INTERVIEW - Equanet was set up on a shoestring - today it's in the Virgin Atlantic - Top 100.

Ranked 62nd in the Virgin Atlantic listing of the UK's 100 fastest growing companies, Surbiton-based reseller Equanet has grown at approximately twice the market rate since its inception.

For most resellers, the glass ceiling is set between #10 million and #15 million turnover a year, but Equanet is on track for #40 million for the year ending July 1998.

This means it is gaining market share - but at whose expense? Chairman Jonathan Chapple, one-time head of technical services at Planning Consultancy, which was later bought by SHL Systemhouse, set up the company in 1989.

He says Equanet is mopping up product supply business from the 'all-singing, all-dancing, sub-#10 million reseller'.

In a large trading hall at the company's premises, about 30 sales staff, mostly in their 20s, are hammering the phones. They do a lot of shouting, especially when the ship's bell is rung to indicate the opening of a new account. And they are all in uniform - vendor-sponsored sports shirts with different colours for each day of the week.

The sales floor is filled with recruits from outside the industry: 'We don't want them to come to us with bad habits,' says Chapple.

Salespeople don't leave Equanet to join other computer firms, according to Chapple. 'They are far more likely to go backpacking.'

Chapple's partner, managing director Ron Fenwick, believes that on the basis of the company's current business model, Equanet can hit #100 million turnover within the next three years.

Five years ago, the company was a sub-#10 million general-purpose reseller, dealing in product supply and various value-added services.

The company had built up a reputation as a niche supplier of high-performance backup systems and servers. It could have been another networking integration supplier. Instead, it threw out the value-added side of the business and set about turning itself into a box shifter par excellence. Only, it's a box shifter that gets other companies to do the shifting.

Chapple set up the reseller side of the business on the back of a consultancy contract with an insurance agency. When the client asked him where it could buy a couple of desktop machines, he replied: 'I can do that.'

With no capital or credit, he fulfilled the deal via an agreement with Northamber. The distributor set up Chapple with a commission account and supplied and invoiced the client direct. After a year or so of acting as a brokerage, Equanet was pulling in enough business to gain credit terms for the first time.

Chapple says Northamber was the first of two key relationships that were instrumental in getting Equanet off the ground. The second was AST. Towards the end of 1990, the dealership won an AST desktop supply contract with the Arts Council. After this, Equanet became the UK's first AST-only reseller.

AST also introduced the company to two corporate accounts, including EDS, with which it still does business.

On the back of the Arts Council contract, Chapple brought on board Fenwick, with whom he had worked at Planning Consultancy, to run sales. Fenwick ran the company day-to-day. 'I may have set the general tone, but Ron did the hard work. He had the strong managerial skills and sales experience I lacked,' says Chapple.

By 1993, Equanet was running at #7 million a year. Chapple was after more. Staying put as Ron and Jon's Micros had little appeal for Chapple or Fenwick. 'This was not a lifestyle business for us. Equanet was and is our long-term pension plan,' Chapple says.

'The question we had was: how would we get to #20 million?

The answer was that with our business model, we couldn't do it.'

A hard look at Equanet's business showed the value-added services were less profitable than had previously been thought. It was product supply that was pulling in the revenue.

'Running a full-service dealership is demanding - and there's a lot of worry,' says Chapple. 'Getting paid is quite difficult - the concept of completion on projects can be difficult to tie down. At the end of the day, services are a bottomless pit.'

Chapple says most resellers make more money from product and less from services than they realise. 'Product supply done well will make money.

Most resellers don't know how little they make from services because there is cross-subsidy.'

He says there is a clash of cultures between product supply and technical people. And most resellers are driven by technical people, motivated by doing interesting, technically challenging service.

He argues that product supply is often a grudge sell. Resellers don't make money from it simply because they don't want to.

Equanet, by contrast, decided to go for growth by concentrating purely on product. It piloted a telesales team selling directly into corporate purchasing departments.

'We wanted to test whether the approach could be successful,' says Chapple.

'We needed to see whether we could sell hardware without any of the wraparound services, like training and technical support.'

By April 1994, the telesales team was raking in business. 'We took the opportunity to build a scalable business and strategically aimed for direct sales,' Chapple says.

The writing was on the wall for the value-added business. This was perfectly obvious on the sales floor, says Chapple. 'There were two completely different styles - the classic reseller sales guys in their jackets, ties and fast cars, and the sales desk in their Equanet sweatshirts, making lots of noise. The two cultures jarred terribly.'

In mid 1994, the company made the decision to commit to a single sales culture. It was effectively the death warrant for the value-added side of the business. By the end of the year, the reseller had pulled the plug on services.

Chapple found the transition difficult. 'I looked after technical services so, in effect, I did myself out of a job. A year later, Ron was facing the same problem.'

Today, Chapple and Fenwick look after the financial and operational side of the business. Day-to-day running lies in the hands of a six-strong team.

Once Equanet had been recast as a telesales-only operation, sales started to climb - from #7 million in 1994 to #12 million in 1995, to #18 million in 1996, to #27 million in 1997.

Growth - currently at 40 per cent - has slowed down from the 80 per cent the company has experienced over the past five years. This slow-down is a function of the company's increasing size, according to Chapple.

Equanet has built its sales pitch around efficiency of product supply.

With the exception of Toshiba - which prefers to supply Equanet direct - the reseller sources hardware almost entirely through distribution.

If product is available, Equanet will find it for its customers.

The company differentiates itself by being demand-driven, says Chapple.

'Most resellers are sales-led. They amass their product and service portfolio and then construct a sales force to promote it. We are entirely demand-led. What the customer wants, the customer gets.'

Equanet will only source from the UK as 'grey is far more hassle than it's worth. You piss off your suppliers and your customers get alarmed when German language documentation arrives with their servers,' Chapple says. Besides, he says, there is always stock - somewhere in the UK - shortages or no shortages.

Equanet's corporate customers all have their own IT services capabilities.

Equanet's service revolves entirely around hardware delivery. With the exception of the odd PC getting configured in the on-site workshop, Equanet holds no stock. Hardware is delivered back-to-back through distribution.

Chapple sees the growing trend towards channel assembly as a step in the right direction. 'Anything that can shift product to our customers more quickly must be welcomed.'

Equanet's commodity selling model is becoming increasingly suitable for some software too, according to Chapple. The reseller is beginning to shift some serious volumes of Microsoft licences, he says.

'A couple of months back, we had a visit from Microsoft representatives, after we appeared on the company's top 10 list for Microsoft licence sales - for the first time. Microsoft had never heard of us - and that bothered it.'

Chapple declines to reveal the company's gross margins - some observers estimate it is in the low teens - but, he says, Equanet can turn a profit on 10 per cent.

He claims to be optimistic that margins will not continue to tumble.

'In fact, our margins have increased by one per cent this year - we're not exactly sure why - but we think it has to do with the economic climate.

Corporates are less paranoid about pricing.'

But the company is working on ways of bringing down its sales overheads by automating the sales quotation process. A system currently in beta trial aggregates product and stock information from three distributors.

It puts the data feeds through a filter to ensure consistency of data presentation and adds its own user pricing.

The closed system will be used by both the sales floor and by Equanet's customers. 'Nearly half of the sales time is spent in chasing information to complete quotations. We want to free up the sales staff to do what they do best - sell.'

Equanet employs 60 people, divided into four-person teams. According to Chapple, the company is characterised by a very strong team ethos, but the top tier does set itself apart. 'Ron and I are the only people in the building who wear ties,' says chapple. 'I tried wearing T-shirts for a while, but I was never going to be one of the boys. We are the owners - and it is silly to pretend otherwise.'

So what about exit plans? Chapple, aged 59, and Fenwick, aged 51, are not getting any younger. 'Eventually, we would like to retire,' Chapple says. 'Realistically, we will not be here in five years' time.'

Chapple and Fenwick have considered the three traditional exit routes: flotation, MBO and trade sale. The fourth option is to do nothing. Their investment in Equanet is producing good returns - enough to fund a comfortable living, Chapple says. But against this is the need for financial security.

'In today's pension world, pensions are capped at #85,000 a year - most people will be lucky to get half that. And this is not going to get good entrepreneurs excited.'

The duo keep looking at flotation, but 'have yet to see its attractions', says Chapple. 'We see a lot of pressure in the stock market to grow by acquisition. Some of this is misdirected to people who don't have the financial engineering skills.'

He adds: 'Growth by acquisition is not our strong point - our knowledge and skill is in setting up and running a business. And neither does the reselling business lend itself to acquisition.

'The industry is littered with disasters. Info'Products and SHL have tried to aggregate, but their efforts were self-defeating. Elcom is another one, but it has had to put itself up for sale.'

Chapple and Fenwick are currently looking at the merits of trade sale and MBO options to see if there are better ways of preserving the company's culture.

'We will have to handle any transition carefully,' Chapple says. 'It is very easy to destroy the culture of a company when it changes ownership.'

But Chapple and Fenwick are in no hurry to sell. 'We have built Equanet into a viable and throbbing concern,' he says. 'We have played it steady and have played it safe - growing steadily each year at a manageable rate.

'We have offered stability when everything around us is changing. When customers ring us up, it's the same old Equanet with the music blaring in the background. Whatever we do, we will ensure continuity.'