven MPS initiatives. Gaspari noted that it took millions of dollars to build the infrastructure to support enterprise clients, 24/7/365 from coast to coast, which is a competitive differentiator for all of its companies.
The San Francisco-based private equity firm, parent of the Flex Technology Group, has announced a new partnership with Office Equipment of Texarkana and South Arkansas.
Office Equipment of Texarkana and South Arkansas provides office technology services and document management to businesses across East Texas and South Arkansas. The companies are headquartered in Texarkana, Texas and El Dorado, Arkansas. As customer-centric organisations, both emphasise their ability to provide “the best solutions and equipment with full-service support.”
“Office Equipment of Texarkana and South Arkansas have great market presence in East Texas and South Arkansas and have proven themselves over the past decade in a truly competitive market,” said Frank Gaspari, CEO of Flex Technology Group. “They pride themselves on their dedicated employees who will bring outstanding value to Flex Technology Group.”
George Nuckolls, President of Office Equipment of Texarkana and South Arkansas, said he was “thrilled to have Office Equipment of Texarkana and South Arkansas join Flex Technology Group and roll under Marimon Business Systems.”
“As a unified organisation, we look forward to expediting our growth initiatives and increasing the value offered to our employees and customers,” Nuckolls added.
Oval Partners, a San Francisco based multi-family office private equity firm, has announced a new partnership with Marimon Business Systems, an office technology dealer in Texas with offices in Houston, Dallas, and Fort Worth.
“Marimon’s next phase of growth has just been amplified by joining Oval Partners and Flex Technology Group,” said Anthony Marimon, CEO of Marimon Business Systems. “With the Flex Technology Group, we have additional resources to execute our strategy and further accelerate our growth. They have built an excellent partner model that will allow our company to create exciting opportunities for our employees, greatly expand our market share, and further enhance the services we provide to our customers.”
“Over the last 40 years, Marimon has established itself as an industry innovator focused on amazing customer service. Their client-first philosophy aligns perfectly with the Flex Technology Group’s culture,” said Frank Gaspari, CEO of Flex Technology Group. “This partnership provides us the opportunity to continue our growth trajectory with an outstanding company and expand into the great state of Texas.”
Anthony Marimon (pic right), who will be an equity holder in FlexPrint, LLC, as well as the entire Marimon Business Systems executive team will remain in their current leadership roles to preserve Marimon’s successful 40-year history of serving their customers.
2. Impact Networking, Lake Forest, IL
“To have teeth in the game is one thing, but to have flesh in the game is something entirely different and more meaningful,” Gaspari said. “We’re about real partnerships with our acquired companies, employees, customers, and OEM partners.
“We help customers manage their equipment, their documents, their IT, and their brand,” said Dan Meyer, President (Pic right) of Impact Networking. “Go big or go home: We practice that to an extreme extent, every day.”
Managed IT is one example of how the company is “going big.” When discussions were happening to decide whether or not Impact Networking would enter this arena, the idea of building the practice itself—instead of acquiring an IT house or outsourcing the work—was the most attractive option. After a lengthy search, the company found the right person to lead the charge. Five years ago there were just eight IT employees, but today that number has skyrocketed to over 100. And even though the company had some semblance of an IT piece from Day 1, it was all billable hours and nothing long term.
“We were putting out fires and chasing our tails,” Meyer said. “Now, however, our average IT deal sits at $5,000 a month over an almost five-year term—and contracts for $20,000 a month are far more frequent than with copiers. Managed IT represents about 23 percent of our revenue.”
Organic growth, of which managed IT is definitely a part, is nothing new to Meyer and Frank Cucco, who co-founded Impact Networking in 1999. For 14 years previous to that, both of them sold liquid toner Savins before working for two startups. The experience they gained during this time gave them the confidence that they could build a business. Today, the company has approximately 550 employees, with 16 offices in four states.
Impact Networking’s cumulative YOY growth rate over nearly two decades is 27 percent. “Most of that is organic,” Meyer said. “In 2016 we did $58 million in revenue, the next year it went up to $96 million—we had more feet on the street that led to more activity, and that’s when managed IT really took off. Our 2018 revenue will be roughly $118 million.”
Given that the company sells a wide array of hardware (including displays), software (reseller of DocuWare and Kofax), and services, there’s no doubt that Impact Networking will continue to grow organically. Meyer shared the current revenue breakdown: hardware at 33%, supplies at 24%, service at 20%, and solutions (software, IT, and the marketing group) at 23%.
Still, acquisitions have contributed to the company’s success. “In our history we’ve bought five organizations, all of which happened in the last 10 years,” Meyer said. “They range from the relatively small to the one we did last year where we purchased our third largest competitor in Chicago. From our inception until now, 34 percent of our revenue is from acquisitions.”
And what does Impact Networking’s acquisition strategy look like? As Meyer explained, the company isn’t just after a sales list, no—it wants to retain and help further grow the expertise of the purchased organization’s employees, too. Another critical facet is that the dealer’s strong customer base must be buoyed by contracts that have a strong commitment to recurring revenue.
The recession that began in 2008 was a make-or-break time period for Impact Networking. Along with buying a dealer in Wisconsin, the company expanded into Indianapolis and built a distribution center. Then, on top of all that, including tight purse strings, Cucco made a bold call by partnering with the Chicago Blackhawks—when the team had literally no fan base and the cost of the contract was very high.
“We were trying to take the next big leap, we’d already increased our footprint exponentially, but revenue was stuck at $29 million from 2008 to 2011,” Meyer said. “Every expense was studied, even coffee, and headcount fell from 180 employees to 130. But we didn’t shrink, client retention was good, and the money we spent to get our name out there during the tough times led us to where we are.”
The company’s plan over the coming five years is to attain $300 million in revenue (22 percent YOY growth; doesn’t include any acquisitions). Meyer would also like to reach 50 percent of revenue from managed services by then and eyes an even more well-balanced portfolio.
“When Frank and I put together our business plan in 1999, a positive culture was at the top of the list,” Meyer said. “Our employees today put culture at the top of their list of why they like working at Impact Networking. We see a return on the investment we make for culture and we don’t want it to be disrupted.
“Private equity can be attractive, no doubt about it,” he continued. “Private equity, when involved, also looks at expenditures and might think it’s a little too much spend to better our culture. The way we see it, though, culture and organic growth are tied to each other.”
While Loffler Companies can certainly be categorized as successful, CEO and Co-Founder Jim Loffler (pic right) and his son James (pic below right with father), Vice President of the IT Solutions Group, are focused on retaining the culture of doing right by the employees, the customers, and the community. “We’re honored to be considered a mega dealer, but it’s the way we work with each other, with our clients, that makes us great at what we do,” Jim said.
“For a big company, we try to feel small,” James added. “We don’t want our customers to feel like a number—we know their name, and they know ours.”
The emphasis on culture as well as “riding the right waves” has boosted Loffler’s revenue to approximately $115 million. A company of around 520 employees today, Jim clearly remembers when he and his wife Darcy began selling mini cassette dictation machines ($100 to $600 apiece) from their garage in Minneapolis in 1986.
It’s crazy to think that the fax machine would represent a major move forward, given where the world is today, but that’s exactly what helped turn the tide for Loffler. “The fax machine was a bigger ticket item, and there were clearly no leaders of the technology in our area,” Jim said. “So, it gave us an outstanding opportunity to grow market share quickly. Even better, there was aftermarket with the consumables and paper.”
More recently, the shift to IT services has been another big lift for the company, especially with the imaging business “at the top or on its way down.” IT, which includes managed and professional services in areas like security and the cloud, generates about $25 million annually for Loffler, and is on track once again for over 20 percent growth in 2018. “We have close to 100 employees on the IT team, so I look back to 2006 and go, man, there were only three or four of us,” said James, who is responsible for this part of the business and started in the area of telephony in 2006.
“Successful technology companies are like surfers: They wait, look behind them, and seek out the right wave to catch,” Jim said. “It’s a little bit of luck and a little bit of skill—and a lot of listening to customers. They wait for that next product to come along and then they paddle like crazy. And then you catch the wave, hopefully with a product or service that’s going to give you a very long successful journey into the future.”
Facilities management is another area that sets the company apart and, along with MPS and IT services, has pushed the services revenue share to 60 percent. “We have about 150 employees who run print shops, mail rooms, provide litigation support for law firms, do scanning services, shipping and receiving, etc., which allows the customer to focus on its core business,” said Gary Volbert, President of Business Services and Vice President of Marketing.
Just as important as picking the right technology and services to sell is choosing the right employees to hire and the right companies to acquire, the trio said. Because Loffler is a family business and is not owned by shareholders or an investment company, it can take its time finding the right organizations to purchase versus trying to grow the company as fast as possible. Still, Loffler has grown its footprint quite nicely—from Minnesota to Wisconsin and the Dakotas. With a home base in the upper Midwest, Loffler is proud of its PrintVision MPS business supporting clients across the United States (the company for multiple years has ranked No. 1 nationally for first call service effectiveness by BEI Services, a trusted provider of unbiased imaging device and technician performance benchmarking).
“There are great companies out there that don’t fit our culture, and we pass on those,” James said. “They could have the best technology stack, they could have high performing sales, but if they don’t fit our culture we pass—and we have passed.”
One piece of advice the team has for other dealers is to do what’s right by their clients. When one of its biggest customers today had to declare bankruptcy during the 2009 recession, the company stood by them when other “partners” took out service, equipment, and people, but Loffler gave them equipment and support and worked with them to get through the tough time. This company recovered, and today Loffler is their trusted partner.
The company, which has seen about half of its growth come organically and the other half through acquisition, aims to grow to a $150 million business in three years and a $316 million business in 10 years. “It’s great to be considered a mega dealer, but staying humble and making sure you’re focusing on the fundamentals, the human fundamentals—treating people with kindness and respect—is central to our mission,” Jim said. “The world needs more of that.”
“You don’t have to be an analyst to understand that the print industry is in decline, so you need to have a good transition plan,” said Jeff Gau, CEO of Marco. “Ours is two-pronged: We put a lot of emphasis on being an IT company, not just a copier dealer, and we’ve established an acquisition strategy.”
This approach has helped propel the St. Cloud, Minnesota-based company, which started as a small typewriter shop, to a leading role in the imaging and technology services channel. Marco generates approximately $400 million annually and employs about 1,400 people. And, while its footprint has traditionally been in the Midwest, the company has been expanding farther east—most recently with the acquisition of Phillips Office Systems, a 140-person company with 10 locations in Maryland and Pennsylvania. (pic below with Steve Gau, on left)
“If you build a strong organization, people are attracted to it,” Gau said.
That includes job candidates, who nowadays appreciate the focus on IT. Marco’s IT services business is now a $200 million practice, which far outpaces achievements by competing mega dealers, according to Gau. The company has been selling voice and network services since 1985, A/V technology since 2002, and managed IT since 2009.
Roughly 450 of Marco’s 750 engineers are on the IT side of the business. High-level certifications for businesses like Cisco and HP (beyond printers and copiers) make a real impression on customers: If the company can secure an IT deal with a particular organization, an output hardware deal is much more likely to happen.
“The world of IT provides a bigger growth opportunity, partially because it’s always evolving,” Gau said. “This certainly adds challenges and complexity, but with these come increased value, profitability, and sales. The IT business has seen substantial organic growth every year.”
Marco completed its first acquisition in 2005 and has since purchased 41 other organizations. The company financed its own growth until 2015, at which time it partnered with the private equity firm Norwest Equity Partners. “This has allowed us to continue to do what we were doing, but on a much larger scale,” Gau said.
Marco is a national company. Along with the purchase of Phillips Office Systems, the company acquired two dealerships in Michigan earlier this year. Going forward, Gau has his eye on more acquisition targets in states like Texas and he isn’t opposed to expanding west, either. Moreover, with each new business brought in under the Marco banner, IT services—through IT firm purchases or the use of current resources—are added.
“A lot of dealers say they sell IT services, but they only do so in one or two markets,” Gau said. “It’s hard to do it on a national basis.”
That said, the company has distinct IT and copier sales groups—largely because the different businesses require different strategies. There’s a president of the IT company as well as a president of the copier company (who happens to be Gau’s brother Steve). They have different leadership, management, technical people, compensation models, and metrics.
Gau would like to see the business grow at a rate of $75 to $100 million a year. He expects about half of this growth will be organic, while the other half will be achieved through acquisitions—that’s been the pattern in recent years. “Organic growth is better as that shows strength in the business,” Gau said. “You can buy yourself into a big company, but that doesn’t necessarily make you any good.”
Gau shared advice for other dealers, regardless of their size. First, they should be prepared to expand into new areas when the existing spaces are in decline and/or commoditized. While IT is certainly a growing space to move into, profitable areas tied to print include MPS, document software solutions, ECM, and both production and wide format.
Another recommendation is shifting to a services-based business versus a simple reseller of products. Not only do services steer the conversation away from price, but they’re more impervious to a recession. This was a lesson learned during 1991—the only year Marco lost money. “That’s when we learned that contracted services and recurring revenue were better than project-based sales transactions, because you had to hunt to eat all the time,” Gau said.
Today, 40 percent of the company’s business comes from recurring revenue (and 45 percent from services). Marco has perhaps moved full circle, so to speak, as the business originated with a recurring revenue model for typewriters involving ribbons as consumables and a maintenance contract for the device.
“The good news about me not being only a copier guy is that I don’t get hung up on what the competition is doing,” Gau said. “We need to focus on our own best practices, our own growth strategies, and executing on our strategies, and we should never worry about what somebody else is doing.”
5. Novatech (Nashville, TN)
Novatech, formerly NovaCopy, will be hitting two major milestones by the end of 2018: The company turned 20 years old in December, which is relatively young for a copier dealer of its size. More importantly, it will have officially become a member of the mega dealer community with more than $100 million in annual revenues.
As one of the newest mega dealers, Novatech’s growth trajectory skyrocketed when the company recapitalized with Trivest, a private equity firm specializing in founder- and family-owned businesses. Said Darren Metz, CEO of Novatech (pic right), “Before Trivest we were doing about one acquisition per year. Since the merger we have completed three more, with a goal to complete one per quarter.” Today, Novatech has about 400 employees, with 12 branches serving customers in Tennessee, Missouri, Texas, Mississippi, Georgia, Arkansas, and Alabama.
So, Novatech is now a “platform” organization, where it has established a foundation with scalable operational excellence and an integration strategy to acquire other organizations. “The current trend reminds me of the similar ‘rollups’ that occurred in the ’80s and ’90s when DANKA and IKON started out as single dealerships that subsequently attracted deep-pocketed, institutional investors and commenced a frenzy of acquisitions.
“Fortunately, we can learn from their mistakes, such as ensuring we don’t lose that small company culture and that customers’ needs come first,” he continued. “We are careful not to ruin acquired companies with misguided bureaucracy that focuses on internal cost reductions rather than externally on customer satisfaction.”
Metz joined Novatech three years after providing seed capital as a side project to another business—a pioneer in cloud computing that did not survive the dot com bust of 2001—he owned. At the time, Novatech generated less than $500K in annual turnover and was losing money. “I made some personal life-changing decisions that year because I believed in this company and the opportunities afforded by changing technology,” he said. “It was a very scary and uncertain time, but I bet the farm on Novatech.”
The company forged on, establishing core values like a family culture and serving the customer first, helping bring Novatech to where it is today.
“For example, when it comes to our company and cultivating company growth, I hired Andrew Heggem (pic right) four years ago as a person for our national accounts order desk,” Metz said. “Later, I learned that he dropped out of law school previous to coming to Novatech but at the same time had taken a deep interest in learning about the company and the copier industry. As we started doing acquisitions, I asked him to help with three of them, which all turned out to be very successful. Eventually we sponsored his law degree and now he is our Director of M&A. He also helped out in the sale to Trivest—he’s just 30 years old.”
Over time, Novatech has branched out into a variety of new areas. The company is now heavily into production print, managed IT and network services, and large format. Also, “3D print is a $10 million annual business for us,” Metz said. “Some of these devices sell for more than $200,000 each and generate $10,000 per month in aftermarket revenue, which we believe is a strategic fit for organizations like ours that grew up in the BTA channel.”
According to Metz, 3D fulfillment is like production print, so any dealer that has been successful with “big iron” may have what it takes to succeed in 3D. Dealers must be able to handle complex devices and understand different audience needs. “It’s not about speeds and feeds, it’s about the application requirements of your target audience, which includes very smart engineers who expect high levels of technical knowledge,” he said. “Some customers may need precision quality versus others that need strength in materials. It’s knowing your customers, every detail of their business, and understanding what the important result of the product is. BTA members prepared to learn new application solutions and hire technical sales people can flourish in the nascent 3D industry.”
3D print represents about 10% of Novatech’s business—Metz expects double-digit growth in this space to continue. In 2018, production print accounted for 20% of Novatech’s revenue, managed IT/network services 10%, large format print 5%, and document solutions about 5%.
The other 50 percent is the traditional A3 and A4 print business, which Metz expects to gradually decline over time. “With a 3 percent compound annual decrease in print volumes combined with decreases in unit volume and average sales price per units, we are not optimistic about the 10-year view of our traditional office copier business,” Metz said. “By 2025, we can foresee office printing volume and office printing industry revenue at half of what they are today.
“For dealers that have made the shift to IT services and other sustainable products and services, congratulations,” he continued. “Dealers that still get the bulk of their revenue from legacy copier business may consider the numerous opportunities for liquidity and transformation support available from the current crop of consolidators in our space. Dealers in that frame of mind are invited to compare the success and business plans of Novatech with other strategic acquirers to see how our opportunity stacks up.”
The stronger message here is for BTA dealers to think seriously about diversification if they have not done so already. And for those that lack the expertise or desire to reinvent themselves as a managed service provider, merger opportunities with mega dealers may be worth exploring in 2019.
While acquiring organizations can turbo boost a business into new stratospheres, Pacific Office Automation is laser-focused on organic growth. Yes, the company did purchase Yost Office Systems recently, but with up to 90 percent of its revenue coming organically, the message is clear: “Be growth-minded, pay attention to retention, displace the competition, and win!” Which just so happens to be POA’s slogan for 2019.
In reality, this has been the philosophy ever since Terry Newsom founded the company in 1976. Rather than expanding through countless acquisitions, POA prefers to start from-scratch locations to build out its footprint, such as what it’s accomplished in Boise and Southern California over the last year. And, considering that the company has experienced at least 1 percent growth in all 40-plus years of its existence save for 1985, who’s to say that POA doesn’t know what it’s doing.
“We take technology and link it to customer problems, but the relationships we maintain and grow are really the heart of the matter,” said Doug Pitassi (Pic right), POA’s straight-shooting and humble President and CEO (also a minority shareholder). “Why spend so much money on buying businesses when we can spend money hiring the right people, developing employees’ knowledge and skills, promoting from within, and making organic growth the top priority?”
When Pitassi joined the privately held company—it still is!—in 1989 as a field sales manager, POA was in but a few markets and had revenue of approximately $7 million. He rose to Vice President of Sales in the mid-’90s and has been in his current role since 2007. Though he’s the company visionary, he admits he’s not much of an ideas guy but he is adept at taking somebody else’s concept and running with it in directions that benefit POA.
The company, which uses a decentralized model, today has 25 locations in eight states in the American West (headquartered in Beaverton, Oregon), with roughly $340 million in revenue. “We took 28 years to reach $100 million in revenue, eight to reach $200, five to reach $300, and now we’re hoping to reach $400 in three and then, by 2022, $500,” Pitassi said.
This means—for those of you doing the math at home—that the bulk of POA’s growth has been achieved over the past decade. Under Pitassi’s watch.
It could have gone another way, however. “The ’08 recession was the turning point in Pacific Office Automation becoming a mega dealer, if you can believe it,” he said. “We had to quantify the offset. Loan approvals were down to 52 percent. Studies show that print volumes decline at a faster rate during recessions. But it was our people, all of them, who respected the POA engine and gave 30 percent more effort that helped us actually grow by 5 percent that year.
“And it didn’t stop,” he continued. “The company grew by 2 percent in 2010, then 7 percent in 2011—we’ve had double-digit growth in each and every year since. Again, mostly organically. We’re not smarter than other organizations, we’re not more creative, but there’s honor in work. Our employees understand that and they make things happen.”
POA sells virtually everything: MFPs, printers, and software (private and public cloud) for the office; production (largest reseller of Konica Minolta and Ricoh color devices in the US) and wide format (largest reseller of Océ in the US); MPS, managed IT, and facilities management; and mail systems (Pitney Bowes), unified communications (MYtel), and security cameras.
Pitassi sees the profit pool diversifying even more down the road. “The ‘smart workplace’ excites me, as that will lead to us being even more of a one-stop shop and providing a total ownership to the customer,” he said. “It will add value to our IT portfolio, which represents just 7 percent (around $23 million) of our revenue, but to see an IT helpdesk go from five people to over 50 in six short years, it’s been a fantastic ride. We’re never going to be the lowest cost bid but we continue to find qualified people who can help us deliver a great customer experience. The opportunity with IT is double, triple, quadruple than what print ever was and it’s a major initiative for us.”
All in all, Pacific Office Automation is a thriving organization that’s bucking the trend of the majority of its peers. “We respect the acquisition strategy of other mega dealers, but that’s simply not our style,” Pitassi said. “Organic growth and company culture, which we branded the ‘Culture Club’, are symbiotic as they’re both tied to success—success with the family, with the community, and with customer loyalty.”
RJ Young has come a long way since it first opened its doors in 1955. Originally called the Robert J. Young Company, it started with four employees and now has approximately 650, operating in 26 locations in Alabama, Florida, Mississippi, North Carolina, and Tennessee (headquartered in Memphis). Today, RJ Young is run by Chip Crunk (pic right), whose father purchased the company in 1986.
When Chip was elevated to President and CEO a decade later, RJ Young had revenue of $18 million a year. His vision was to get to $100 million: The company made its first acquisition—a managed services house—in 2005 and has since bought roughly 20 organizations, which helped RJ Young grow not only its footprint but its market share, too.
The company still does two or three acquisitions a year (ACS Technologies acquisition, pic below) Crunk’s strategy is to look for good entrepreneurs who run a successful business. “When we acquire an organization, we don’t change or eliminate any customer-facing personnel because we don’t want the customer experience to change,” he said. “Sales and service don’t change either, just the business name on the business card, which in all cases adds more credibility to that organizations.”
RJ Young is 100 percent owned and operated through its own money and investment. The company has its own financing organization for clients, which allows that group to get creative with leasing and flexible when putting together deals.
Having capital has allowed RJ Young to dive into areas such as production print—in fact, it began selling this technology earlier than many other dealers. The company has been in the production space for a decade, and revenue has almost doubled each year. “Production isn’t for every dealer,” Crunk said. “It’s a cash-intensive business. For dealers $20 million and below, it may be hard to get into. You need the infrastructure, the technical training, inventory requirements are greater, and customers must be continuously running. Proficiency in production processes is also critical, particularly with demanding customers.”
The net-net is that the company has been able to win over traditional print service providers with its growing digital production services business, where production has now become more than 20 percent of its hardware sales as well.
The other growth area for RJ Young is in network services. “This is an area that not every dealer may be successful with,” Crunk said. “With network services, we currently operate in only two markets but we’re planning on expanding into other regions. Dealers can’t manage it like the copier business and need to run it as a totally separate business. Network services represent about 5 percent of our business.”
When it comes to its core business, RJ Young works with many of the OEMs: Ricoh and Canon primarily on the A3 side and Lexmark and HP for A4. “The manufacturers have all been great,” Crunk said. “We don’t ask a lot from them, just to give us good quality products where we can make money.”
When it comes to profitability, the company has seen some shifts in hardware margins going down, but not a lot of change with service and supplies. “A lot of profit is coming from our financial services and leasing side,” Crunk said. “Again, it’s not something all dealers can do, but it has become a strong part of our business.”
But it hasn’t been all roses for RJ Young. “In 1998 our facility burned to the ground,” Crunk said. “We still had a growth year, but it was a challenging couple of years. The good news is when it came to the recessions, we never had a downturn—that is, it was quite the opposite as we were able to help customers as a trusted consultant.
“The key is to have the right people onboard,” he continued. “We go through all 600 people and ask them what they need and give them the tools and the resources to be successful. We put a lot into our people because it’s our people who the customers trust.”
Follows witrh comparative analysis tomorrow