Don’t let Joe Reeves fool you. The CEO of Sacramento, CA-based Smile Business Products may have whipped up a creative acronym for the name (Super, Magnificent, Intelligent, Loyal Employees). But the concept of the dealership—born during the dotcom explosion of 1997—truly emanates from a desire to break loose of corporate America to embrace the many wonders technology has to offer…and many of those are not central to the mighty MFP.
Joe Reeves
Smile traces its roots to Standard Office Systems, where Reeves cut his teeth selling office equipment in 1980, and then made the conversion to IKON. Unhappy with its direction, Reeves (a senior executive at the time) was one of the first principles to defect from the network. Smile soon became the biggest Sharp dealer in California, and is now one of the largest in the nation. Intrigued with the digital movement, Reeves cultivated one of the most ambitious network operating centers (NOC), which manages tens of thousands of MIFs and nodes, and has garnered a reputation as a leading MSP. Reeves also took his message on the road courtesy of Smile’s state-of-the-art mobile showroom, a.k.a. Big Red.
Today, Smile holds the State of California’s MFP contract and boasts a market reach that encompasses 32 counties in the Golden State and four more in northern Nevada. Leveraging the NOC, Smile can offer all eight offices these multiple technologies while supporting the entire State of California.
Smile currently offers products and services from manufacturers including HP, Dell, ACDI, Lexmark, Panasonic, Samsung and Dell. Its cornerstone relationship with Sharp has extended the company into ancillary offerings, including the AQUOS BOARD and the emerging Smart Office, all the while focusing on MPS and MNS relationships that focus on generating recurring monthly revenue. We spoke with Reeves on how the state contract, asset acquisitions and the managed service component, combined with its foray into relationship-widening technologies, will push Smile beyond its status as the go-to Sharp provider in California. And as Reeves is quick to point out, the mere mention of his company’s name brings a smile to everyone’s face.
How was business in 2017?
Reeves: Overall, it was good. While unit placements were up 25-30 percent, revenues grew by only 10 percent because of price erosion. Everyone is heavily discounting machines, so we’re placing more units and gaining market share, but the revenue isn’t growing proportionally. When it was time to renew the California state contract, we knew it would be a bloodbath when we went to bid. But we were the incumbent; between Smile and Sharp, we had held the state contract for 10-plus years. Backed by our track record, great relationship with the state and Sharp, along with extremely aggressive pricing, we were able to renew the contract. At $50-plus million, it was a huge victory for Smile and our Sharp dealer partners.
Smile Business Products’ network operating center
Sacramento is a funny town; outside of government, most of the business is in health care, services and construction. There’s less business, so the competition is much fiercer. In order to gain pure growth, we have to take it from the competition. We had two acquisitions last year and two more are currently in process. The companies we’re acquiring now are small, and they usually want to get out of the business because they can’t make the investment to be in managed services. Our newest area for growth is in digital signage, where we can sell, manage the content and annuitize it to have a recurring revenue stream from the customer like we do with the copier business.
What is your acquisition criteria?
Reeves: It is a focus on capturing and expanding our customer base. The two deals we’re currently working on are assimilations, so the economies of scale are huge. We don’t need the facilities and assets, so we just buy the customer base and bring aboard their quality personnel. That’s a win-win for us. Generally, we can assimilate these companies without much expense and bring in that top-line revenue. Last year, we moved into the northern part of the valley and south into the Monterey/Salinas market, which were new locations. We target Sharp dealers because of our expertise and relationship with the manufacturer. If we were to buy a Ricoh or Konica Minolta dealer, they would immediately put in another dealer to compete with us, forcing us into a defensive position with the newly acquired firm.
All our purchases are structured as asset buys for tax reasons. When we evaluate a company, it’s based on the service revenue and a multiple of it. Top-line equipment revenue is important, but not necessarily repeatable. Companies that have a solid mix of 50 percent hardware and 50 percent service with contracts that are evergreen and hold 50 percent gross profit are our targets. We probably keep 90 percent of the acquired client base.
What does Smile Business Products pride itself on?
Reeves: We started Smile as service-based company that guarantees two-hour service, and we’ve maintained that statistic for 21 years. Our average service call is logged and responded to onsite in an hour and 27 minutes. I’ll put that statistic up against anybody in the country. We have an average tenure of 37 years per tech in our service department, even though we’re only a 20-year-old company. Most of our techs followed me over from Standard Office Systems. Our first-call completion rate is about 97 percent, with techs averaging 5.5 calls per day. The average tech manages about $3 million in revenue.
We like to describe our NOC as a converged NOC. Smile’s dispatch is trained to triage the call, and if they think there’s a chance we can remotely fix the machine, it goes into the NOC. In our NOC, there are four copier helpdesk techs, a telephone tech, a document management specialist and MNS engineers. Twenty-eight percent of the time, copier calls are remotely fixed or cleared through the help desk without a tech being dispatched. It helps our stats when you can eliminate nearly 30 percent of the service calls remotely. In order to do that, you have to have a staff that’s highly educated. We do about 5,000 service calls a month, and about 30 percent of them are cleared remotely in less than 12 minutes. Sharp has recognized us as the “most innovative and technical” company in America. We’ve been a platinum service dealer and a Hyakuman Kai elite dealer since the day we opened.
Smile Business Products’ showroom
We think of ourselves as an MSP; we can handle anything that hangs on a network, whether it’s a printer, MFP, phone system, desktop or server. Selling it is nice, but we’d rather get a recurring revenue stream by managing technology for our customers. We were one of the first big companies in MNS. We started our own NOC in 2000, built it internally instead of outsourcing. Before then, we did break/fix and sold blocks of time. Back then, there was no software to manage networks like there is today. When a customer comes into Smile and sees the NOC, 100 percent of the time they go with us.
Why does the State of California value your offering?
Reeves: I think they like the ability to have a single point of contact for billing and service. Historically, these type of contracts have been won by manufacturers who immediately outsourced the maintenance of these contracts to leasing companies to do the billing. Thus, they’re disconnected. The manufacturers usually don’t have their own service facilities, so they have to outsource it to multiple, independent dealers. We’ve been extremely good at organizing that process. The state requires us to give them quarterly statistics on the number of calls and the usage, and we’re one of the first vendors they ever had that does it for them in a timely manner. When they call us, we still guarantee a response time that is unheard of in the industry. We’ve been able to provide it with our dealer partners. And, of course, pricing does matter.
You’ve been a Sharp dealer for nearly 40 years. Tell us about that relationship.
Reeves: I’ve been on the Sharp dealer council for 17 of the 20 years Smile has existed and was chairman of the council for nine-plus years. I was instrumental in promoting a product-development committee and helped Sharp develop technology. It was through that subcommittee that Sharp came up with the original LCD panel. We were the first one to have the touch screen iPad panel, because the iPad is a Sharp-made device and that ISO Glass is Sharp technology. When Sharp first came out with that display, it had a retractable keyboard that was built into it. That was a council-pushed idea. We pointed out that authenticating by using a query display that’s nested is laborious, and that it would be better to have a keyboard like we authenticate when we log into our laptops or computers.
Are you investing a lot in deploying the technologies that you’re selling into your own office use?
Reeves: We’re a firm believer that you use what you sell. Take document management and workflow. It’s one thing to go to a customer and say you’re a DocuWare dealer, and it’s another to bring the customer into Smile and show them how we use DocuWare. Once the customers sees and understands it, they’re sold on it. It starts with educating your people. We want to be the total provider of technology that makes it simple for the customer, intuitive and allows them to focus on running their business, not the technology.
Your mobile showroom is quite unique in the industry, and brings the power of Smile’s offering to the client’s front door.
Reeves: We call it the Smile Experience. When we pull that bus up in front of a company and the customer walks in, their jaw drops. It’s a network hot spot, it has IWBs, computers, phones and a couple copiers. We’re not trying to show copiers—we demonstrate office technologies. We physically break the copier in front of the customer and ask them to call our NOC. We have a camera that shows someone in the NOC answering the phone. That person remotely takes over the copier in the bus, fixes it, says “Thanks for calling Smile, your remediation time was eight minutes. Have a nice day.” When we do that, 100 percent of the time we get the business. No one else is going to buy a $500,000 bus, put all that technology in it, and entrust it to a sales rep.
Mobile Showroom
How do you recruit and retain quality employees?
Reeves: That is the biggest challenge, especially on the sales side. We have no problem hiring service techs, because everybody wants to come here. We provide company cars, tools, parts and training—this is heaven for a technician. One of the unique things we do for sales reps is they get a monthly annuity on every maintenance agreement that they manage. Every time they sell a copier that has a maintenance agreement in it, they get a commission on that monthly bill. A good sales rep can earn $3,000 to $4,000 a month just on their service annuity. One of the challenges we had when we got into MPS is that no one is interested in selling a printer where they get a $25 or $50 commission. But if they can make another $10 to $15 dollars a month per device on maintenance, and they’ve got 10 devices, now they’re getting $100 a month annuity. That compounds every month. The program became so lucrative that I had to put a qualifier on it.
What are your goals for next five years?
Reeves: Our goal is to be a premiere northern California dealership with 15 branches and $50 million in revenue. Aside from the two acquisitions we have lined up, we are preparing for the Sharp Smart Office. We’re currently beta testing the Alexa under an NDA with Sharp. We are looking to hire graphic artists, because we’re getting into digital signage. One of the big opportunities we have right now is with a large manufacturer that has a facility the size of 10 football fields. They want digital signage throughout the facility that has the safety message of the day, wishes happy birthday to employees and posts other messages for internal use.
When the Smart Office comes out, digital signage, monitors, Skype and all that stuff is going to be more important. Under our agreement with Sharp/Foxconn, we can go to them and buy multiple Foxconn products under one Sharp SKU number. Ordinarily, if you wanted to buy a video-conferencing system, you would need to buy a monitor, camera, phone device and a router separately to make all of that work. Instead of buying them from five or six different manufacturers, what if you could order one Sharp SKU number and source all those things in one bundle? Instead of having five or six different user manuals and many remotes, there’s one user manual written for all those devices to run as one, using Alexa voice activated. That’s super sexy to me. Can you imagine a demo bus presentation with voice authentication and facial authentication? Some of our larger customers, such as law firms, have beautiful conference rooms, but it’s an absolute cluster when they try to turn on a PowerPoint presentation. They’re attorneys—they don’t know how to run computer systems. We’re going to simplify that, and it’s going to be the next step in the evolution of office technology. This aligns with our mission statement: we are committed to proactively simplifying our clients’ business-technology experience through innovative customer-service tools and responsive professional support, empowering them to focus on their core business.
An interior view of Big Red, Smile Business Products’ mobile showroom
Do you have any advice for the dealer community?
Reeves: Print will always be there, but it’s having less and less significance. We want to manage information, and we don’t care if it’s video, voice, cloud or print. When all’s said and done, it’s communication with information and the dealer who controls that is the dealer who’s going to survive.
