Small Distributors: Sharp Edge

Why buy from Interwork rather than a giant low-margin, high-economy-of-scale distributor like Ingram? "Personalized support," says Michelle Drolet, CEO of Holliston, Mass.-based ConQwest, a security solution provider. "They are a boutique like us. And if we pay in 31 days instead of 20, we are not penalized. There's no negotiation with Tech Data or Ingram. We do buy things from them, and they are good organizations, but they don't have the flexibility of a small organization...We have much more clout with the Interworks of the world."

Industry leader Ingram Micro's worldwide wholesale IT sales revenue grew from $22.6 billion in 2003 to $26 billion in 2004--15 percent. Tech Data grew almost 15 percent in the same period. But, somehow, smaller distributors like Interwork, Alternative Technology and Coast Solutions Group (CSG) are surviving and flourishing with unprecedented levels of service and support, challenging the giants with their fleet-footed hustle and laser-like focus on niche markets.

"The key thing we offer is focus," says Richard Earle, president and CEO of Interwork. "We carry a relatively small number of product lines, and our sales associates are knowledgeable about our products. So when a reseller calls up with questions about products or configurations, we can answer, help them get the quotes correct the first time, and improve their overall ability to win sales and keep their customer satisfied."

Trend Micro's Frank Hansen says selling through Interwork rather than one of the giants is like selling through a specialty golf shop rather than Wal-Mart.

"If you're a golfer and go to Wal-Mart to buy clubs, the guy probably won't be able to help you," says Hansen, a distribution national account manager for the Japan-based security vendor. "But if you go to a golf specialty store, everybody there is going to understand golf," he says. "Most of our distributors have thousands and thousands of SKUs. They do a wonderful job, but they never expect their folks to be experts on any given product. At Interwork, because they have a very small line of products, they not only understand our product, but how our product fits the broader range of security solutions."

The numbers prove that Interwork's focused strategy is working. The company's 2003 sales totaled $19.3 million, growing a spectacular 55 percent to $30 million in 2004.

CSG of Irvine, Calif., has an even more sharply focused strategy. The company doesn't distribute any hardware or software; instead, its middleman role is limited exclusively to services.

"Because Coast Solutions Group does not sell or distribute products, their network truly represents the best interests of end-user customers," says Tim Reeser, president of infrastructure/security for 3t Systems/Engineering Computer Consultants. "When a partner in the network needs help outside of its technical expertise or its geographic reach, CSG finds a partner that is best-suited to the customer. No one is restricted by a commitment to a particular product line."

The lack of distributors offering integrated services beyond warranties led CSG to take on the role of enterprise-service provider, explains Paul Freeman, CSG president.

"There are specialty distributors out there who offer professional services using their own in-house staff, but this idea of leveraging a service-provider network in the enterprise services space is something no one else has done," he says.

When a CSG VAR wanted to install a Microsoft Enterprise Project Management (EPM) solution for a customer, it called on CSG for its Hot Lab solution, a three- to five-day engagement whereby the VAR customer resells CSG's services to build a demo lab for a particular technology.

"This gives them some knowledge transfer without investing heavily in the technology," Freeman explains. "The reseller can get a toe-hold with the customer, who may not have any idea whether they want to implement the technology."

In this particular case, the VAR had no EPM experts in-house, but the customer was willing to pay for capable and experienced resources if they were at the right price.

"The four-day EPM Hot Lab from CSG provided a fixed scope with a good price point and an expert to deliver consulting to the customer," Freeman says.

Alternative Technology is another distributor on the move because of its focus on value-added product areas where expertise makes enough of a difference for VARs and customers to be willing to pay margin.

"We do not sell commodity-type products," says Michael Wallace, CFO of the Englewood, Colo.-based distributor, which moved to No. 21 on the Distribution 25 listing this year. "We are a specialty distributor."

Alternative Technology is on track to continue its robust growth, Wallace promises. After growing 31 percent from its $118 million fiscal 2003 IT sales to $155 million in 2004, the distributor will top $200 million in 2005, Wallace says.

Whether you're a distributor or a VAR, there's nothing magical about being a success in today's supply chain. It's the same formula that has worked for every successful IT distributor and reseller since the business began: Add clearly perceived value as the product or service passes through your business.

Conversely, most of that value these days for the distribution giants is the efficiency with which they deliver products at the right price to your door. As for the smaller distributors, they can't ignore efficiency or price, but to survive in the land of the giants, they have to bring something else to the table, some level of service and expertise that resellers can't get from the big guys.

"We provide technology that solves business problems for our resellers' end users," Wallace says. "Since we are a specialty distributor, resellers who engage with us aren't as competitively pressed by other resellers with the same products."

Peter Jordan ([email protected]) is a freelance writer based in Boothbay Harbor, Maine.