The Rise of the Mega Dealer (Part 3 of 3)
How Acquisitions and Organic Growth Are Bringing About the Latest Industry Transformation
Keypoint Intelligence was thrilled to provide the cover story for the January 2019 issue of the BTA’s Office Technology magazine. We’ve also published the full article for our bliQ and InfoCenter subscribers (must log in to view each). But now, right here, we’re equally as excited to bring this informative and comprehensive piece to the general public. Behold the third of three parts—happy reading!
Get Caught Up
The Rise of the Mega Dealer (Part 1 of 3)
The Rise of the Mega Dealer (Part 2 of 3)
While acquiring organizations can turbo boost a business into new stratospheres, Pacific Office Automation is laser-focused on organic growth. Yes, the company did purchase Yost Office Systems recently, but with up to 90 percent of its revenue coming organically, the message is clear: “Be growth-minded, pay attention to retention, displace the competition, and win!” Which just so happens to be POA’s slogan for 2019.
In reality, this has been the philosophy ever since Terry Newsom founded the company in 1976. Rather than expanding through countless acquisitions, POA prefers to start from-scratch locations to build out its footprint, such as what it’s accomplished in Boise and Southern California over the last year. And, considering that the company has experienced at least 1 percent growth in all 40-plus years of its existence save for 1985, who’s to say that POA doesn’t know what it’s doing.
“We take technology and link it to customer problems, but the relationships we maintain and grow are really the heart of the matter,” said Doug Pitassi, POA’s straight-shooting and humble President and CEO (also a minority shareholder). “Why spend so much money on buying businesses when we can spend money hiring the right people, developing employees’ knowledge and skills, promoting from within, and making organic growth the top priority?”
When Pitassi joined the privately held company—it still is!—in 1989 as a field sales manager, POA was in but a few markets and had revenue of approximately $7 million. He rose to Vice President of Sales in the mid-’90s and has been in his current role since 2007. Though he’s the company visionary, he admits he’s not much of an ideas guy but he is adept at taking somebody else’s concept and running with it in directions that benefit POA.
The company, which uses a decentralized model, today has 25 locations in eight states in the American West (headquartered in Beaverton, Oregon), with roughly $340 million in revenue. “We took 28 years to reach $100 million in revenue, eight to reach $200, five to reach $300, and now we’re hoping to reach $400 in three and then, by 2022, $500,” Pitassi said.
This means—for those of you doing the math at home—that the bulk of POA’s growth has been achieved over the past decade. Under Pitassi’s watch.
|Doug Pitassi, President and CEO of Pacific Office Automation|
It could have gone another way, however. “The ’08 recession was the turning point in Pacific Office Automation becoming a mega dealer, if you can believe it,” he said. “We had to quantify the offset. Loan approvals were down to 52 percent. Studies show that print volumes decline at a faster rate during recessions. But it was our people, all of them, who respected the POA engine and gave 30 percent more effort that helped us actually grow by 5 percent that year.
“And it didn’t stop,” he continued. “The company grew by 2 percent in 2010, then 7 percent in 2011—we’ve had double-digit growth in each and every year since. Again, mostly organically. We’re not smarter than other organizations, we’re not more creative, but there’s honor in work. Our employees understand that and they make things happen.”
POA sells virtually everything: MFPs, printers, and software (private and public cloud) for the office; production (largest reseller of Konica Minolta and Ricoh color devices in the US) and wide format (largest reseller of Océ in the US); MPS, managed IT, and facilities management; and mail systems (Pitney Bowes), unified communications (MYtel), and security cameras.
Pitassi sees the profit pool diversifying even more down the road. “The ‘smart workplace’ excites me, as that will lead to us being even more of a one-stop shop and providing a total ownership to the customer,” he said. “It will add value to our IT portfolio, which represents just 7 percent (around $23 million) of our revenue, but to see an IT helpdesk go from five people to over 50 in six short years, it’s been a fantastic ride. We’re never going to be the lowest cost bid but we continue to find qualified people who can help us deliver a great customer experience. The opportunity with IT is double, triple, quadruple than what print ever was and it’s a major initiative for us.”
All in all, Pacific Office Automation is a thriving organization that’s bucking the trend of the majority of its peers. “We respect the acquisition strategy of other mega dealers, but that’s simply not our style,” Pitassi said. “Organic growth and company culture, which we branded the ‘Culture Club’, are symbiotic as they’re both tied to success—success with the family, with the community, and with customer loyalty.”
RJ Young has come a long way since it first opened its doors in 1955. Originally called the Robert J. Young Company, it started with four employees and now has approximately 650, operating in 26 locations in Alabama, Florida, Mississippi, North Carolina, and Tennessee (headquartered in Memphis). Today, RJ Young is run by Chip Crunk, whose father purchased the company in 1986.
When Chip was elevated to President and CEO a decade later, RJ Young had revenue of $18 million a year. His vision was to get to $100 million: The company made its first acquisition—a managed services house—in 2005 and has since bought roughly 20 organizations, which helped RJ Young grow not only its footprint but its market share, too.
The company still does two or three acquisitions a year. Crunk’s strategy is to look for good entrepreneurs who run a successful business. “When we acquire an organization, we don’t change or eliminate any customer-facing personnel because we don’t want the customer experience to change,” he said. “Sales and service don’t change either, just the business name on the business card, which in all cases adds more credibility to that organizations.”
RJ Young is 100 percent owned and operated through its own money and investment. The company has its own financing organization for clients, which allows that group to get creative with leasing and flexible when putting together deals.
Having capital has allowed RJ Young to dive into areas such as production print—in fact, it began selling this technology earlier than many other dealers. The company has been in the production space for a decade, and revenue has almost doubled each year. “Production isn’t for every dealer,” Crunk said. “It’s a cash-intensive business. For dealers $20 million and below, it may be hard to get into. You need the infrastructure, the technical training, inventory requirements are greater, and customers must be continuously running. Proficiency in production processes is also critical, particularly with demanding customers.”
|Chip Crunk, CEO of RJ Young|
The net-net is that the company has been able to win over traditional print service providers with its growing digital production services business, where production has now become more than 20 percent of its hardware sales as well.
The other growth area for RJ Young is in network services. “This is an area that not every dealer may be successful with,” Crunk said. “With network services, we currently operate in only two markets but we’re planning on expanding into other regions. Dealers can’t manage it like the copier business and need to run it as a totally separate business. Network services represent about 5 percent of our business.”
When it comes to its core business, RJ Young works with many of the OEMs: Ricoh and Canon primarily on the A3 side and Lexmark and HP for A4. “The manufacturers have all been great,” Crunk said. “We don’t ask a lot from them, just to give us good quality products where we can make money.”
When it comes to profitability, the company has seen some shifts in hardware margins going down, but not a lot of change with service and supplies. “A lot of profit is coming from our financial services and leasing side,” Crunk said. “Again, it’s not something all dealers can do, but it has become a strong part of our business.”
But it hasn’t been all roses for RJ Young. “In 1998 our facility burned to the ground,” Crunk said. “We still had a growth year, but it was a challenging couple of years. The good news is when it came to the recessions, we never had a downturn—that is, it was quite the opposite as we were able to help customers as a trusted consultant.
“The key is to have the right people onboard,” he continued. “We go through all 600 people and ask them what they need and give them the tools and the resources to be successful. We put a lot into our people because it’s our people who the customers trust.”
Keypoint Intelligence Summary
The secret to becoming a mega dealer is not really a secret at all, it’s a combination of attributes that many dealers already have today: being an entrepreneur, having visionary leadership, and maintaining a strong small-company culture with big-company goals. Yes, some have financial backing and investment, but others are growing with their own investments, hard work and sweat, and a similar business plan to expand and acquire. These leaders are looking for other good leaders who may not have the desire or capital to expand, yet they want to become part of a larger organization that can expand into new technologies.
When it comes to new technology investments, these dealers have forged their way into production, 3D, and wide format printing. These devices are close to our industry but require a different set of skills and investment. Additionally, dealers have transformed and shifted into areas outside our traditional industry, such as managed IT/networking, VOIP, digital displays, and conferencing systems. These areas, too, take on a completely new level of capabilities and technical expertise that may be challenging for dealers that have not fully embraced or invested in IT resources.
We all know that the traditional copy output and print industry will continue to decline, and it is critical for office equipment dealers to invest and transform in order to stay relevant and competitive in our market, as they have done in the past. Some may take on the path and advice of the mega dealers, while others may partner in order to take advantage of scale. Most importantly, dealers must take action. They must do something that goes beyond investigation—that becomes part of a strategy and gets implemented. Like in the past, it may take that little bit of entrepreneurial spirit and fire to move the needle forward. And who knows, maybe one day your dealership will be on that mega dealer map.