Paul Brenchley-Macdonald is managing director of Oxford resellerone it all and aims to keep ahead of the competition with his reseller Leading Edge. Leading Edge. He started in the industry 20 years ago selling wordprocessors and when the company he was working for went bust, he started Leading Edge. From working in a converted church in Marlowe, he moved on to bigger and better things , taking the business to Oxford, after making over z3 million in its third year. He admits he would like someone to buy Leading Edge, but not quite yet. He talks about his strategy, plans and aspirations for the future.
'People ask me if I feel vulnerable because we are putting all our eggs into the Microsoft basket. I reply: "vulnerable to what?" This business is about building relationships with customers and suppliers. I'd rather have a lasting relationship with Microsoft and a couple of hardware vendors than juggle 20 transitory relationships.
'Of course, it helps when you back a winner. Microsoft treats us as well as any company. We don't get better pricing, but whenever it is considering new programmes, it thinks of us because we are consistent and have stayed the distance. Microsoft knows us and knows what we are capable of.
'My first job in the industry was 20 years ago, selling Rank Xerox wordprocessors.
I moved after three years to a wordprocessing vendor called NBI. By the time it crashed in 1989, I was UK country manager. NBI had built one of the first Windows-based wordprocessors and had developed an email and scheduling package which used MS-Net as its networking protocol. The day after it went bust, I had to turn down two contracts totalling z1 million, having laid off 40 people the night before. The UK was making money, working on 60 per cent margins on z6 million to z7 million turnover. But the US crashed and there was nothing we could do.
'So I sat at my desk and wondered what to do. I took six weeks off and started Leading Edge on 1 February 1990. It was based on a simple idea.
At NBI, I had spent nine months looking at Windows and knew I wanted to get involved in some way. I thought "let's build a relationship with Microsoft".
And that is what we proceeded to do.
'Leading Edge started with two of us in a rented room in Woking, and for finance I had a couple of credit cards. We joined Microsoft when the specialist centre programme started, and were one of the first members.
The pitch was to convert WordPerfect and Lotus 1-2-3 users to Microsoft Office. Nowadays everybody uses Office, but then it was easier said than done. You would come across WordPerfect and 1-2-3 evangelists. This was the foundation of the company. We turned over z300,000 in our first year - the only year we made a trading loss. The following year, we grew to z1 million and the year after we did z3.3 million.
At that point we moved to Oxford.
'In between, we worked from a converted church in Marlowe. In our seminars, I used to preach the Windows gospel from the lectern. As our business grew, we started to work with larger customers. But profit margins on Microsoft Office were falling. Our response was to get deeper into the technology. Three years ago, we beefed up our consultancy business and took on Select, Microsoft's volume purchasing programme.
'We went hell for leather with Select. In other areas, Software Box, Software Corporation and Bytes were also doing well with Select, but we didn't come across them. There was no competition in the region. We targeted the mid-market - organisations with between 100 and 2,000 PCs. At this stage, the big guys were not interested in these accounts, and the small jobbing resellers were unable to cope. At the time, few big resellers were interested in Select. The profit margins were slim and the administration was hassle. Now our Select business is running at about z4 million a year.
If asked, we will also sell Novell or Lotus software - we operate one of the biggest Lotus Passport contracts in the country.
'Today, Leading Edge employs 37 people and has a turnover of z11 million a year. We are still targeting organisations in the 100 to 2,000 PC range - on the premise that above that we'll bump heads with the national resellers, and we are not going to play their game.
'Our customers are based almost entirely in the Swindon, Birmingham, London triangle. If they have satellite offices in, say, Aberdeen, we will service them. But there is no point in us competing for the business of a company with its head office in Aberdeen. Why compete in what is, for us, a foreign market? There is bound to be a local dealer that can deliver a service in a timely fashion. The personal touch counts.
'If we were touting for business in, for example, Newcastle, this would be an admission of weakness. We are not set up to support customers there.
There is so much business in our territory. Why step into other markets?
'Select is one of three business areas. The second is consulting and the third is hardware. Select is a logistics business. Even though there are more companies selling Select than when we started, we have continued to grow by being more focused than our competitors. Our Select contracts have some nice spin-offs for our consulting business. We know what projects are coming and can sell our consultancy skills. We make sure we stay ahead of the game. That's our success.
'It also helps us in hiring and keeping people in a competitive market.
We can offer interesting projects to work on and keep them up-to date with the technology. We get into a market early, stay while it grows and get out before it turns mass-market.
'Two years ago, we offered NT installation and there was no competition.
Now everyone knows how to install Windows NT - it's a commodity. But they don't know how to integrate NT into an environment where NT lives with Novell or Unix or VAX. We do.
'The second strand is messaging. We help people migrate from systems such as GroupWise and cc:Mail to Exchange. As a value-add, we offer Unified Messaging from Octel. This integrates voice and data messaging, and we are one of five resellers in the UK authorised to sell it.
'The third strand is total cost of ownership. We are offering systems based around SMS and Open View. We are also doing work around year 2000, and with zero administration kit. We supply hardware if our customers require it. We see it as a necessary evil, but it is profitable because we select the business we want to go after.
'Leading Edge is an ISO9000 organisation and we focus only on A-brand vendors - Compaq, IBM Toshiba, HP and from the second tier, Acer. We used to sell AST until 18 months ago when it failed our ISO audit. I bet some dealers are wishing they had done the same.
'AST lost the plot. The company just didn't get it - whenever its machines came in DOA, it seemed to think it was our fault. We hold very little stock, and what we do hold has been pre-ordered by our customers. We buy through distribution - from Computer 2000.
'I am a member of three reseller forums - the BT Partner Council, the Microsoft Council and the Microsoft Exchange Council. Some resellers are dismissive of these, but I think there is something to be gained.
At worst, you get information earlier than competitors, at best you have a forum to put your ideas across, see what the vendors are thinking and have the chance to validate vendors opinions.
'I started Leading Edge in the recession, and perhaps that has made me cautious. I want to make sure the money we spend is going in the right arena. If we can do this from our own resources, all the better. I don't like borrowing. We have funded growth from cash. This means we have grown slower than other resellers, but have done it in a more stable manner.
'However, I am interested in acquisition. In the past year I have looked at four or five companies, but it is difficult to find a company that can bring true synergies - one that can add value and not disturb what we do. There is little point in us buying a company that takes away management time from our existing business. I am more concerned with margin than turnover, and I do not want to run a massive organisation.
'With Leading Edge, I have tried to build a company that establishes good relationships with customers, that adds value by meeting their needs.
People set up companies for three reasons: to float it; to create a family dynasty; or to sell it. At some stage, we want to be bought. But not tomorrow because we won't get what we think we might be worth. Besides, we still enjoy the business and are still adding net value to the company.
'There will continue to be space for companies like Leading Edge. At the top end, national resellers are aggregating in bigger units. This means they are forced to work with larger organisations. For example, Computacenter's infrastructure demands large accounts to earn returns on its investment. But Computacenter growing from z800 million to z1.2 billion has no effect on Leading Edge. It's so far removed from what we do.
'I see a battle there. We have already seen mistakes, Info' Products' acquisition of Simmons Magee, for example. Info' Products thought it was getting economies of scale, but instead bought a box shifter past its peak and dependent on relationships between individuals and its customers.
When the individuals walked, so did customers. Mid-sized box shifters that sell services on the side will be squeezed. They can't make up their minds what they do, making them vulnerable.
'General purpose resellers are too broad brushed to survive. There will continue to be a niche for the focused regional reseller.
'At some point, someone will realise the value of creating an organisation that brings together successful regional resellers like us.'
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