Cutting Loose From Low Margins

Networking sales and service provided a convenient way for New York City-area integrators Tom Olivieri and Paul Greene to supplement their incomes from their day jobs at The Long Island Savings Bank. However, when, due to downsizing at the bank in 1993, Olivieri and Greene turned to networking for their primary income, they found the network market saturated and the margins low.

"By the time we entered the networking market full time, it seemed most large corporations we contacted either had in-house networking departments, or had established relationships with other networking contractors," says Olivieri. "We had been counting on large corporations to make up our long-term customer base, because of the potential for growth in those types of installations.

"In addition, hardware prices had become low enough that most small businesses could afford networks, which created more sales. However, the installations offered smaller volume and less potential for margins. Also, at the time, through the help of programs sponsored by the U.S. Department of Labor, more Novell Network engineers were being certified than ever before, which was making network service more of a commodity."

Networking: A Catch 22 Proposition
It soon became clear to Greene and Olivieri that their company, ironically named Micro Network Systems (MNS), would not succeed if it remained solely in the networking business. "We were spending all of our time going on site and providing service and support for our customers," says Greene, MNS's director of technical services. "We didn't have any time to concentrate on the things we needed to do to grow our business, like learning about new technologies and prospecting for new customers. In fact, we were so inundated with service calls that we couldn't keep the customers we had satisfied."

"It is a Catch 22," says Olivieri, MNS's managing director. "A profitable networking company needs to have a large enough staff to be able to make service calls, but it also needs a customer base to support that staff," says Olivieri. "We didn't have the time to prospect for more customers because our base of smaller-sized customers couldn't support our hiring extra personnel."

Imaging: The Ticket To Corporate Clients
In order to land the corporate customers it desired, Micro Network Systems needed to make a change. A series of events, which began with Greene's attending an imaging trade show in the fall of '93 on the advice of a friend, and culminated with MNS formally changing its business focus two years later, provided that change. By changing its focus from network integration to imaging and storage resale and integration, MNS has blossomed from a zero growth rate in 1994, to expectations of over 100 % growth and $2 million in revenues for 1997.

"Imaging is a newer technology than networking," says Olivieri. "There are still good margins to be made on the hardware and software, especially if an integrator can bundle them together into a solution. Also, although a lot of corporations have their own networking departments, the people in these departments don't have time to learn how to install imaging. This creates a niche market for small companies to come in and assist the networking departments at these larger companies with imaging applications." MNS's first imaging lead, in fact, was the Colgate- Palmolive Corporation in Rochester. Although Colgate Palmolive eventually chose not to install imaging for that particular application, putting together the bid gave MNS a taste of the potential of imaging.

Trade Show Provides Impetus
MNS was first introduced to imaging when Greene attended an imaging trade show held at New York City's Javits Convention Center. "I had never even heard of imaging," Greene relates, "but a friend told me it was an up-and-coming technology and it might be worth checking out. When I saw the scanners and jukeboxes and what they were capable of, I was blown away."

Greene collected corporate literature at the show, and while sorting through it, was attracted to Westbrook Technologies. "I noted that Westbrook's software had won a 'product of the year' award, and that its home offices were in Brandford, CT, only about an hour-and-a-half drive away. I figured that it was convenient enough that we could take a drive over, see a product demonstration, and ask the sales reps about the company's reseller program."

Staying In Vendors' Faces
Greene's idea to visit Westbrook in person started a trend for MNS - one to which Greene and Olivieri attribute a major part of their success. "We've been told that no reseller pursues vendors as aggressively as we do," says Olivieri. "We love to get in vendors' faces, and let them know what we do and what we can do for them. "

MNS relies on vendors for leads and support, and in return promises to close deals and provide feedback. "One of the biggest complaints we hear from vendors is that they are reluctant to give leads to VARs because they don't trust them," says Olivieri. "They are afraid the VAR will not install their product correctly, or not follow-up on the lead. We try and turn the tables on vendors. We keep detailed records of the leads we get from them, and which ones we close. We have documentation that says to vendors, 'we are not a black hole for leads.'"

Olivieri also relies on his experience to help ensure vendors' technology is not misapplied. "At The Long Island Savings Bank, my job often involved acting as an interface between end users and programmers. I always prided myself on being able to get the correct information from end users about what they wanted to do with technology, and then being able to manage the programmers so the end users received a system that met their needs."

Olivieri says this process often involves running several demonstrations and then re-asking end users, "are you sure this is what you want?" several times. "Sometimes we will ask end users three or four times to explain their problem, and if the solution is beyond our technical understanding, we'll arrange a conference call with a vendor. Vendors love these calls, because it gives them a chance to explain their product," says Olivieri.

Vendors Provide Valuable Resources For Small Company
MNS also relies on vendors for post-sales support. "Because we don't have a huge support staff, we will often refer our customers to our vendors for support," says Olivieri. "Then we'll do a follow-up call with customers to make sure they are being taken care of. We want to build long-term customer relationships and if a vendor isn't cooperating with our customers, we'll look for a new vendor."

Also, because of its size and recent entrance into the technology market, MNS doesn't have the resources or relationships to generate a lot of leads. "We rely on vendors for most of our leads and this makes our relationships with them very important," says Greene. "We try to get certified on four or five new products every year and maintain close contact with the vendors' field reps."

MNS is also proactive when it comes to providing vendors feedback on their products and programs. "Vendors love to hear what is working and not working," says Olivieri. "This helps keep them in touch with the market. Right now, one of our biggest complaints for vendors is that their training classes don't address the selling of their products well enough. It seems they can explain the technical aspects of their products, but when it comes to explaining how VARs should sell their products vs. the competition, information is often lacking."

Growing Through Partnerships And Storage Sales
MNS's first imaging installation came at New York Hospital in the fall of 1994 through a partnership with another VAR. "We had just become certified on Westbrook's FileMagic document management software," says Olivieri. "Paul knew someone who worked for the VAR that did most of the hospital's technology installations. From talking with him, Paul discovered that the hospital had recently purchased a FileMagic package, but wasn't quite sure how to install it. So we worked out a deal with this VAR for the FileMagic installation."

From there, MNS has grown its customer-base to approximately 200, which includes everything from sales of CD-towers to full-blown imaging installations. "As we learned more about imaging, we naturally became more involved in mass storage solutions," says Olivieri. "Because an imaging installation is so complex, (it can involve redesigning a company's whole business process), the sales cycle can be very long. But we've found that the bundling and resale of mass storage products has a much quicker turnaround, and we've increased our revenues significantly through our storage sales."

Olivieri estimates that about 70% of MNS's business comes from the resale of storage products. "An imaging installation might tie up our resources for weeks, while a storage installation can be done in a couple of days; or the products can even be bundled and shipped to be installed by the end user, with our phone support. We'd like to increase our service and installation volume in the future, because that is where the most money can be made in the technology business," says Olivieri, "but storage resales are important for growing revenues and building our customer base."

Olivieri says MNS will often use a storage installation as a wedge for bigger sales. "Once we get on site, customers often start asking us about related technologies, like imaging, if we are doing a storage installation. (See "Storage Sale Leads To Larger Application") Since we are certified in several imaging and storage technologies, we have answers. This will often lead to more installations for that customer." For example, Olivieri says MNS does not hesitate to sell as many CD-recorder devices as it can, even though the margins may be low. "CD-recorders are used to create CD-ROMs. Eventually those CD-ROMs will need to be stored someplace, which creates an opportunity for us to sell the customers jukeboxes and storage management software."

Imaging Market Long Way From Saturation
Less than halfway through 1997, MNS had already equaled its profits from 1996, the first year it invested its resources fulltime in imaging and storage. "This is our fifth year in business and it's been said that is the make-or-break year," says Olivieri.

As far as the market goes, Olivieri thinks it will be some time before the imaging market becomes as saturated as the network market. "Some vendors are trying to sell imaging software as a commodity, but I think they are losing. Especially in our target market, which is larger corporations, generic imaging software can't get the job done. So much of a company's business process can be affected by imaging, that it takes an integrator who really knows imaging and storage to configure a successful solution. As long as we continue to study new developments in imaging and storage technology, and have something to offer our customers above what they can buy off-the-shelf, our revenues should continue to grow."