This Ain’t Your Daddy’s Copier Company8 Apr, 2013 By: Tom Callinan, Strategy Development imageSource
By now you are fully aware that our industry is changing, and rapidly. Nobody needs to tell you that images are decreasing along with equipment placements. And compounding the decline is that the revenue per image and per device is also declining. Why is it now, after years of decline that just about everybody in the industry now believes that the decline is actually here?
My hypothesis is, many never got into the details of their own business at a level that would have provided them with the specific information they needed to plan for today’s reality. For example, the old ALCO model is well known by everybody at this point, and most companies look / compare their financials using that model as a guide. Yet regardless that I am 6’5” tall and share the same weight as “The Rock” Dwayne Johnson at 260 lbs., one can’t say I will also have a successful career in the movies or that we really look much alike - and that is the point here. You have to understand what is driving the high level results that you are reviewing in the model.
You may be very pleased that your aftermarket revenue is growing at 5% year-on-year. Yet if you looked one level down, at the quantity of images you managed, you might find that they are declining by 3%. You could chalk that up to the fact that you raise your current contracts by 12% year over year, but we can’t be sure that is true. You see, you’re raising 100% of the contracts but your highest contracts, the four year old placements, are being replaced by the sales force at today’s, significantly lower aftermarket rate. So maybe the annual increases on current contacts are driving the increased revenue or maybe the current contracts are actually driving decreased revenue—can you be sure?
Did you take into account the shift from black to color and the impact that has on your aftermarket revenue? More appropriately, did you take into account the fact that the shift is slowing rapidly, and that positive effect is going to end? Soon, color will be like black images in that they’ll be declining and the revenue per image will be declining as well. I call the benefit we have enjoyed for the last decade “air cover,” in that we have a known mid-term benefit that will eventually go away. But it is only air cover if you are aware of it and use it as a cover while you build and execute on your next growth strategy. If you don’t figure out that you are experiencing an ephemeral benefit until after the benefit goes away, it’s called a missed opportunity.
Copier unit placements are going to continue to decline; every research company in the industry tells us this and every employee who has been in the business for more than 10 years can see it firsthand. I don’t think the research companies are being pessimistic enough; I think prints, and therefore devices, will decline at an accelerating rate due to tablets and the cloud. I’m not negative—we are in a great business—I simply want to be objective because I’d rather plan for the worse and realize an environment better than expected, rather than the opposite. The point is you need details to plan and today those details certainly include what will happen at a macro industry level.
At this juncture you might be saying to yourself, “who cares, I just want to know how to grow.” Great news, that’s the point of everything I’ve covered up to here and everything I will cover in the few paragraphs I have left. You see, in order to grow you need to first understand what will happen with your current business.
Let’s take a simple example. You sell corn and you know that the farms you serve consistently grow 1 million bushels of corn. Last year a bushel was selling for $7.10 and this year that same bushel sells for $6.39. Your revenue is going to be 10% less unless you come up with a new growth strategy. Now rather than bushels of corn think about the price of an image or a device relative to last year, and rather than that constant 1 million bushels think about those images and devices decreasing. Not a big deal, we simply need to know our foundation so we can develop a business plan to grow, and we are going to grow.
Unfortunately, growing your business isn’t as simple as typing it in a sentence. You see, there are many approaches to growth. For a short-term effect, one or two years, simple territory structure might provide growth. Longer term you might want to implement a solid sales methodology. Increasing the sophistication of your growth strategy you might look at geographical expansion, acquiring other companies, or launching
MPS or MNS. Maybe you’ll just pick one or two? That’s not as simple as it sounds either.
Expanding geographically requires the correct level of management in the satellite offices, the correct processes to handle remote operations and service, and different management skills. Acquiring other companies requires you to identify target companies, develop a strong relationship to get the entrepreneur to sell to you, a solid valuation methodology and due diligence skills, and then solid planning and implementation skills to ensure you get what you paid for and it integrates well with your company. Notice that neither of those growth strategies shares any success factors. Now look at MPS and MNS. MPS is best when targeted to companies with more than 250 employees, and MNS is best suited for companies with fewer than 100 employees. If you didn’t spend your time planning you might not take these factors into consideration.
Or perhaps you’d pursue them all! Unless your revenue is greater than $30 million, you are solidly profitable with good cash flow, and you have a strong executive and management team to go along with that revenue cushion, I’d avoid pursuing more than two of those six growth strategies: Territory structure, sales methodology, geographical growth, acquisitions, MPS and MNS or IT services.
I’d spend a great deal of time analyzing my company’s strengths and weaknesses and map out a plan of growth based on what we are capable of executing. I’d start with getting my management team trained in business planning and then I’d work with the entire team to map out our growth strategy for the next five years.
We are in a great industry if you plan well. But the industry is going through significant change. Some of the largest dealers in our industry started as calculator or typewriter dealers and did a great job of adapting as technology changed our business. In 15 years you’ll be telling stories about how copiers were your core business “back in 2013.” Make sure you’re telling that story at an all-employee meeting at your (stable) company. Start planning today.
Power Hour at ITEX 2013
Tom Callinan, Principal, Strategy Development, is a featured presenter at the ITEX 2013 Conference and Expo, whose session: Using a Sales Methodology to Improve Results (P2), will include a step-by-step process to implement a strategic, formal Sales Methodology for companies to utilize. Co-panelists include solution providers/dealers: Steve Gau, Director of Sales, Marco, and John Kuchta, President, SolutionOne, as well as Gary Schwartz, Consultant, Strategy Development. The session is held Wednesday, April 17 at 9 AM, at the Rio Hotel in Las Vegas, NV.
Strategy Development is a leading consultancy specializing in business planning, sales effectiveness, advanced sales training, operational & service improvement. Tom Callinan is a former VP and GM of IKON’s largest business unit, and was founder/CEO of Copifax, Inc., a copier dealership later acquired by IKON in ‘97. He graduated with high honors from The Wharton School, University of Pennsylvania. Tom can be reached at email@example.com or via his website at www.strategydevelopment.com.