Magazine Article | July 1, 2002

The Sum Of The Parts

Are you so focused on seat size that you're leaving money on the table? The steady income from hardware and services can level the peaks and valleys of an enterprise solution business.

Business Solutions, July 2002

You have a top-notch sales team, and they're out there bringing in business - enterprise-wide, dozens of seats. All you have to do is sit back and calculate the margins and the licensing fees. Keep dreaming. Sure, enterprise installs are great, but even if your sales team wins every contract it pursues, those opportunities aren't low-hanging fruit. There are only so many around and the sales cycle can be long, especially if there's an RFP (request for proposal) involved. In the meantime you still have to bills to pay, employees to support, and certifications to maintain.

ImageSource, Inc. (Olympia, WA) has found that supplementing a solutions business that specializes in end-to-end enterprise systems with a components business that offers parts, replacement equipment, and service/support provides a reliable revenue stream as well as the opportunity for future growth. "The integration sales cycle is considerably longer and needs a team approach to address challenges and business issues," says ImageSource president Terry Butler. "On the component side, a system is already installed and they are looking for ways to be more efficient. The two complement each other."

In August of 2001 ImageSource and Axiom Systems (formerly FYI Image, Seattle) merged as equals under the ImageSource brand. Axiom, headed by Terry Butler and Shadrach White, was focused on securing enterprise contracts for turnkey document and content management systems, but wasn't aggressively pursuing hardware and services sales. "We were so tied up in the integration side that we were letting a lot of business slip through the cracks," recalls Terry Butler, former Axiom president and current ImageSource president. Meanwhile, ImageSource, led by Terry Sutherland and Victor Zvirzdys, was actively seeking opportunities to provide hardware and services - and beginning to claim a share of Axiom's smaller integration deals as well. "In 2001, our paths converged and we saw the advantages for both sides," says Butler. "The profit margin on components is stable. We can predict what we will generate. On the integration side, there are huge opportunities, but the revenue numbers can be kind of spiky." The components business currently accounts for 50% of ImageSource's income and provides a reliable revenue stream to fuel growth.

Imaging Experts Close Phone Sales
The organization and management of ImageSource's inside sales team combines predictable income with low overhead and high efficiency. The three-person inside sales team's goal is $350,000 a month, spending eight hours a day on the phone. "It's not just dialing for dollars," says Butler. "If you ask a typical telemarketer who calls your house a question that isn't on the script, you'll throw them off. Our component salespeople are factory-trained and CDIA (certified document imaging architech)-certified. They interact with the solutions sales team in order to understand the overall landscape of customer sites." Butler estimates that the sales team undergoes vendor training at least once a month to stay abreast of the latest product developments. "You can throw a lot of people at the process trying to generate business, but it takes competent and capable people on the phone in order to close the sale," comments Butler.

It's not unusual for customers to call ImageSource with preconceptions about the products they are looking for. Web searches, vendor efforts to promote their brands, and generally better awareness of imaging technologies are all factors driving customers to seek out particular solutions, but Butler stresses that ImageSource stays competitive because it isn't just a box mover for scanners and jukeboxes. "In some cases a customer may think they need a faster scanner, but sometimes we can suggest better ways to use what they already have. If they need to purchase something new, we can also provide the installation and training on that." Components salespeople ask about the demands of the environment such as anticipated volume or the nature of the documents to be scanned. They can make informed recommendations about products offering the best duty cycles and options for a specific customer site.

Butler believes the level of knowledge offered by the inside sales team is a key differentiator between ImageSource and low-price e-tailers selling imaging hardware. "We're not really hurting from CDW or other Internet dealers. In fact, we're seeing a constant upswing. I'm sure we're losing some to them, but normally when someone is on the phone with one of our reps, they are getting information they can't get elsewhere."

Vendor relationships are an important factor in both the short-term and long-term success of the components business. Like many VARs, ImageSource obtains a number of end user leads from its vendor partners. As the relationships between ImageSource and its vendor partners have evolved, ImageSource has been able to take advantage of opportunities that it couldn't otherwise. For example, ImageSource is one of only two U.S. sources for Bell & Howell parts and a Fujitsu West Coast service center, but those opportunities didn't happen overnight. According to Butler, one mistake that many newer VARs have made is to think they can build these relationships quickly. While Image Source has been in business for six years, its principals have been working to win the trust of industry decision makers far longer.

In-House Service And Support Keeps Customers Close
Service and support contracts are the other important aspect of ImageSource's components business. The integrator's 20 technicians provide the overwhelming majority of service and support themselves, even for customers in other parts of the country. "At the very least, we try to be the first call so that we control the client site," says Butler. "We think it's well worth it in terms of the residual benefits. The reason we are able to do business across the nation is because of our relationships." Being the first call keeps ImageSource connected to key clients. For example, Costco has been an ongoing ImageSource customer for integration and components. ImageSource also holds the annual support contract for 32 content management applications. These services keep ImageSource visible at Costco and give the integrator additional insight into Costco's needs when upgrades or additions are made every 12 to 15 months. "We're looking for forever customers," says White, ImageSource's VP of professional services. "We'll walk through fire to make sure they don't get poached."

To make sure it holds on to those service contracts, ImageSource has developed a system to proactively prepare them. The individual responsible for maintaining these relationships receives an automated prompt about a month before the expiration to make sure the opportunity is acted on. The system has proven so effective that ImageSource has a 92% renewal rate on service and support contracts. "The imaging business isn't so much cost-sensitive as trust-sensitive," states Butler. "VARs get in and think that they can cut costs and make a lot of money. They aren't necessarily willing to put out the money or the time to get good technical service and support, which is what keeps customers coming back."

ImageSource's billing method for these service and support contracts is designed to bring the greatest value to customers while securing the integrator's revenue stream. "Between training and the typical mistakes that new users make, most customers get more than what they pay for in the first year or two of a service and support contract," contends Sutherland. "In years three to six, the need for service and support drops off dramatically as they start to understand how to use a system. They've worked through training and aren't making big mistakes. In years one and two, the contract is great for the user, but it costs a VAR money. The big imbalance prompted us to adopt a get-what-you-pay-for approach." When a customer buys a new system, he must also purchase a mandatory number of hours depending on the size and complexity of the solution. Using an internally developed, Web-based HTML/XML (extensible markup language) system for time tracking, ImageSource appropriately deducts phone support, on-site visits, and online access from that pool. That initial number of hours expires after a given period of time, but those who need further support beyond the contract can buy an additional number of hours that do not expire.

The time-tracking application also allows ImageSource to monitor the efficiency of the professional services organization. The goal for the service and support team is to spend at least 68% of its time actively working on projects or other billable activities such as consultation and design.

If You Don't Offer It, Somebody Else Will
While the components business offers a reliable income, it is still a complement to the integration arm. The company's goal is to maintain a 30% to 40% growth rate going forward, and realizing that goal will depend on both divisions. With customers like Boeing, Microsoft, and Airborne Express, ImageSource is realizing its dreams in high-profile enterprise installations. The integrator is also expanding its enterprise efforts geographically by opening a sales office in Chicago. "The components business offers a nuance that makes for a better overall solution, says White. "We still have an emphasis on the high end, but we aren't going to let another little guy come in and do what ImageSource was doing to Axiom before we merged."