The Art Of Survival

For someone who's been a VAR for less than five years, Dan Alipaz sounds like a seasoned - even battle-scarred - veteran. "Cash register dealers used to enjoy 40% margins and protected territories in a structured industry," says Alipaz, president of East Bay Cash Register Systems, Inc. (San Jose, CA). "That's changed. In the late 1980s and early 1990s, the market became global. And, the transition from electronic cash registers (ECRs) to PC-based point of sale (POS) systems began. Dealers who wouldn't - or couldn't - make that transition went out of business."

Alipaz didn't fully realize the impact this would have on East Bay Cash Register Systems until after he'd purchased the business in 1995. Downsized by his former employer, Dun & Bradstreet, Alipaz jumped at the chance to be his own boss. He'd worked at Dun & Bradstreet for 25 years, and two of his three children had finished college. With his wife's blessing, the equity in his home, and his life's savings, Alipaz purchased East Bay Cash Register Systems. While owning the business hasn't always been easy, Alipaz is banking on his company to double its sales in the year 2000. How? Alipaz says his plan is a work in process. "It's continuously learning more about what not to do," he admits. Today, his company sells and services both ECRs and PC-based POS systems in the hospitality market. The number of installations doubled from 1997 to 1998, and again from 1998 to 1999.

Watching The Competition Fail, And Knowing You Could Be Next
"Within months after buying my company, I saw five cash register dealerships in the San Francisco Bay area go out of business," says Alipaz. "It was a wake-up call for me." At that time, the former owner of thirty years was still on the company's payroll. "His continued presence prevented the employees from looking to me for leadership in directing the company's growth," admits Alipaz. "That first year in business, I lost my shirt."

East Bay Cash Register Systems had plenty going for it. For one, the company had been in business since 1936, and it had a good reputation for service. According to Alipaz, East Bay Cash Register Systems was one of the dominant POS companies in the San Francisco Bay area. "I also had many loyal employees, people who'd never worked anywhere else," states Alipaz proudly. "The former owner, who'd hired these employees, had seen them get married and have children. I wanted that kind of loyalty as well." Alipaz set out to win over his staff. He wanted them to be more involved in decision-making. "I led by example, coming in early, staying late, while learning the business," he explains. "The hardest part for me was not just delegating job responsibilities, but accepting the decisions my employees made as a result."

In addition to its reputation and low employee turnover, East Bay Cash Register Systems had four separate profit centers that supported the company. "When I first bought the company, 50% of revenues came from wholesaling ECR and scale hardware," notes Alipaz. "Nine percent of the revenues were from service, including maintenance contracts, while 11% of the revenues came from supplies, such as POS ribbons and paper. Only 30% of revenues came from the retail sale of ECR systems." However, within one year of buying the company, Alipaz would see one vendor discontinue an entire line of scales - one that had contributed to 95% of East Bay Cash Register System's wholesale revenues. "I picked up some business as a result of the five local dealerships folding," says Alipaz. "But to stay strong, I had to put my limited resources into servicing cash registers."

Capitalizing On ECR Repairs
Alipaz learned that in California there are roughly 2,000 cash register technicians. "The cash register companies themselves no longer have branch offices for service, although some have training schools," says Alipaz. Because of this, Alipaz could and did raise the charge for service to $110 an hour for ECR repairs. It was the right move, according to Alipaz. "By the end of my second year, I broke even."

The year 1998 proved to be a turning point. Despite the strength of the ECR service side of his business, Alipaz was forced take a hard look at the direction the company was headed. "Hospitality and retail were ready for PC-based systems - partly because the new generation of business owners is computer literate and partly because the price of technology is decreasing, making POS systems more affordable," says Alipaz. "Today's retail managers and restaurant owners want reports to analyze data. They want to know if their businesses are profitable." Alipaz set out to find the right POS software for this growing market. His first three attempts to adopt a POS software line proved "disheartening." Alipaz eventually got on board with Ibertech's Aloha software.

Software, he says, is the key to a VAR's business. "VARs don't make money selling hardware anymore," states Alipaz. "You make money selling software that your customers can't buy anywhere else, and charging them for your services. They'll pay full margin because they are paying for your expertise. For example, if customers buy the right software, but the application is not customized to meet their precise needs, or if the hardware is not correctly configured, the POS system won't work."

Setting Up A Web Site To Sell Hardware
Today, Alipaz says his company is "on the cusp of doing some good things." East Bay Cash Register Systems now employs 23 people, up from 14 employees in 1995. Alipaz admits he could use one more programmer. "The sales aren't there yet to support another employee." Alipaz also wants to integrate additional technology into his POS solutions. "But, we're a small company. I can't go out and create a market for a handheld device, for example. However, by bringing in evaluation units for my staff, they'll be prepared when customers start asking for them." Alipaz is also concentrating on growing the distribution side of his business, which accounts for about 15% of his revenues. He set up a Web site to sell discounted POS equipment. Supply sales are also strong. "Supplies now account for 20% of our gross sales and have financed our transition to PC-based POS systems." As with supplies, Alipaz believes services are key to his company's survival.

How does Alipaz feel about being a VAR now, compared to five years ago? "I was always envious of small business owners because of their autonomy. However, now that I am one of them, I realize that with autonomy comes tremendous responsibility," says Alipaz. "Knowing that the business decisions you make also have an effect on your employees and their families is sometimes extremely stressful." Alipaz credits his staff with helping the company move from an ECR-based business to one that specializes in PC-based POS systems. The company's gross sales revenues should top $4 million this year.

Weary but wiser, Alipaz - the battle-scarred veteran - goes on.