Strategy for smaller dealers

Smaller dealers have a tendency to go with the flow and follow demand for IT-related services. But is it possible to do anything else? Can resellers afford to operate strategically and say no even when the tactical opportunity is in front of them?

Resellers often start thinking about strategy only when they haven't got any work to do. Then, just when they've decided what they're going to be next year or in three years' time, the telephone rings.

But it's not surprising that the smaller dealer in particular is not led by strategic thinking, believes Richard Fisher, channel director of Sage. 'Resellers, especially small resellers, are indeed opportunists.

If you own a small business with maybe half a dozen employees, your main concern is paying the wages and keeping the customers happy.'

Richard Thompson, chairman of hi-tech field marketing company EMS, says most resellers probably don't even think about their plans as a strategy when they start out.

'Most SMEs start off with a whole lot of tactics rather than any real strategy. Yet a strategy is what allows control over a business. It allows it to decide what it's going to do and how they're going to do it. But very few SMEs work like that. Most follow the classic model of giving customers whatever they want rather than asking whether the customer's request is right for their business.'

When the orders are coming in and everyone is busy, any thought of whether the business is taking the company in the right direction or if it is good long-term business, tends to be forgotten. But when there isn't enough business in the order book, many resellers will typically revert to tactical activities.

'Usually, they'll start out tactically focused and only look at their strategy when their business isn't going well and they're forced to take a long hard look at what they're doing,' Thompson adds.

Resellers might send out general mailers to their existing database or buy in a list of companies with no particular categorisation instead of going back to the drawing board and looking at long-term goals.

For smaller dealers it is a difficult problem because they have day-to-day business to manage. It is not always the case, but most dealerships start out with very little direction and, unless they are lucky, that will almost always lead to trouble later on.

Ken Montgomery, managing director of Belfast accounting software reseller, Pinnacle Computing, admits that while his present organisation has a clear focus, in a former venture, the lack of direction was a serious flaw: 'There was a lack of focus. It was doing hardware, software and a bit of CAD - a bit of everything really. It just took the business as it came along.'

It was easy to slip into the reactive mode, he adds, especially if cashflow was tight. 'It's a vicious circle because from day one the company was under-funded and it got into a reactive way of selling. It did not even take a step back to look at strategy and where it was going.'

Under-funding is often a problem and forces resellers to react to any opportunity. Also, being frantically busy prevents any thoughts of long-term planning and also prevents any marketing being done. This is one of the reasons why dealers revert so quickly to tactical activities. When, one day, they find they have no new business, they race to the nearest activity that they believe will bring the money in.

What they should have done of course, was begin the process of generating leads well before projects started to dry up. Many resellers are so wrapped up in day-to-day business that they do not have time to follow up any leads passed to them by vendors.

Most smaller resellers will admit to being reactive rather than pro-active and having little or no policy on specific market areas or product recommendation.

That's something many vendors would love to see changing. But most vendors, although they will state otherwise, are concerned with one matter alone - selling more products. That doesn't help resellers, says Fisher.

'The role of the supplier has to change from selling to the reseller, to selling through and with the reseller. In this way a strategy is established between the supplier and reseller. Small resellers will always be opportunistic but as the supplier we have to help focus this enthusiasm,' he adds.

But there is another problem here - resellers provide systems that bring together many different products and vendors. Vendors are focused primarily on their product so, in terms of the overall dealer strategy, what they can do is limited.

Andy Gass, deputy managing director of Computer 2000, says it is important for smaller resellers in particular not to be overwhelmed by schemes and vendors. Strategies need not be complex - keeping it simple is important.

'For SMEs it has to be a product sell,' he adds. 'I think they also need to specialise and to have some focus but it need not be the most complex answer that they are offering. They just need to be able to introduce it to the customer.'

Resellers have to start to think about their direction, Gass warns, because the market is changing - direct vendors and e-commerce are forcing the move into more areas of added value. 'If they are competing with that model they have to make sure they know exactly where they are adding value.

I think there is still real value in systems sales but resellers need to be in touch with the supply chain,' he adds.

'It's a matter of juggling what they're doing today and tomorrow and next year,' believes Grahame Smee, managing director of distributor Data Connectivity. 'Dealers have got to think about the long term but, at the same time, they've got to pay the rent. If there is an opportunity to sell 100 boxes today they've got to take it, because if they don't, someone else will.'

But what can happen then is that the smaller dealer becomes burdened with business and its legacy and that holds the company back. That may be so, but being led by the customer isn't always wrong argues Seamus King, sales and marketing director at Greengage Computers, an SME dealer providing general business and networking systems.

'Look at it in a different way and they could say they have a more flexible outlook and that can be an advantage,' he says. 'The bigger resellers tend to take a longer time to turn around in the water. We can respond very quickly.'

Smee adds that resellers should remember that having a strategy might mean not making any plans. But having some kind of plan - even if it is to make no plans - is better than having no direction at all: 'It need not be what a dealer is going to do in five days or five years' time.

The strategy could be to do whatever the customer wants.'

Dealers can't always assume they know in advance what it's going to be.

'It's a question of whether they or the customer leads,' says King. 'Is the dealer knowledgeable enough to lead the customer? Is it arrogant enough to say it knows what their business requires?'

Resellers need to be confident in their skills, but that can be a problem for resellers, says Ronan McDonald, managing director of Ideal Hardware.

'One of the biggest difficulties that SMEs face is access to skills - they can't get the right people involved.'

Dealers that want to leave the low-margin business behind need skills and infrastructure that will enable them to address specialist or leading-edge markets while still paying the wages and the rent.

This is where distributors can come into the equation. Many of them, such as C2000, Data Connectivity and Ideal, are trying to provide the skills and services for the reseller. By nurturing the relationship with the dealer, they hope to sell higher margin products through the reseller.

The payback for the reseller is two-fold - the business is profitable and they start to develop a specialisation and a skillset that will, the theory goes, eventually develop into a niche for their business.

Smee explains the principle: 'The question for resellers is this - do they go out and recruit technical guys and specialist sales staff to get into these markets? Or do they work with us? We'll help them by providing people to go on site with them. Suddenly, they can go out and offer complete packages to the customer.'

This idea can be applied to many developing areas - remote access, voice over IP, internet and intranet development, ATM and virtual networking.

And it's not just Data Connectivity offering this type of service - most distributors will claim to be capable of offering it and many of the smaller ones will offer a very specialist set of services.

As businesses draw on the distributor's expertise, says Smee, they can develop their skills as a reseller in a particular niche.

'Because they are exposing themselves to that sale and that technology, their dependency will decrease and, in time, they can stand on their own two feet.'

But building up the skills is easier said than done and it can eat up a great deal of working capital, says McDonald. 'Certainly it's true that working capital gets eaten up and if a dealer is involved in, say, development and integration, it's going to have an impact on its cashflow. SME dealers in particular would be affected more by that because they don't have the resources.'

McDonald thinks it is difficult for the smaller dealers but says they should at least perform a SWOT analysis and try to make the shift into any particular area a gradual one so the business can cope with the change - and so can customers. But in the end, they need to employ the working capital profitably.

'If they're not making any margin, they obviously need to move on, but the impact will be more damaging if the shift is not gradual,' McDonald says. 'Good planning is essential. Although it can be difficult, dealers need to look at where they are positioning the business. But the pace of change is very quick and they need to accept that to a certain extent.

Otherwise, they may get left behind.'

Having a focus for the business is vital, according to Montgomery. He says he learned from his experiences in the early 90s and set up Pinnacle to address the financial software market from the start - a strategy that's paid off, he says.

'Our approach is in total contrast to the attitude of the previous business.

We focus on being pro-active. We will walk away from business and are ruthless about qualifying leads and what we will tender for. That way, when we do go in we tend to go in very strong.'

Phil Reakes, managing director of dealer Selway Moore, has always focused on Hewlett Packard mid-range business. Finding the focal point for the business was just a matter of looking hard for the opportunity, he says.

'One of the issues in the HP market is that everyone wants the big business.

But no one looked after the companies in the #50 million to #350 million range,' Reakes explains. 'The philosophy of the company is defined by four strategic pillars and those are the key drivers for the business.'

Selway Moore's strategic pillars are all to do with its customer service and the measurement of its services. That is part of its strategy, of course, but the heart of the strategy is its focus on a particular market segment and product line. It does not sell IBM or Sun Microsystems kit and it does not sell PCs.

Even the smallest resellers can have a clear focus and direction. Ian Brooks, managing director of IB Business Development, set up the business to address the needs of small businesses.

'When we started looking at the SME market I thought that it would be best served by a small business,' he explains.

That, fundamentally, was the strategy and IB has stayed small in the four years it has been running. The business still only employs four people at present and Brooks says he does, in fact, turn business away if customers are not willing to pay for the advice and service IB's consultants - who all have their specialist areas - provide.

The direction a company's strategy takes as a business depends on what area of the market it believes is going to take off and what qualities and skills it possesses within the organisation.

It's a question that only the people running the business can answer, but the final word is that those same people can take control, rather than being led by the opportunities that present themselves to their company.