Dataflow: From little things, big things grow

While many edutainment software distributors are in turmoil, Sydney's Dataflow Computer Services goes from strength to strength. Currently a $100 million a year company, the plan is to double its size over the next couple of years. Gerard Norsa spoke to executive chairman and founder Jeffrey Tobias as well as his recently appointed managing director, Michael Touma, about the past and the future.

ARN: Give me a thumbnail sketch of Dataflow's growth and key focus.

Tobias: Dataflow is celebrating 15 years in business this year. I started the company back in 1983 publishing a small remedial reading product and have grown from there into the $100 million distribution company we are today. We have a national operation in Australia and a subsidiary in New Zealand. With a customer service focus, we have concentrated on two key markets - retail and education - and I believe we have become the leading distributor in both.

Looking forward, how is Dataflow intending to drive growth?

Touma: The aim now is to take the business to the next level. We aim to double in size to $200 million over the next few years and will achieve this in a number of ways but we will stay very focused on distribution. That is our core competency.

However, we are an innovative company and are currently very focused on Web development, e-commerce and what we are doing online.

Growth at the moment is coming from both the increase of PCs into homes and from adding new publishers to our portfolio. That is how we have grown the business year after year.

We are always looking for new avenues to sell software and have already penetrated Australia Post outlets, supermarkets and video stores.

Although our focus is distribution, innovation may well bring new revenues to the company away from just moving boxes.

Will the changing methods of consumer software purchasing have any affect on Dataflow?

Touma: We had a tremendous Christmas and were delighted with November and December sales. For us, the software business has done exceptionally well and we only see strong growth over the next two years.

We will ride the evolutions that occur and see opportunities in abundance in terms of where we will be in the future. We want to be leading the innovations in the way people purchase their software, not merely following the trends.

How has your customer base evolved over the years? What new sorts of customers have you got now?

Tobias: Dataflow's customer base has significantly expanded in 15 years. Where the large majority of our dealers used to be independent resellers, we are now dealing with all sorts of customers.

Certainly in the late '80s the superstore-type concept emerged in the US retail market and the trend followed into Australia soon after.

I think the Harvey Norman superstore channel was really the first wave of change in software retailing. Since then we have seen the superstore-type model used in department stores such as Myer-Grace Bros and David Jones as well as electronic retailers like Dick Smith Electronics, Vox and Retravision. More recently, specialist shopping mall-based retail chains such as Electronics Boutique have also emerged.

Perhaps even more significant for us has been the build-up of inventories by mass merchants such as Kmart and BigW, Officeworks and others.

Obviously, such developments have been great for Dataflow.

Some analysts have stated they believe the specialist software retailer to be an endangered species. Do you have an opinion on that?

Touma: The ones that are running on a shoestring, or by luck because their margins used to be good have definitely been hammered by the upsurge of sales at the mass merchants and superstores. The ones that actually ran their businesses under a good model are still there and are still doing good business.

Where they are adopting a business model that is not dependent just on price competitiveness, there is no reason for them to feel under threat.

Those driving their business on the basis of price without adding value for their customers could go under.

In 15 years you have seen a lot of businesses come and go. What do you feel are the basic foundations of good business in reselling software?

Tobias: There are three key areas which all come down to good business management and efficient systems. Where we have seen strong growth in our customers is where they have efficiently managed their inventories, accounts and customer service.

The entities that don't have efficient systems are starting to struggle under margin squeeze and many have fallen by the wayside in the past because of it.

If you look at a company like Electronics Boutique in retail, they are winning market share because of their efficient systems. Good systems like theirs are going to kill players who don't have a handle on their inventory or their profitability because competition is so rife.

To me, tight management is the number one most important thing to building a successful business and that is where we have seen companies either grow or die. It sounds like bread and butter stuff, but it is true.

What about the arrival of global distributors?

Tobias: Most large players, such as Ingram and CHS, focus significant portions of their business on hardware. They may distribute globally for one or two key software vendors but it is not a core competency whereas our portfolio is significantly skewed the other way towards software.

They also tend to focus on the mainstream corporate business market, which is not an area we specialise in. We are in retail and education.

But yes, we are obviously keeping an eye on all of them and yes, we are very mindful of evolutions in the distribution model, but we feel we just need to continue doing what we do and not be distracted from our core competencies.

Touma: I think the other thing that we have got to remember is that our partners in the industry understand the concept of overdistribution. If you are assuming they are going to get immediate access to all the big names in this market, I think you are wrong.

Even if they had access to all our products, they would have a lot of work to do before they could impact on our 15 years of customer base.

How important are resellers to your future plans?

Touma: Everything comes back to the reseller. With our organisation growing, we thought our ability to provide a consistent level of service was diminishing. If you don't have the infrastructure and the backbone it impacts on your customer service levels. That is why we are reinvesting in our Web services.

We are reinvesting in a new IT platform, looking at our warehouse infrastructure and bringing on new people to help grow the business - all to service our resellers better.

The other comment I would make in relation to our online strategy is that we are actively supporting and will continue to build on our abilities to support those resellers who are putting up their own Internet store fronts.

We have a number of resellers today who we are exporting our entire inventory and catalogue to on a daily basis. As more resellers look to sell online we are trying to help them by delivering the pricing, the product information and the delivery mechanism to their customers.