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Managed Services, Recycling Revive Declining PC Sales

CRN Staff

US itek lives in a world of declining PC sales. Yet business has never been better for the Buffalo, N.Y., solution provider and system builder, whose early foray into managed services is paying off handsomely.

The eight-year-old company, which derived about half of its $2.5 million in revenue last year from product sales and the other half from services, was in the red five years ago and struggling with a declining PC building business. But now, it is enjoying double-digit profit growth.

"If you look over the past three years, revenue has been flat or going backward," said CEO Dave Stinner, who began his one-man system-building business while in college and now employs 14 people. "My profits are altogether another story. I plan on doubling my profit from what it was in 2006 to 2008."

While managed services has been driving profits, it was another initiative that qualified this small system builder as the top White-Hot Performer, with 2006 unit growth of 102 percent. About 80 percent of its 4,281 units were recycled units. While not exactly white boxes, they were customized.

US itek gets an inbound stream of between 8,000 and 10,000 old PCs per year, processes them and resells the better ones domestically and lower-end ones to international customers over the Web. The company will upgrade them to customer requirements. "I turned it into a build-to-order kind of thing," Stinner said.

The revenue is small, accounting for only 15 percent of his sales, but the margins are hard to beat. He may charge a school district $20 to take a system off their hands and then sell the system for as little as $20, making as much as he would off a low-end desktop, he said. One VAR customer repeatedly buys 100 such systems at a pop for an education market application. "He does something with Linux," Stinner said. "I don't know what he does."

Stinner said the refurbishing business is good because there are so few recyclers in New York, where recycling laws are getting tougher, and because most competitors are waste-disposal companies with little IT knowledge. His advantage is he understands asset management and the remarketing of the equipment. His refurbished unit sales were up 245 percent last year. "That business is cranking now," Stinner said.

But it is his managed-service offering that is driving profitability, as well as renewed revenue growth. A key ingredient for US itek's success: offering its managed-service clients free installation and labor on hardware and software, a compelling incentive that drives custom-system while bolstering managed service contracts.

"We really focus on services and the system building comes with it," Stinner said. "There isn't a business out there that doesn't need new SANs, new notebooks and new computers. A few years ago it was pretty grim."

Stinner spent a year developing his services offering using Level Platforms software and has an "all-you-can-eat" fixed price. Many of those customers used to buy Dell and CDW, but they're switching to US itek's systems. "It keeps my [hardware] profits up," he said.

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He also handles vendor management for his clients. "We handle anything that touches the network," Stinner said. "Not to insult our clients, but if a system goes down, a vendor can pull the wool over their eyes. We call them because we know what's true or not, and we get them to fix it."

US itek now manages the networks for roughly 25 longtime customers and is scaling up the number of clients quickly by forming partnerships with local VARs. To date, the company has formed partnerships with three local resellers, each of which supports 50 small businesses.

"My key initiative is to grow managed services and partner with more VARs to do fulfillment of managed services for them," he said. "This allows me to quickly increase clients without having to build new relationships. Resellers know we can do this in a non-threatening way."

Once such VAR is EMCS, an applications solution provider in Buffalo. Ed Monacelli, owner and president of EMCS, said he and US itek now have roughly 15 joint customers who appreciate having a one-stop shop and having a managed services contract that keeps IT costs under control.

The two partners negotiate revenue sharing on a per-customer basis, and the arrangement is driving new business for both parties. "US itek gives us the hardware and networking depth and managed services without the expense of doing it ourselves," Monacelli said. "It allows me to go out, do sales and marketing, and get new customers rather than fixing problems."

EMCS attempted a similar partnership with Dell, but Monacelli said he could not count on the multinational OEM for the high level of service and support he enjoys by teaming up with a local partner.

And Stinner knows the Buffalo IT market inside and out. The 31-year-old entrepreneur launched his first computer business when Windows 3.1 was in vogue, earning enough to pay for his college degree in linguistics and international business from the University of Buffalo. Stinner worked briefly for another system builder after graduation, but feeling overworked and underpaid, he resurrected his business in 1999 and named it US itek. The system builder keeps it simple and partners closely with four key vendors: Cisco, Intel, Microsoft and Trend Micro.

Jason Liao, sales manager at Leadertech, a distributor based in Chicago that has worked with Stinner for seven years, said US itek survives while others fail because of its adaptability.

"It's the flexibility US itek has in trying to capture different markets and offer more services to customers," Liao said. "Many of my customers have limited resources and don't want to change. But Dave is pretty smart."

If Stinner's business is branching out in multiple directions, so is his family life. Already the father of one son, his wife is expecting triplets—all boys—this fall. You might say it's a good thing he's adaptable.

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