CRN Interview: D&H Recounts 2006 Successes, Looks Ahead To 2007

As a private company, D&H Distributing doesn't release its quarterly earnings. But every December, the Harrisburg, Pa.-based distributor puts out a statement that outlines its successes for the current year and what's in store for next year. For 2006, D&H expects to grow 18.8 percent vs. 2005 and garner sales of $1.7 billion.

Dan Schwab, vice president of marketing at D&H, said that growth should continue into 2007 as the company steps up sales efforts around more complex technology such as VoIP, storage and security. Schwab recently discussed the distributor's plans in an interview with CRN Distribution Editor Scott Campbell.

CRN: D&H's 18.8 percent growth is higher than that of its competitors and the IT industry. What led to D&H's success this year?

SCHWAB: We've been growing [more than] 15 percent over six straight years. This is maintaining our growth naturally. I wouldn't call it an acceleration or a deceleration. We view this as our natural growth. Clearly, we had opportunities to drive revenue further. Usually, that comes from things we won't do, like buying business via share shift. That defeats our business model. We haven't done anything unnatural. It's basic blocking and tackling.

CRN: If D&H can maintain revenue growth in 2007, it would reach $2 billion in revenue. Is that a goal?

SCHWAB: When we reach that milestone, we'll enjoy it for 10 minutes. We're not really fixated on that. We've seen lots of vendors and distributors put big numbers out there that they want to achieve in two or four years, only to have the train fall off the tracks. We always run our business to do the right things for the next three to five years. We're not looking for short-term results. Those sometimes are not sustainable, and they don't drive the right behavior.

CRN: We're seeing a lot of mergers among enterprise-level VARs. Is that something D&H is seeing among its small-business customers, which are typically sub-$5 million or even sub-$1 million in annual sales?

SCHWAB: In the SMB market, that's not the case. We see consolidation and acquisitions in the enterprise and high-end midmarket. We see partnerships between resellers, but not a lot of acquisitions.

CRN: One of your stated goals for 2007 is to continue helping solution providers drive more complex solutions into their customers' networks. Why are solution providers serving more as trusted IT advisers able to do so?

SCHWAB: Technology continues to outpace the average small business, in terms of staying up on it on a regular basis. One good example is VoIP. It's a very complex technology where you need a trusted adviser. Many technologies were not necessary in the SMB market. They were not priced right, and they didn't have the right set of features. Those are technologies like VoIP, intrusion detection, firewall technology, backup and redundancy systems. Today, you need antispam and virus filtering, you need mobile solutions.

Very few businesses five years ago were migrating to mobile environments. Only in the last year has SMB embraced that. If they buy notebooks, they also need VPN software to dial in, wireless networks. All those technologies have vendors building products that are priced appropriately at same time the [SMB] market matured. You think about credit card vulnerability. If you're a small business, you're just as liable as a big bank if that credit card information gets stolen.CRN: What are some concrete goals that solution providers should have, and what market drivers will lead the way in 2007?

SCHWAB: What drives any [success] is the end user helping the reseller focus on priorities. Does the end user want to streamline activities to allow more scale? Is it disaster prevention? All these things the reseller does to try to impact the end user's business. That includes educating some of their end users on new technology, whether the end user is ready to deploy or not.

Evangelize. Talk about the pros and cons so when the time comes when the end user is ready to upgrade, they go back to their primary reseller partner because they were knowledgable in the first place. Talk to them about things like Vista, VoIP. What is the cost benefit of migrating? What is involved in migrating to mobile environments outside notebooks? If I want to print color, what's the cost difference from black and white? Does it make sense to move from wireless [802.11] B to G or to N? You may not get the sale now. It's not technology for technology's sake, but what it can do is drive the goals of that end user.

CRN: You've listed six technologies as high-growth opportunities for 2007. Can you speak a little about each of them, beginning with multicore microprocessors?

SCHWAB: The technology leaps that Intel and AMD have taken recently have been large steps in the use of electricity and heat and the natural capabilities of the product. More companies two years ago were migrating from a desktop- to a server-based environment. Now some of those environments are getting more complex. They're running larger networks or wireless. More technology is hanging off the network, with security or storage. Vista drives [processor] upgrade opportunities, too, but that's a multiyear opportunity for the channel.

For new and current systems, our goal is to take a leadership role from the start. We want our resellers to embrace this. We want them to do a good job with new technology. End users are going to migrate over time. It's never a big bang over time. How resellers are ready is important.

CRN: How about terabyte storage?

SCHWAB: The price of storage has come down so dramatically. Small businesses are now required by law to maintain e-mail records, to make sure their data is secure. They need disaster recovery, maybe off-site storage. They need the throughput and a large-format storage device. Terabyte storage at aggressive prices is ready for [small-business] environments.

CRN: Mobile solutions?

SCHWAB: We've taken the role of helping resellers migrate to a [Handspring] Treo smart phone to Lenovo, Acer and Panasonic Toughbooks. It's not just about notebook; it's about all the merchandise around the notebooks.

CRN: Small-business servers?

SCHWAB: Microsoft has developed an outstanding product for small businesses. We're still helping resellers migrate their customers from desktops to servers. We'll help them layer in other technologies on the server, whether it's server-based security devices, an Exchange server. We don't sell branded servers. We sell white-box servers. Our focus is on the Microsoft SBS [Small Business Server] suite and complementary packages.

CRN: You've touched on this a little bit, but what about color laser printing?

SCHWAB: There are strong channel players, like Ricoh and Lexmark, that have great reseller programs and price points that have come down so that most small businesses can utilize color laser. You used to have to run to a Kinko's. Now the price per page to print in color laser is one-third of what it was three years ago.

CRN: Finally, 802.11n wireless technology. Why should an end user switch from 802.11b or 802.11g?

SCHWAB: It's 802.11n that really drives the speed and the range of the network. If you have a current deployment that is challenged with range or throughput, this is the next iteration of the technology. In some solutions, it solves a problem, like in an older building with thick concrete walls, where the current solution isn't sufficient.