Even under ordinary circumstances, the corner-office executives at office technology dealerships will huddle to assess the strengths and shortcomings of their product and service portfolios. Their goal is to gauge whether venturing into a new, adjacent offering is a prudent move. And when business conditions take a turn for the unusual (see: pandemic) and profitability becomes threatened, “prudent” transforms into “essential.”
As part of this month’s State of the Industry focus on product diversification, we’ve turned to one of the nation’s largest and most respected dealerships—Gordon Flesch Company of Madison, Wisconsin. The company boasts a vast array of products and services, and has traveled down the path of identifying new offerings that could help bolster its bottom line. Company President Patrick Flesch and COO Mark Flesch provide their insights on product diversification during a pandemic, the highs and lows of expanding into a major area such as managed IT, which products are ideal for smaller dealers, and what offerings should be approached with caution.
While the Flesch brothers navigate a dealership that boasts more than $150 million in annual revenues, they view the many different choices on the market through the lens of a $15 million company taking a judicious tack, with a mind toward investment requirements and return-on-investment timetables.
Any downturn in business, caused by a recession, pandemic or other event, often prompts dealers to take stock of their product and service offerings. If a dealer had been entertaining the idea of branching out into a new area prior to the pandemic, is executing it during a downturn a good or bad idea, and why?
Patrick Flesch: It’s a really tough decision, and a lot hinges on the financial stability of the dealership. If they’ve done a nice job of managing the business and they are a profitable organization, right now is an OK time to venture into a new product offering. When the pandemic hit, we moved quickly to control expenses. That was the only thing that we had power over, and it allowed us to keep the business running well and remain financially healthy. I wouldn’t recommend launching into a new offering unless the dealer is pretty confident in the financial stability of its business.
Roughly two months into the pandemic, we realized we had reached a new normal and started looking into temperature-scanning kiosks, because we thought it was applicable to some of the challenges our customers were facing. Whether it’s schools, health systems or everyday organizations, these businesses had a lot of foot traffic coming through and needed to keep their people safe. It’s worked out pretty well for us—it’s a pretty simple product and sale. All we needed to do was sign a reseller agreement and order some inventory, and off we went. Obviously, it’s not nearly as involved as launching managed services. We looked at a few online demos and asked some of our dealership friends in the industry about their experiences. We partnered with LamasaTech and Goodview to provide our reps with two options to sell to their customers.
The recurring revenue model is certainly one that all of us in this business truly enjoy, and it’s a beautiful way to run your company. Any time that is a component of what you’re selling, we see that as a bonus.
– Patrick Flesch
Mark Flesch: Right now, I wouldn’t encourage smaller dealers to get too aggressive and invest in any new avenues unless they’re financially stable or they felt really confident that they could be profitable right away. I would stick with technologies and solutions that are adjacent to what they’re already selling and supporting.
Historically, when GFC has embarked on adding a new offering, what considerations did it take into account, aside from current and potential customer penetration? How much weight is given to recurring revenue opportunities?
Patrick Flesch: The recurring revenue model is certainly one that all of us in this business truly enjoy, and it’s a beautiful way to run your company. Any time that is a component of what you’re selling, we see that as a bonus. We launched into managed IT in 2012, and the driving force behind it was the recurring revenue model. But is also allows you to be stickier as a provider and bring more value to the table for customers. Managed IT is a nice way to do that—you have control of the network, you’re helping customers with security and providing them print. When you can bundle all that into one package, that’s a pretty powerful sell.
Mark Flesch: You also need to factor in the level of demand in the marketplace and be attuned to what customers are seeking. Right now is a great time to be in the managed IT business; we’re seeing a large uptick in major projects that customers are investing in. They’re enhancing security, launching big, server-type projects. Because of the pandemic, end-users needed to rethink their infrastructure and investments. And given the increase we’ve seen in cyberattacks, they needed to make changes to protect themselves in a remote working environment. I think right now is a good opportunity for our IT business to boom, and investing in areas we believe addresses market needs makes a lot of sense, too.
Patrick Flesch: We’re about to turn the corner in our managed IT business. It’s been a long road—eight or nine years, and many of them were not profitable. With a dealership of our size, you have to invest in a lot of high-end talent to build the infrastructure that profitably delivers a really elegant IT experience. We started out by partnering with Continuum, and our acquisition of ITP really helped to build our operational maturity. Then we circled back to building out our own service desk and transferring customers away from Continuum. We’ve kind of come full circle. When we launched into managed IT, we learned that there were three options for entry: you could build, you could partner or you could acquire. It’s funny, because we’ve done all three at this point. But it’s been a long road.
Obviously, some disciplines (managed IT, ECM) have a steep learning curve that may seem prohibitive for smaller dealers. Can you share the highs and lows in your journey?
Patrick Flesch: When we started out, we put IT services on the selling plates of our existing print sales team. We thought we would be able to leverage their relationships with current customers and build upon the trust that had been established. Our people bought into the offering and tried to learn as much as they could. It really took off. However, as time went on, we realized that we needed to use a dedicated approach in which our salespeople and technical resources eat, breathe and sleep IT. We needed that to take the next step. We’ve enjoyed a lot of success in developing sales teams. Through our acquisition of ITP, we’ve added a ton of expertise on the operations side of the business. I consider that addition to be the turning point, really the triumph of our managed services business. Now it has its own identity and its own name (Elevity) as a division within the company. It’s a combination of those things that has allowed us to succeed. We’re on the cusp of doing some great things in that business.
Do you feel buying into a managed IT platform, as opposed to building or acquiring, is the best move in this environment?
Patrick Flesch: With smaller dealers, if they can find a talented vCIO, one good salesperson who can really speak the language and understand the technology, that might help enable some success. Certainly, I’d recommend them partnering with a Continuum or Collabrance to reap all of the efficiencies that have already been built. I think our dealership faced a high cost structure in having to replicate this team in six different branches, which was a big hill to climb.
Mark Flesch: We had to invest in six vCIOs, one for each market, and we needed local post-sale IT support in every market. That’s a lot of talent to invest in right away. But it could be easier, scale wise, for a smaller dealership to address one market. Sometimes it’s a matter of finding great talent, a point person to run the show. A great hire can make all the difference.
If there was one product/service offering that you think would benefit a $10 million-level dealership, what would it be and why?
Patrick Flesch: The thing that comes to mind is output management. Most of those dealers are probably already selling some sort of print management software. But if they’re not in that business already, I think it’s a nice, attainable adjunct piece for their print business. Beyond that, it’s important to really step up and focus on MPS. It sounds simple, but it’s an area where, if you give it more attention and focus, it could really pay dividends. They should also consider branding their offering, enhancing some of the services they can bring to the table. Dealers already have knowledge and expertise in that area, and given all the uncertainty surrounding the pandemic and when people might return to the office, now is the time for them to raise their game. Every click you can secure, every device you can put under contract is critical. It’s going to be a shrinking pie, so getting as much aftermarket recurring revenue on the managed print side is an ideal focus for smaller dealers.
Mark Flesch: Another product that would make for a smart investment for the $10 million dealership is production. A lot of dealers, even those we’ve acquired over last couple years, don’t really invest in heavy production; they tap out after the light-production level. It does require investments in demo units. Technicians need to get trained, and it’s important to have a strong presales resource. That could be an area of growth in our business, especially on the color side. Those are lucrative sales in terms of dollar figures, and they come with a lot of aftermarket revenue.
As much as I’m bullish on the future of our managed IT business, it’s something smaller dealerships should think long and hard about, because it’s difficult to make money right out of the gate.
– Mark Flesch
By the same token, is there an ancillary offering that you would advise against pursuing, and what do you see as its primary deterrents?
Patrick Flesch: 3D printing is something we looked at closely, but ultimately opted to pass. Even though it contains the word “print,” 3D is closer to a manufacturing play. Some dealers have had a lot of success with it in certain markets, but we didn’t feel comfortable going down that path with limited knowledge. Telephony is another area we’ve evaluated over the years. Two or three times, we took a serious run at it, but eventually passed on the idea. We didn’t have comfort in the vendors we evaluated or the sales alignment and were concerned with reports from other dealer friends who have seen that business struggle.
Mark Flesch: As much as I’m bullish on the future of our managed IT business, it’s something smaller dealerships should think long and hard about, because it’s difficult to make money right out of the gate. Experts cautioned us that it could take five years before we’re profitable and they were right. The same goes for enterprise content management business. That’s also a tough area to achieve profitability.
With so much uncertainty as to how the current work-from-home model may impact business post-pandemic, what is the best advice you can offer regarding product diversification?
Patrick Flesch: Volumes are going to decrease with the remote workforce, which makes it so critical to hold on to customers. Dealers need to be diligent about capturing every image in every account, and if they’re not, they need to tell a compelling story that revolves around just-in-time toner, customized invoicing or printer swap programs. Everyone’s going to be doing the best that they can to hold onto customers. And you have to bring value in order to do so.
Mark Flesch: My advice for salespeople is, although this is a hard time to sell, the most successful account executives we’ve seen are the ones who have gotten out into their territories. You see it more in rural markets as opposed to downtown territories. It’s important to do it in a safe way, perhaps meet with clients outdoors—it’s all about being creative. Doing Zoom and telephone calls all day isn’t as effective as the old-school method of getting in front of your clients.
Patrick Flesch: At the same time, you’ve got to develop a really strong delivery when it comes to virtual demonstrations. I’ve been amazed at how well our business analysts and the technical resources that support the salespeople have done in creating the ability, via Zoom or Teams, to virtually demonstrate all of our products, sometimes leveraging multiple locations. Considering this may be something we will continue to do for some time, it’s important for reps to become proficient at virtual presentations.
