Digital Drivers: Behind The Screens With Electrograph's New CEO
The CEO of Electrograph Systems has one of the most impressive private collections of Red Sox memorabilia in the country, tens of thousands of items that he has carefully assembled over a lifetime. But Smith also knows the value of supply and demand, which is why he recently sold a number of items at a Sotheby's auction, including a collection of 1912 items commemorating the Red Sox World Series championship that went for $11,400. With the Red Sox winning the World Series after 86 years last fall, Smith felt it was the right time to cash in on some investments.
"There are only four 1912 Red Sox World Series press pins known to exist. I have one of them. Combine that with a World Series ticket stub [and] a program from the World Series in mint condition. That's a rarity," Smith says. "Investing in sports memorabilia is no different than value-added distribution—you take multiple pieces and put them together so the sum of the parts is greater than what you paid for individual pieces."
That's the philosophy Smith is espousing at Electrograph, Hauppauge, N.Y., which he bought with a private equity firm earlier this year. He's looking to expand Electrograph's heritage as a display products distributor to a company that can offer a full display solution, including hardware, software and services. "Someone will pay a premium if you do all the work ahead of time. The quality of the product is defined. If we go out and figure out solutions that answer business problems, people are more likely to do business with you," Smith says. "We're not looking to sell to everybody, but we want people to see value in what we do, to incorporate that into something that makes it perfect for them to go to market."
You could say that Smith sees the big picture. He envisions display solutions becoming increasingly important in both home and commercial applications, and he bought Electrograph to help turn the vision into a reality digital integrators can bring to customers. "We're getting to the day when you can run your home or business [remotely]. You can turn on [air conditioning] before you come home from a Web page or from your cell phone," he says. "At some point, the plasma becomes a touch screen. You need a touch point. That will come from display solution applications."
Smith reads off statistics on the size of the display solution market as if he's putting together a World Series lineup.
"Let's assume this display solution industry is $4 billion. If you take into account all the [distribution] players, you probably have about $800 million to $1 billion. That's a max of 25 percent of the market. Other [technologies] have 60 to 90 percent through channels. Cisco is 80 percent-plus. Nortel is very high, so is Avaya. There's room for growth. That's on top of a market that will grow dramatically for the next years to $8 billion to $10 billion. If you're maturing and, say, only 60 percent goes through the channel, that's a $5 billion opportunity," Smith says.
Smith wants Electrograph, a $150 million distributor in 2004, to be a billion-dollar company within a couple of years. He helped grow networking distributor Westcon Group from $240 million to $2.2 billion in 2001 as CEO by expanding the portfolio. "Half of Westcon's revenue [growth] came organically, half from acquisitions. It's the same opportunity for Electrograph," he says. "They have scalability to grow organically to $500 million. We'd like to go after $250 [million] to $500 million worth of revenue through acquisitions and then grow that business to $2 billion," he says.
Electrograph customers are glad to hear it. Leo Cortes, president of Coza, a $1.5 million Severna Park, Md.-based digital integrator, says customers are starting to ask for more than a screen.
"The consumer used to be a non-integrated sale. Now the consumer sale is a very integrated sale for the most part. It's less and less installing a plasma. Now it's adding power conditioners, universal remotes, control systems, sound systems," Cortes says. "The more a consumer gets involved in new products vs. just having a TV to plug in ... the more you retain that customer. "
In addition, Coza's seeing more interest in commercial and government customers for display solutions. As that happens, Electrograph would be well-positioned to start offering other products, especially bundled solutions that make it easy for custom installers, Cortes says. "As a reseller, we need bundles that come with everything we need, so all we have to do is take it out, plug it in and not have to run around looking for the right length cable or the right component."
Phil Ferranti, CEO of The Technology Company, Pittsford, N.Y., says Smith has the right idea to expand product lines that will differentiate the company in the home networking, SOHO and commercial markets. "Anytime you could expand product line and mix it helps, and your resellers can buy most of your equipment from one source," Ferranti says. "I would rather cut one [purchase order] than two or three."
Unlike with some of his sports memorabilia, Smith says he's into Electrograph for the long haul. In fact, maybe the company is more akin to his 1975 Red Sox jersey that Carl Yastrzemski wore in the World Series and inscribed personally for Smith. "That one jersey is one of one. I was at [the 1975 World Series] Game 6, so it ties into my personal life. Combine it with the fact that Carl did something for me and I can't see ever selling it," he says.