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Harrison looks for balance at Cellnet

Harrison looks for balance at Cellnet

Stephen Harrison reveals how he plans to fix Cellnet, and a new found love

It's often said that you should never go back - the logic being that if you've done something successfully and moved on then there's little to be achieved in terms of personal development from doing it again. On the flipside, if you've tried before and failed then why are your efforts more likely to bear fruit second time around?

Stephen Harrison obviously holds little stock in this old adage. In September he started a second spell as managing director of ICT distributor, Cellnet, which he co-founded 18 years ago. It's no secret the company has had a miserable couple of years but Harrison is hoping a return to basics will bring better things in 2008.

Born in the UK, Harrison joined the workforce as a trainee motor mechanic but only lasted six months before "the smell of money" saw him ditch the oily rag and try his hand in the building industry. When he came to Australia on a 12-month working holiday visa more than 25 years ago, he spent a weekend selling mobile phones for a friend who worked in the telco industry. It's fair to say he has never looked back.

"It was 1990 and back then mobile phones cost about $5000. They were known as transportables and they were huge," Harrison recalled. "I sold a couple and from that I saw an opportunity for accessories because there was only one small company in Melbourne selling them. Even the manufacturers didn't have a lot to offer and what they did was sold in white boxes with no market positioning."

Since arriving in Australia, Harrison had struck up a friendship with another English bloke, Mel Brookman, who he'd met in a pub. They hatched a plan to have a crack at the accessories market and each invested $1000. Harrison flew to Taiwan and spent the money on leather cases but quickly found he had a problem when landing back in Australia.

"They didn't fit the phones we had so we thought we'd blown our dough," he said. "But the front panels of the cases were plastic so I got the iron out, put one under a tea towel and gave it a bit of steam. I was then able to stretch it a little bit and make it fit."

After a prolonged stint of ironing, the pair sold all their initial stock - although a few were returned - and the rest, as they say, is history. They imported more leather cases and chargers from the money they made and, as the orders grew, eventually made contact with the factories where the products were made.

On the back of a mobile industry that was growing in excess of 50 per cent year-on-year, the newly formed Cellnet took off. By 1996, the accessories business was turning over a few million dollars and attracted a $10 million investment from Macquarie Bank to help it break into the handset market. Harrison flew to Melbourne and met with Nokia representatives at a trade show.

"This was an opportunity for us but we also viewed it as a threat because it was branded product and Cellnet had been enjoying good success with its own 'after-market' range of accessories," he said. "We had built up quite a good reputation and were scared we might be shooting ourselves in the foot."

Getting in IT

Despite initial hesitancy, the deal proved a wise move and helped Cellnet get to the next level. When the company floated in 1999, its telecommunications business was worth an estimated $300 million. Eager to stay on the growth curve, Cellnet acquired IT Wholesale (ITW) in October 2000 and moved into the ultra-competitive world of IT distribution.

"Like a lot of people, we felt there was a lot of synergy between the IT and telco industries," Harrison said. "ITW was a Brisbane-based company very heavily involved with IBM and we saw that as a good start. It gave us a chance to put our toe in the water and see what the IT industry was all about. "It's a lot different from telco in terms of the people who work in the industry, how rebates are structured and how business is conducted. On the surface it seems similar but when you dig down it's not. That really started to change Cellnet as a business and divided us in some ways because there were now two very different sides to the business. In retrospect, we should have pulled that together a lot quicker than we did."

In 2003, Harrison acquired Queensland-based IT components distributor, Cassa. The combined Cellnet Group now had annual revenues of almost $700 million but the lion's share was coming from technology and not its telco heritage.

"The top line was high in terms of sales but the bottom line was very skinny and it dragged down our margin," Harrison said. "You need to play a bit of a balancing act between IT and telco because we in telco were used to being in a healthy-margin industry where we always made a profit. The whole team had to change the way we did business and become a lot leaner."

A world of difference

During the next couple of years, revenues began to shrink as the Cellnet team worked to find the balance between telco and IT distribution. By 2005, Harrison said the business was split evenly between the two camps and shareholders were receiving a 12 per cent return on investment. However, the board was hungry for more growth and Harrison felt his skills were no longer being used to the best of their potential. He voiced his concerns to the board and it was agreed Cellnet needed a more corporate person at the helm. So he kept his shareholding in Cellnet but left the company and became involved with a number of start-ups including the Cru Group, an interactive company that develops corporate websites.

With more time on his hands, Harrison also bought a heritage property in rural Queensland and started breeding Droughtmaster cattle.

"It's a hobby more than anything else but I have a couple of thousand acres with a full-time manager. It's something I've never done before as a city boy but I always wanted a place in the country and ended up buying this place at auction," he said. "It was more for the house, which was built in 1870 and has quite a history, but it used to run cattle and I decided to put them back on. I get out there whenever I can to do a bit of fencing or branding."

The old adage says 'never go back' but Harrison ignored that advice when approached by the Cellnet board at the end of September last year. The management team that had been running the distributor for the past couple of years came with an IT background and attempted to position the company as a viable alternative to global giant, Ingram Micro. This saw efforts concentrated on building relationships with tier-one IT vendors while largely abandoning its telco roots. With major vendors like HP and Apple pulling the plug last year, that strategy had not been very successful. Harrison's plans for turning the business around are based largely on going back to the future.

"The business has been put out of kilter because the focus has been on IT. I started to go through the business piece by piece and found it wasn't just one thing that was wrong; a lot of things had been neglected and needed fixing," he said.

"We made a list of what needed to be changed and started a number of projects that we are now a fair way through. These included fixing the back-end of distribution because the warehouse was in a mess, improving credit collection, and implementing a new sales strategy while reducing segmentation. It's been a bit of a nightmare and some people have left along the way but we also have some new blood and feel confident about the year ahead."

Building bridges

In the past 15 years, Harrison estimated 30,000 customers had bought IT or telco product from Cellnet. The distributor has now cleansed its IT database and is currently going through the same process on the telco side before a recently-restored internal marketing team starts building bridges with its massive list of potential customers, particularly SMB resellers that have fallen off the radar.

On the IT side of the Cellnet business, efforts will focus on a core group of about 10 vendors including Acer, Asus, Canon, Epson, Lenovo, Lexmark, Toshiba and Cellnet's flagship brand, IBM. Other vendors will still be promoted via its online WebCell presence but product will only be sourced to fulfill orders.

As far as telco is concerned, Harrison is overseeing a renewed focus on Cellnet-branded products but new vendors will also be introduced into the market. As well as phone accessories, there will be other peripherals including AV cables and camera bags. The existing retail division has also merged with the VME Systems business that was acquired in October 2006.

"We're looking for gross margin that can help us get back on an even keel and grow the business," Harrison said. "It's all about delivering a return on investment for shareholders and I'm one of them."


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