How To Beat The Start-up Blues

As a start-up company, sales didn't come easily for Oak Tree Data, Inc., a reseller of digital image identification (ID) card printing systems. Dennis Badzik, the company's president, says some prospects didn't want to buy from a new company like Oak Tree Data, even though Oak Tree typically beat larger competitors on price. Badzik explains, "One prospect simply told us, 'you haven't been around long enough, and we want to go with a proven reseller.' It was frustrating, but it also showed me we had to find ways to differentiate ourselves."

Oak Tree Data has attempted to beat larger competitors primarily by offering better customer service, focusing on customer satisfaction, and looking for untapped geographic markets. In the following pages, Badzik discusses how Oak Tree Data, founded in 1995, overcame start-up struggles to achieve an annual growth rate of 150% last year. This year, the Diamond Springs, CA, reseller expects to top $1 million in gross sales.

Overcoming Start-up Challenges
Prior to Oak Tree, Badzik had founded a time and attendance dealership called Information Management Time Systems (IMTS). Growing IMTS from the ground up helped Badzik prepare for the challenges Oak Tree Data would face as a new company. These included:

- Making sales in spite of a limited budget - Like most start-ups, Oak Tree had a limited marketing and advertising budget. Badzik needed an inexpensive way for Oak Tree to promote and sell its systems. A Web site has proven to be both a low-cost and an efficient solution, according to Badzik.

For example, Oak Tree now pays a $60-a-month Web site fee, which Badzik says is much cheaper than other forms of advertising. (The initial investment for the site - which consisted of software needed to design the site and the man-hours spent designing it - was about $,5000.)

However, Badzik says the initial investment was well worth it. He also says Oak Tree receives more "qualified leads" from the Web site than it has from other advertising. "We haven't advertised the fact that we have a Web site," Badzik says. "People learn of the site by doing a search on the Internet with key words, like ID cards or badges, and the search engines direct them to our site. Clearly, the people who visit the site are already interested in ID badges. As a result, we don't have to 'sell' them as much as we would some other prospects. VARs should consider setting up a Web site to promote their products and services if they haven't already."

Oak Tree maintains the site on its own. Badzik says it is important to update the site every few months. Part of updating the site is advertising different sales and products. "People who visit it periodically like a fresh look," Badzik says. "It's the same concept as running different ads on television or in magazines."

In addition to the Web site, Oak Tree also has relied on a tie to IMTS. (Badzik still operates IMTS. He established Oak Tree as a separate company because he eventually hopes to have an initial public offering (IPO) for it. Since IMTS sells mainly to the healthcare market, Badzik thought Oak Tree, which sells to many verticals, would be more attractive to potential investors if the company remained independent from IMTS.) Because time and attendance and ID cards are often used together, Oak Tree was able to sell card printing systems to half of IMTS' customers. According to Venture Development Corporation, a technology, market research and consulting firm, more than 80% of the companies and enterprises that issue some type of ID badge or card produce them by laminating photos and cards. This method of badge production is both labor-intensive and time-consuming. Badzik explains, "We knew there were many opportunities for automated card printing because of the high percentage of end users that make cards manually. As a result, IMTS' customers were ideal candidates for automated card printing systems."

- Finding untapped markets - According to Badzik, many of Oak Tree's competitors tend to focus on prospects in large cities like New York, Los Angeles and Chicago. As a result, Badzik says Oak Tree decided to focus its sales efforts on small- and medium-sized cities and towns in states likes Utah, Wyoming, Colorado and Idaho.

Badzik explains, "Most of the prospects we talked to in bigger cities had already been contacted by our competitors. We also prospected IMTS' customers, many of whom were in the western U.S. And most of those customers hadn't been approached by anyone yet." n Hiring people at the "right" time - When IMTS was founded, Badzik says he made the mistake of hiring two additional employees before the company could "pay" for them. That experience has helped him avoid the same problem with Oak Tree, which has grown from three employees to nine.

"Part of knowing when to hire people is a 'gut' feeling," Badzik adds. "There's a certain point in time when you start to feel successful as a newer company. Prospects start to recognize your name, and they start to call you, instead of your calling them. But newer VARs shouldn't hire more people until the VARs consistently meet and exceed revenue and sales goals. Companies might have growth spurts here and there, but growth needs to be sustained over several months before you hire more people."

VAR Action Points
Establishing itself as a reputable reseller was probably Oak Tree's biggest challenge, Badzik says. Initially, Oak Tree offered lower system prices than competitors. However, Badzik soon found many prospects were willing to pay more to established resellers. "It was frustrating when prospects wouldn't buy from us just because we were the new kid on the block," he says. "But I knew that if we kept knocking on doors, eventually the sales would come. I wanted to establish a base of about 10 customers that we could use as references."

However, Oak Tree had to undertake several initiatives in order to develop a customer base. These initiatives were especially important considering Oak Tree wasn't guaranteed sales simply because it offered lower prices.

- Track customer satisfaction - Badzik says it is easier to retain an existing customer than it is to find a new one. As a result, Oak Tree focused on making sure its systems were meeting customers' needs. Specifically, the reseller made follow-up calls to customers six months after they had purchased a system.

According to Badzik, Oak Tree's customers were generally happy with their systems. However, Badzik says the follow-up calls still made a significant impact. "For some end users, using an automated system for the first time can be a learning - and frustrating - experience," Badzik says. "And so, customers appreciated the fact that someone cared enough to see how they were doing. Little things like follow-up calls help you develop long-term customer relationships."

"One of our customers was having minor system problems. We helped the firm work through the problems. And that customer turned out to be a valuable reference, because it helped us get three sales."

- Develop your own software - Upon founding Oak Tree, Badzik was faced with an important decision: develop software for the company's ID card printing systems, or resell a third-party developer's software. (End users require software to design and print identification badges.)

According to Badzik, both approaches offered advantages and disadvantages. Developing software would take six months, during which time Oak Tree would have to hold off on selling systems. As a result, the company wouldn't have any revenues coming in. However, he also knew that, over the long term, reselling a third-party's package would decrease Oak Tree's profit margins. In addition, Badzik claims many third-party packages didn't give end users much flexibility in badge design. Badzik explains, "With several of the packages, if users wanted to move the employee's name to the bottom of the badge instead of the top, the developer had to make that change in the software. The end users couldn't do it on their own. We wanted customers to be able to make those kinds of changes."

In addition, Oak Tree wouldn't have had "control" over a third-party software. "If a customer were unhappy with something, we couldn't change it - it would be up to the developer. Ultimately, we decided to develop our own software."

- Offer responsive service - Badzik also knew Oak Tree's service would have to be as good as, or better, than its competitors. "We wanted to give customers an immediate response when they called with a problem," he says. "We didn't want to take a message and have a service tech call back in two or three days, which is the case with some resellers."

"The key isn't so much what you sell, but how well you support it and help customers through problems. While there are a lot of companies selling systems, only a minority support those systems well. I was disappointed with some of IMTS' vendors' support. I wanted Oak Tree to be different when it came to service."

Financing A Start-up
Badzik started Oak Tree with $150,000, which was taken from IMTS' reserve fund. Using money from IMTS to fund a start-up (Oak Tree) wasn't an easy decision. "Any time you're involved with a new company, it's scary," Badzik admits. "You always need twice as much money as you expected. You might not cash a paycheck for at least a year. When we started Oak Tree, I was able to rely on income from IMTS to carry me through. But if you want to move forward professionally, you have to take risks. And for me, it's gratifying to build something and watch it become profitable."