How does IPL grow from here? Are there other technology areas of focus? SD: Certainly in video conferencing and UC/convergence scenario, there’s a lot of opportunity and we’ll invest in that heavily. We have also just signed with Netgear, because we needed a partner that allowed us to do the full integration. Up until then, our dealers were buying either Netgear, HP or Cisco from somewhere else and then something for us, and it was hard to know where the support ends. We went into Netgear so we could supply the whole platform and be able to support it, and I think we have more upside there. There’s also the software and services side. I’d like to say in five years that we’ve changed our model and are selling software sitting on a telephony platform with some video content.
Do you expect your mix of partners to change? SD: Our best road to market is through the dealers we have and we’ll just keep herding them into the fray. The good ones do, and are good at it. That’s when you talk about the traditional and the innovative. Ingram and Synnex have a good model for people who know what they are doing and who don’t go outside the square. Our only way of surviving is to bring new things to the table. That being said, we would have had the same conversation 10 years ago. Dealers are never what you want them to be – they are what they are, and God love them, they’re our business. Our model is that the dealer has the relationship, and more than 80 per cent of the time, we do the scoping and work with the dealer on commissioning it. So we’re the dealer’s engine, or back room, and the techs he can’t afford. That’s the value and the glue.
Mergers and acquisitions have been rife in the Australian channel. Are acquisitions of interest to IPL? SD: We are pretty cashed up for obvious reasons, and I’ve spoken to several companies to acquire them. We are looking for someone that gives us critical mass and that has skills in a vertical we play in, and there’s not many. But you have to kiss a lot of frogs to get a prince. When Oki bought the business out, I thought about selling, but what would I do then? Even if you do have money, you need to do something that you’re either good at, or that you like.
I’d like to find a couple of mid-sized companies that are struggling and buy them. The ones I’ve looked at aren’t that strong. We are a treasury and a capital intensive business – we’re talking about carrying 6-8 weeks worth of stock, and providing credit. As a distributor, you need about 25 per cent of your revenue in cash or securities. This is not a business for the faint-hearted, and unlike a dealer who is getting big margins with very little CapEx, we are the reverse. I think a lot of people go into distribution thinking it’s a wonderful world, but it’s tough.
Are you seeing consolidation on the dealer side as well? SD: I think the guys that have survived, will survive. It affected IT more than communications, because many IT dealers don’t sell a lot of after-sales support. Most of the communication guys have annuity agreements which got them through. I personally would like to see dealers consolidate because it would give them enough business to grow. Small businesses spend all their time surviving and not growing. They have just enough tech or sales guys to do what they’re doing. If a few consolidated, they could actually have a plan. This recession was the deepest and the quickest I’ve experienced. We had 10 great years and most of the dealers around for 10-12 years only knew the good times, and how to manage growth or good margins. They didn’t have the skill sets [for the GFC]. We didn’t lose too many though.
What’s the number one thing that lets dealers down? SD: I’d say it is sales/marketing. Few of the dealers we deal with have an active sales and marketing program. Mid-sized dealers are flat-out running their business, and they don’t get the good sales guys. Paying the money for a good prospector and closer is difficult. Dealers are aware and capable of marketing but it’s difficult to attract and retain good sales people in dealer land, or to have the marketing bucks to go along with it.
What do you see as key market trends moving forward? SD: I think consolidation will continue. If I had a wishlist for IPL, I’d like to be able to migrate with our partners up the value chain, particularly in software and UC. If we can do that, and share that knowledge and skills with our dealers, there is a reason for us to be here and we’ll make money out of it. It’s not a great vision, or sexy, but that’s distribution. Frankly, if I was in the Cisco camp, I couldn’t do it because there’s no margin. It’s the same with Microsoft. That’s the reason for us being around – we are the alternative bid. We are experiencing growth in all our new markets, so I think we’re doing it right. We just have to find more vendors that clip on with what we’re doing that don’t compete.