On The Road To New Markets

Beginning with Road to Singapore in 1940, Bob Hope and Bing Crosby spent a lot of screen time away from the sound stages and back lots. By the time the wheels fell off the "road to" series after Road to Hong Kong, the jokester and the crooner had bantered their way to Bali, Rio, Morocco, and Zanzibar. Though far from any Hollywood studio, a similar story line has been in development since 1991. That's when POS Systems Ltd. opened its first regional office after ten years of operating solely from its Winnipeg, Manitoba, headquarters. Ten additional years later, the POS (point of sale) integrator boasts satellite offices in each of four Canadian provinces and one across the U.S. border in North Dakota.

If Rod Thompson, president of POS Systems, ever decides to roll the cameras on his own series of road movies, he has plenty of titles ready - Road to Saskatoon, Road to Brandon, Road to Thunder Bay, Road to Calgary, and Road to Fargo. Having experienced both setbacks and successes along the way, Thompson and company know that, even with the best direction, territorial expansion doesn't always unfold as scripted. Nonetheless, opening a remote office is one action that a POS VAR should not simply ad-lib.

Identifying The Profitable Fork In The Road
POS Systems provides PC-, cash register-, and touch screen-based POS systems for vertical markets such as hospitality, grocery, retail, and convenience stores. As it adds offices, POS Systems follows some key principles of expansion. One is understanding the unique economy of the region and targeting POS needs accordingly. POS Systems' first regional move - to Saskatoon, Saskatchewan - and its third - to Thunder Bay, Ontario - illustrate how that principle guides the company's efforts. Saskatoon, located nearly 800 kilometers (500 miles) west of Winnipeg, is a regional trading center for an economy heavily reliant on agriculture. In exploring business opportunities in the area, POS Systems discovered a bonanza-in-waiting in the grocery vertical. Each of the small farming communities tended to have a single, independent grocery that typically had not yet converted from simple cash register systems. Consequently, POS Systems targeted that market with PC- and touch screen-based POS terminals, peripherals, and inventory control software.

In Thunder Bay, Ontario, POS Systems discovered an economy driven by logging and by the city's position as a northern Lake Superior seaport. Although Thunder Bay is a relatively remote city of only 125,000 people, its loggers, dock workers, and ship workers support numerous bars and restaurants. Thus, POS Systems seized on the opportunity to sell and install liquor control systems.

Turning A Service Station Into An Office
Once it has begun doing business in a particular region, POS Systems eventually has to decide whether or not to pull on the parking brake and open an office. In comes a second principle - generating enough revenue to sustain an office before actually opening the office. But getting to an office-sustaining level of business doesn't happen by simply driving around in a shiny, logo-embossed van and waving. "We work hard to get that first key end user in a new territory to put their trust in us," Thompson said. "We prove that we can do the service and that our products are reliable. We make sure customers can dial in seven days a week for support. Eventually, that initial solid reference leads to ten or fifteen additional customers."

According to Thompson, opening a new office can be accomplished with a fairly modest initial investment in money and staffing. "My rule of thumb is to have at least $150,000 dollars of annual service contract revenue coming in. You need that much to cover expenses such as a company van, a small office, and benefits for that first employee."

Most of POS Systems' expansion efforts have been aimed at markets considerably smaller than Winnipeg. Thompson understands that smaller markets often reveal small town concerns about "big city" businesses moving in. Consequently, POS Systems has been careful about the kinds of employees it hires to staff its regional centers. "What works well in a rural territory is getting people who offer combined sales and technical skills and who hail from that area. They understand the economy and demographics, and they already have contacts in the area," Thompson said. "You want your representative to be able to convince customers of the need for upgrades. Local people can often work those conversations better than someone flown in from corporate headquarters."

The need for trust justifies not only hiring local talent but also opening the local office in the first place. "A local office tells customers that you have a presence in their community and are loyal to it," Thompson said. "When we do maintenance visits, having a local office enhances our customers' perception of getting value out of their service contracts. Whether they need us or not, they like the feeling of having a technician drop in every couple of months."

Keeping All Hands On The Company Wheel
Of course, maintaining a regional office isn't as simple as merely relocating or hiring key people. Staff and operations must be monitored and managed. For Thompson and his management team, that means time on the road and time in the air. To reduce physical travel as much as possible, POS carefully screens and prepares its remote field representatives. "We always bring new people in to our headquarters to get an idea of what they're becoming part of. We test their technical skills against our benchmarks and then send them out with our experienced Winnipeg reps," Thompson said. "For every three finalists for a sales/technician position sent in by our field managers, we probably hire one."

Remote management also includes service contract reviews. "We monitor the effectiveness of our people by looking at revenue from their service contracts," Thompson said. "For example, we might discover that, instead of responding to service calls, they are spending too much time in the field retraining customers." To reduce time that field reps spend on retraining customers, POS Systems insists that its installation specialists officially complete the initial training. "Before we leave, we get a sign-off that says the customer has been trained and can manage the system," Thompson said.

Getting Better Traction With Chains
Despite a relatively smooth ride to new markets, POS Systems has had to fix a few flats. Its initial attempt to move into a much larger market, Calgary, Alberta, had the company swerving dangerously close to the edge. Although the Calgary office, with 13 employees, is now the luxury sedan of POS Systems' remote operations, it barely passed inspection for the first year or so. "When we did the expansion into Calgary in 1996, we saw a booming market with 1.5 million people. About 1,100 of the top 1,300 Canadian companies have a head office in Calgary, and we saw that as a huge plus," Thompson explained. With $4 million in annual sales revenue at the time, POS Systems set aside $325,000 for the expansion.

The company soon discovered, however, that its record of success in smaller markets did not immediately translate into a solid reputation in Calgary, where competition was much greater. The company also misjudged the difficulty of selling in a market where most businesses are affiliated with chains. The decision makers were hard to identify, and sales cycles lasted as long as a year. "In that first year in a hub for major national chains, we hemorrhaged badly," Thompson admitted. "The initial $325,000 disappeared quickly, and so did another $300,000 to $400,000. We realized that we had to get back to fighting for our market share and not expect business to just come our way. We turned it around when we stopped consuming our efforts at the individual store level and worked to earn endorsements from the central, corporate decision makers." An example of the differing kind of relationship POS Systems had to develop is the Earls restaurant chain. In Winnipeg, POS Systems had contracts only with individual Earls franchisees. In Calgary, it now has contracts with 25 corporate-owned Earls sites.

Having successfully established itself across a territory that spans 2,000 kilometers (more than 1,200 miles) east to west and straddles an international border, POS Systems knows how to plot regional expansion. As it adds offices and increases profits, POS Systems seems to be scripting the remake of Hope and Crosby's most ambitious journey, Road to Utopia. The central action in that movie? A search for the map to a secret gold mine.