AUGUST 2019
VOLUME 26 NO. 8
Connecting People, Ideas and Products in the Document Technology Industry since 1994
engage ‘n exchange
Patrick (L) and Mark Flesch, Gordon Flesch Company
THIRD GENERATION OF FAMILY LEADERSHIP AT GORDON FLESCH COMPANY HONORS PAST, SETS SIGHTS ON FUTURE
Tale of the Tape: A
Seller’s Guide to Leading Industry M&A Players
SMART OFFICE, COLLABORATION WITH TECHNOLOGY HEAVYWEIGHTS KEEP MOMENTUM ROLLING FOR MARUSIC AND SHARP SERVICE ANALYTICS AND CONSULTING COMPETENCIES ALLOW NEXERA TO ADDRESS NEXT ERA OF DEALER BUSINESS RESHAPING THE OFFICE PRODUCTS INDUSTRY: DELVING INTO THE ROLE OF TECHNOLOGY IN THE DISRUPTOR’S PATH
ENX Magazine
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Mitch Plesant, Partner & EVP, Spectrum Technologies; Tawnya Stone, VP, Strategic Technology, GreatAmerica Financial Services
BUILD FOR TOMORROW “GreatAmerica has been instrumental in our strategy to bundle multiple technologies and services under one document. They are true partners as we continue to revolutionize our business.� Mitch Plesant Partner & Executive Vice President Spectrum Technologies
• • • • • • • • • • • • • • • •
A B Dick Office Solutions, MI A-COPI Office Solutions, ME American Copy Service Center, CT Axion Business Technologies, RI, MA AXSA Imaging Solutions, Inc. FL, GA Benchmark Business Solutions, TX & NM Brady Business Systems, MI Business Technology Partners, FL Commonwealth Technology, Inc., KY, IN Copeco, Inc., OH Copier Source, Inc. d/b/a Image Source, CA Counsel Technology, IA Dunn’s Business Solutions, MI FastForward Digital Solutions, FL Graphic Enterprises Office Solutions, OH Graphic Enterprises, OH
Michael Brigner
• • • • • • • • • • • • • • •
Janco Office Systems, CT Kenmark Office Systems MCM Business Systems, WV Mercury Document Imaging Co., Inc Midwest Automation, NE N2N Technologies Inc. IN Netwise Resources, Inc., IN Office Systems, VT Premier Business Products, MI Technocom TLC Office Systems, TX United Business Machines, NH WBS Technologies, FL XMC, Inc. TN, AL, GA, AR, MS Zymphony, FL
WE DO NOT CHANGE YOUR MARQUEE... NO EMPLOYEES LOSE THEIR JOBS AS A RESULT OF THE ACQUISITION... WE DO NOT CHANGE YOUR MANUFACTURER(S)... WE ARE NOT A PRIVATE EQUITY GROUP NOR ARE WE OWNED BY ONE...
Senior Vice President
Michael Cozzens
Vice President of Business Development
David Ramos
mbrigner@visualedge.com
mcozzens@visualedge.com
dramos@visualedge.com
Chief Strategy Officer
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DIFFERENCE JOIN VISUAL EDGE TECHNOLOGY
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A modern solution for the Office Technology Industry
AUGUST 2019
VOLUME 26 NO. 8
Connecting People, Ideas and Products in the Document Technology Industry since 1994
engage ‘n exchange
Patrick (L) and Mark Flesch, Gordon Flesch Company
THIRD GENERATION OF FAMILY LEADERSHIP AT GORDON FLESCH COMPANY HONORS PAST, SETS SIGHTS ON FUTURE
Tale of the Tape: A
Seller’s Guide to Leading Industry M&A Players
SMART OFFICE, COLLABORATION WITH TECHNOLOGY HEAVYWEIGHTS KEEP MOMENTUM ROLLING FOR MARUSIC AND SHARP SERVICE ANALYTICS AND CONSULTING COMPETENCIES ALLOW NEXERA TO ADDRESS NEXT ERA OF DEALER BUSINESS RESHAPING THE OFFICE PRODUCTS INDUSTRY: DELVING INTO THE ROLE OF TECHNOLOGY IN THE DISRUPTOR’S PATH
In This Issue
26
DEALER SPOTLIGHT
Third Generation of Family Leadership at Gordon Flesch Company Honors Past, Sets Sights on Future By Erik Cagle
16 STATE OF THE INDUSTRY
Tale of the Tape: A Seller’s Guide to Leading Industry M&A Players By Erik Cagle
22
Uptick in M&A Deals Hasn’t Satisfied Insatiable Appetite for Buyers, Sellers
By Erik Cagle
34 CHANNEL INSIGHT
Smart Office, Collaboration with Technology Heavyweights Keep Momentum Rolling for Marusic and Sharp
16
By Erik Cagle
40 BUSINESS PROFILE
Service Analytics and Consulting Competencies Allow NEXERA to Address Next Era of Dealer Business By Erik Cagle
44 M&A LESSONS
“I Wish I Had…”—Selling a Business Presents Valuable Lessons
34
By Jim Kahrs
48 MARKET INTELLIGENCE
Reshaping the Office Products Industry: Delving into the Role of Technology in the Disruptor’s Path By Ian Elliott
52 TECHNICAL TIP
Xerox WC-3655/3615 & B405/B400 - Fuser Modules
By Britt Horvat
56 DISPLAY ADVERTISERS INDEX
44 6
•
www.enxmag.com | August 2019
We Saw It In ENX Magazine
With 40 years experience in the Dealer, Manufacturer and Wholesale distribution environments, Pinnacle understands Supply Fulfillment & Logistics better than anyone. Our Premier Partner Program enhances your efficiency and customer service while increasing profitability.
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Contributors
Staff
IAN ELLIOTT is a strategic thinker with strong analytical skills, backed by 35 years of executive management experience in the office products, equipment, and supplies industry. He is the founder and CEO of E&S Solutions and an early adopter of ERP/MRP, SaaS & cloud computing systems. He helps independent resellers transition from the analog to digital world using his expertise in supply chain logistics, social media, inbound marketing, e-commerce, and SEO. He can be reached at IanElliott@EandSsolutions.com or visit his website EandSsolutions.com.
Susan Neimes Publisher & Managing Editor
JIM KAHRS has been a leader in the office systems industry for 30 years. He graduated from the University of Maine with a bachelor’s degree in Business Administration, having also completed minors in both marketing and labor relations. Jim’s career began as a sales representative with Monroe Systems for Business. In 1991 he joined Mita, later to become Kyocera, as a DSM. In 1999, he joined Carr Business Systems, a $40 million-a-year Global Imaging Systems dealer, as the vice president of operations. In 2001, Jim formed Prosperity Plus for the purpose of helping dealerships improve their operations and attain their personal and professional goals. Prosperity Plus has helped more than 350 dealerships with one-on-one consulting, marketing programs and merger and acquisition assistance.
Erik Cagle Editorial Director
TECHNICAL ARTICLE CONTRIBUTOR
BRITT HORVAT works for The Parts Drop, a company whose primary business is providing parts, supplies and information for Xerox brand copiers, printers and fax machines. You can find more information, including many of Britt’s past ENX articles on their website www.partsdrop.com.
Ronelle Ingram Contributing Editor
Stay Connected Share Your Views Christina Kim Editor
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www.enxmag.com | August 2019
ENX Magazine is published monthly by Affinity Business Communications, Inc. Any inquiries should be sent to: enx@pacbell.net or mailed to the corporate office. Copyright ©2019 by ENX Magazine printed in the U.S.A. All reproduction in whole or part is prohibited without written permission. Cover photo from depositphotos.com
We Saw It In ENX Magazine
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Erik Cagle
State of the Industry
Tale of the Tape: A Seller’s Guide to Leading Industry M&A Players
G
one are the days when consultants, pundits and industry observers needed to inform the masses that now is an optimal timeframe for interested office technology dealerships to explore cashing in on the asset they have (in some cases) spent a lifetime developing. That point has been driven home ad nauseam. However, even without the benefit of hindsight, it is reasonable to surmise that industry consolidation may have reached its apex, or is fast approaching it. Still, one may reasonably argue that the Staples acquisition of DEX Imaging represented a transition point in the M&A landscape. It added a new player (office supplies industry) to an already-active theater that includes dealers buying dealers, manufacturer directs buying dealers and OEMs obtaining software and ancillary product/service providers that further deepen their holdings. Two years ago, we warned/argued that conditions could be ripe for a shifting in the political, economic and industryrelated conditions that have made the transactional market an active playground. It proved to be premature speculation, and the M&A market swelled. The economy appears to be mired in its happy place (2.9% GDP in 2018 versus 2.2% in 2017), with 3.2 percent growth in Q1 2019 over the same quarter in 2018. At 10 years, we are in the longest economic expansion stretch in U.S. history, per Forbes. The magazine cited the New York
Marco St. Cloud, MN Number of Deals (last three years): 11 (six copier, five IT) Revenue or Percentage Increase: $100 million Geographies Sought: East to Midwest, gaps, plus existing and new markets Size Range of Acquisition: $1 million-$300 million Owner Retained: Optional Rebrand: Yes While researching his dealership’s M&A history, CEO Jeff Gau noted that of the 44 deals the company has closed since 2005, IT companies accounted for 17 of them. As a rule, the dealer seeks to balance its growth between organic
Fed’s recession probability model, which warned that there is a 30% chance of a recession in the next 12 months. The last time the odds were that great was July 2007, five months before the kickoff of the Great Recession. The New York Fed has tended to err on the conservative side in its model; in December 2007, it gave just a 39% probability, and the recession had already began. Attempting to sum up the current economy and where it is heading in a single paragraph can be dangerous (if not irresponsible), so we’ll leave you to research the triggers and factors that may be skewing the numbers one way or another. The impact of a recession is tough to gauge, as each has its own personality. But from an M&A standpoint, it is safe to assess that the conditions which have made the past three years conducive to buying and selling are not static. Neither are the players. What we do know is that our panel of office technology dealers is near unanimous in its assertion that “the pipeline is full.” The need to knock on doors has passed; interested sellers are at their doorstep in full force. We’ve compiled a half-dozen of the most active and/or prolific in our industry, but it is by no means comprehensive. The scorecard that follows will provide a glimpse of their three-year history, along with insight into the type of acquisitions they’re looking to make. and acquisition, though a fruitful year of deals can skew the balance. Market density is a main consideration when looking at copier companies. Existing market opportunities are always a plus, and Gau loves to fill in geographic gaps. Its late 2018 acquisition of Phillips Office Solutions was the company’s biggest, giving it inroads into Pennsylvania and Maryland. Cornerstone acquisitions in new markets is the M.O. for most dealers, and Marco is no exception. Contrary to popular opinion, Marco is not afraid of adding $1 million performers in optimal conditions, in addition to nine-figure targets. “We have access to capital,” Gau noted. “I’m not that hung up on the product and service mix, and brands don’t really matter anymore. I like good IT opportunities, but I really still like copier companies. It’s just a good business.” Gau finds that cash is still king in deals. Owners can choose to remain active with the company, and Gau finds the ones who are deep into sales or service are generally the best candidates. “If we’re aligned with the owner’s wishes or criteria of their dominant selling mode, it just seems to work out well,” he observed. “The owner just needs to be clear with us as to what they want to achieve out of a deal.” continued on page 18
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www.enxmag.com | August 2019
We Saw It In ENX Magazine
Tale of the Tape: A Seller’s Guide to Leading Industry M&A Players
Novatech Nashville, TN Number of Deals (last three years): 8 Revenue or Percentage Increase: N/A Geographies Sought: Primarily Southeast, seeking larger dealers in new territories Size Range of Acquisition: Variable Owner Retained: Optional Rebrand: Optional Throughout the past few years, Novatech employed a noholds-barred approach to acquisitions, simply because the dealership did not want to limit the scope or opportunities that arose. Whether it was lease irregularities, split-ownership situations, divorce, loss of largest customer or successional-
UBEO Business Services Austin, TX Number of Deals (last three years): 7 Revenue or Percentage Increase: 3x revenue ($200 million total) Geographies Sought: Texas, Louisiana, Nevada and California (existing), open to all regions (new markets) Size Range of Acquisition: $1 million-$100+ million Owner Retained: Yes Rebrand: No Now the largest independent dealer in Texas, UBEO Business Services is acquiring dealerships at a dizzying pace, with seven deals completed in little more than a year, and two others that were set to close by the end of last month. UBEO spread its M&A wings not long after carving out a deal with Sentinel Capital Partners, which gave president and CEO Jim Sheffield the firepower to advance his acquisition platform.
RJ Young Nashville, TN Number of Deals (last three years): 6 Revenue or Percentage Increase: 7-8% Geographies Sought: Southeast 18
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related difficulties, Novatech could dig deep into an opportunity to find the best outcome for both the dealership and the seller. Not that Novatech, under the leadership of President and CEO Dan Cooper, is only seeking reclamation projects. Indeed, Novatech is still scouring the Southeast in its quest for fortifying holdings in areas such as Tennessee, Mississippi and Georgia (it has augmented its standing in Atlanta). Cooper is following through on the corporate blueprint to expand Novatech into new geographies with large anchor holdings, backed by the financial empowerment of Trivest Partners. “We pursue all types of managed print and managed IT companies, with the ideal acquisition being a solid company that enables us to expand into new markets, has a great management team who have fostered excellent customer satisfaction along the way, and who possess a desire to continue moving forward, exponentially growing the business,” Cooper said. “While Novatech is currently based throughout the Southeast, we are looking at opportunities enabling us to expand into new markets across the U.S.” In keeping leadership in place, Sheffield has been able to focus on the core companies while growing his best practices and hiring critical executives to smooth out the process. He doesn’t place too much emphasis on product and service prerequisites, though Sheffield admits he has a soft spot in his heart for the core MFP business. “We will look at companies that have managed network services in their portfolio, but what we’re really after are companies that execute well, are customer centric and have values similar to ours,” Sheffield noted. “When you start looking at financial statements, for anything other than the core businesses, typically what we’re seeing is somewhat dilutive.” The value system for a prospective acquisition is probably more important to Sheffield than its product and service portfolio. He has no specific designs on becoming the largest player in the country—he is more interested in being the best from a customer service perspective—and Sheffield would prefer new partners to share his customer service-first approach. “If they don’t have the ambition to be what we want to be, then we’re not interested,” he said. “We’re that serious about it. We know our niche and we want to stick with it.” Size Range of Acquisition: $2 million-$20 million Owner Retained: Optional Rebrand: Yes While not a newcomer to the M&A table, RJ Young has ramped up its activity significantly in 2019, with three deals consummated and another that was slated to close at the end of July. Many of the most recent deals completed by President and CEO Chip Crunk provided the dealership with an upper hand in their respective markets, along with a new foray into Louisiana. “When you go into a new market, you better have a process in place to make sure that it’s successful,” he said. “You can’t run continued on page 20
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Tale of the Tape: A Seller’s Guide to Leading Industry M&A Players it the same way that you run the business in the markets you’re already active in. It’s an entirely different dynamic.” Many of the dealers RJ Young targets are in the $5 million to $10 million range, and Crunk notes the dealer would need a minimum $6 million performer to enter a new market. While manufacturer lines don’t play a significant role in the decisionmaking process, it’s easier if the prospect carries Canon, Ricoh, Lexmark or HP—RJ Young’s lines.
Flex Technology Group Phoenix, AZ Number of Deals (last three years): 12 Revenue or Percentage Increase: 100% Geographies Sought: All markets Size Range of Acquisition: $3 million and above, depending on geographic location Owner Retained: Preferred Rebrand: Subtitled, “A Flex Technology Group Company,” but company retains its brand and identity Oval Partners burst on the scene a little more than three years ago with its unique acquisition platform, which allows additions to its ranks to use a pre-tax portion of the sale price
a Fa m i l y o f O f f i c e a n d I T S o l u t i o n s C ompanies
Visual Edge Technology North Canton, OH Number of Deals (last three years): 30 Revenue or Percentage Increase: N/A Geographies Sought: Coast to coast, gaps, plus existing and new markets Size Range of Acquisition: $3 million-$100+ million Owner Retained: Yes Rebrand: No It is interesting to note that Visual Edge Technology (VET) has not announced any new acquisitions in 2019, but the platform is coming off a year in which it welcomed 18 new dealers, bringing its total to 34 in roughly the last four years. The collective boasts sales in excess of $300 million. VET is famous for its quest to add only the highestperforming players in the industry; it does not entertain overtures from distressed entities. It wants committed 20
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“The main attribute I look at is the owner of the business,” Crunk said. “If there’s a quality owner running the business, usually it has a good workforce. When there’s not a good person running it, usually their people are a little shaky as well.” With a number of deals under his belt, Crunk can finish off a deal in as little as 30 days. Most are completed within a 90-day span. “It used to take a lot longer, but now it’s a pretty seamless process,” he added. realized to reinvest in the Flex Technology Group (FTG) holding company. It has proven to be a popular strategy; since its initial investment in FlexPrint and the creation of FTG, 11 more dealers have entered the fold. According to Dan Ruhl, a principal with Oval Partners, FTG’s goal is to bring on approximately $100 million per year in revenue from acquisitions. The organization is currently in the process of closing three more deals, and Ruhl expects that number will grow before the end of 2019. FTG is on the hunt for dealers whose core business is in the imaging space, with an emphasis on contract-based business. A good reputation and consistent growth are prerequisites in addition to the $3 million revenue base. FTG allows newcomers to retain their name, corporate culture and management team, but will also entertain dealers where the primary owner is looking to retire. “A big part of it for us is the company’s reputation in the industry and its management team,” Ruhl noted. “That tells us a lot about the company. We look at their organic growth rates over the last couple of years and whether their business is under contract or not.” management teams that share its vision for growth, both organic and acquired. In fact, VET provides access to capital for dealers who wish to expand within their markets. VET also provides succession planning for members opting to retire at a certain point. To date, however, only one owner has completely cashed in. VET’s scope isn’t limited to pure dealers. It also analyzes IT value-added resellers and managed service providers. “Our strategy is to be a national company with locations coast to coast and in the top 50 BPI marketplaces,” said Michael Brigner, senior vice president for VET. “We search for well-run companies with excellent executive leadership and a solid relationship with its customer base and its employees, while providing a wide array of office technology solutions from MFP A3/A4, PageWide technology, software and managed IT services. We focus on companies that are performing at a good level of profitability against industry benchmarks.” In addition to taking a high degree of risk off the table and increased visibility, new members to the VET organization enjoy a number of benefits. They garner insight into organizational management, share ideas and best practices with other member companies and reap economies of scale in many operational areas. ♦ We Saw It In ENX Magazine
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Erik Cagle
State of the Industry
Uptick in M&A Deals Hasn’t Satisfied Insatiable Appetite for Buyers, Sellers My, but what a difference a couple of years can make. Two years ago, we featured a number of major office technology dealership players in the merger and acquisition (M&A) space, and suffice it to say that the field of competitors has grown significantly in just the past 24 months. Even the office products set has dipped its toe in the waters with the announcement that Staples obtained DEX Imaging which, coupled with the murmurings that DEX is hiring personnel across the country, leads one to believe that it will seek to provide the service component to customers on a much wider scale. The transactions are certainly not relegated to dealers adding dealers. At press time, Ricoh turned a few heads with the announcement it had acquired DocuWare, a provider of cloud and on-premises document management and workflow automation software. Sharp, Konica Minolta and Xerox are among the manufacturers that have expanded their direct operations, while EFI was sold to a Siris Capital Group affiliate for $1.7 billion. Late last year, ECi Software added device management and assessment solutions specialist PrintFleet, print management solutions provider Print Audit, sales automation software specialist Office Document Consulting and Vineyardsoft Corporation, a leader in business activity monitoring software. CET Group obtained Q2 LLC in a deal among compatible products manufacturers. Even industry consultants got into the act, when BEI Services and Business Systems Consulting joined forces (check out our profile story on page 40) this past spring.
I DO THINK EXPECTATIONS ARE A BIT HIGHER TODAY THAN THEY WERE A FEW YEARS AGO. Dan Ruhl, Flex Technology Group
Favorable Conditions
This is just a small sample size from the bevy of deals that point to several talking points from the 22
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last time we explored the subject in these pages. For one, the industry remains highly fragmented. Players from a number of spaces (including venture capital and other subsectors) recognize the vitality of our industry for investment purposes. Sellers realize the economic conditions (economy, political culture and buyer access to capital) remain fertile. Finally, there’s the push toward expanding into managed services and ancillary offerings to fortify recurring revenue. Entities lacking the wherewithal to make critical investments are seeing M&A as the road to aligning with partners who can better provide that wider portfolio of products and services. So, what have the past two years taught us, from a dealer perspective? Has the influx of transactions created over-inflated expectations among sellers? For that, we turn to our panel of M&A-active dealers to get their take on how the transactional landscape has evolved during that span.
A LOT OF THE SMALLER DEALERS ARE FEELING THE SQUEEZE. IT’S MAKING IT MORE DIFFICULT FOR THEM TO COMPETE, AND WE’RE SEEING THE INCREASED INTEREST. Chip Crunk, RJ Young
Dan Ruhl, a principal at Oval Partners (the private equity arm behind Flex Technology Group), notes that the uptick in deals during the past two years has resonated within the dealer channel, leading them to believe that now is the optimal time—given business conditions—to move forward with a transaction. In fact, he feels those independent dealers who haven’t explored selling options in the past 24 months are in the minority. “With the amount of activity and buyers who are out there, valuations have increased,” he said. “I don’t think it’s resulted in unrealistic expectations, in most cases. There’s always the business owner who says he heard this transaction happened at a certain multiple of revenue and he thinks that’s what his company is worth. But most business owners have a pretty good feel for how valuations work in this
We Saw It In ENX Magazine
continued on page 24
Uptick in M&A Deals Hasn’t Satisfied Insatiable Appetite for Buyers, Sellers
THE VALIDATION PROCESS SOMETIMES CAN BRING A REALITY TO WHAT A COMPANY IS REALLY WORTH. Jeff Gau, Marco
industry. I do think expectations are a bit higher today than they were a few years ago.”
Feeling the Pinch
RJ Young has methodically grown its presence within the Southeast. In fact, the Nashville, Tennessee-based firm is currently putting the wraps on its seventh deal in the past three years, according to Chip Crunk, president and CEO. The move toward more high-tech offerings beyond the MFP box has stirred the belief in many suitors that now is the time to seek a potential M&A partner. “A lot of the smaller dealers are feeling the squeeze,” he said. “It’s making it more difficult for them to compete, and we’re seeing the increased interest. In years past, I needed to market myself out to find acquisitions. Now, they’re coming to us, because we’re one of the few companies out there still trying to grow their business.” As a regional player, Crunk notes that there are few alternatives for the smaller dealers who are seeking to partner. “If you look at the big venture capital-backed dealers, they’re looking at companies in the $50 million to $100 million range, maybe a little less on the low end,” he said. “When they expand into new territories, they’re looking for core companies. We’re looking at roll-ups to increase our existing base.” One of the more active players in the market is St. Cloud, Minnesota-based Marco, which has witnessed an uptick in the number of IT firms it has acquired. Jeff Gau, CEO of Marco, has noticed a pair of trends in deals during the past 24 months: rebounds from unfinished deals with other suitors, and dealers opting to stand pat for the time being.
TODAY, WE SEE RENEWED ENERGY AND OPPORTUNITY IN THE M&A LANDSCAPE AS THE BABY BOOMERS AND GEN X LEADERS SEEK TO RETIRE. Dan Cooper, Novatech
Deal or No Deal
“What I’ve found in the last couple years is that if I’m losing out on a deal, it’s strictly to a no-decision where (the seller) 24
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didn’t do anything,” he said. “They might have a price in their head, and if we can’t hit that price, they think they should hold out for a while.” An even more prevalent development is the growth in dealers who are testing the waters with multiple suitors. On several occasions, a would-be seller backed off from Marco because it had found a “better deal” with another dealership. Invariably, the seller would return to Gau because the higher offer didn’t result in a closed deal. This development is somewhat borne out of inflated expectations, and underscores the importance of working through the due diligence process. “A company is only worth what it’s worth, and as professional acquirers, we have a diligence process,” Gau noted. “The validation process sometimes can bring a reality to what a company is really worth. I think the reality is that good, high-performing companies that are well diversified with a lot of fixed contracts, fully bundled, can bring more value than maybe a company that has less contracts, less diversification, less profit and maybe one or two good customers that skew the numbers. That adds some risk.”
THIS BUSINESS HAS HEADWINDS, AND THIS IS THE TIME WHEN YOU NEED TO HAVE POWER ON YOUR SIDE. Jim Sheffield, UBEO Business Services
Novatech, which is headquartered in Nashville, Tennessee, has built a strong base within the Southeast, but is also eyeing expansion opportunities in other regions. Dan Cooper, the firm’s newly minted president and CEO following Darren Metz’s transition to executive chairman, brought his 30-plus years of industry experience to expand upon the company’s growth platform. Cooper notes that the industry has been consolidating at a variable pace for as long as he’s been in the business, and valuations have changed based on the number of organizations in buying mode. “Today, we see renewed energy and opportunity in the M&A landscape as the baby boomers and Gen X leaders seek to retire,” he said. “But as they do, there’s greater concern for their company’s future and what happens after the sale.” One dealership that is highly active in the M&A theater at the moment is UBEO Business Services, with seven deals completed in the past year, including its watershed partnership with Ray Morgan Company. But 24 months ago, the dealer was not widely known outside of its home state of Texas. That all changed in April of 2018, when UBEO joined forces with Sentinel Capital Partners, triggering its current M&A tear.
Integration Strategy
Jim Sheffield, the company’s president and CEO, freely admits that he is surprised as to the volume of activity and We Saw It In ENX Magazine
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interest he has seen in such a short period. “There’s a sense right now with small to medium dealers that this is the time where you need to pick your team,” he said. “This business has headwinds, and this is the time when you need to have power on your side. That’s part of the reason we did this, and dealers are attracted to that power. Owners are interested in hearing what we’re doing.” While most of the other major M&A players have long since dealt with integration issues due to their wealth of experience in scaling, Sheffield confesses to a degree of “increased metabolism” in acquiring seven dealers, effectively tripling UBEO in size. The dealership is taking a measured approach to integrating new acquisitions, and recently implemented some best practices and made several strategic hires. The billing department has worked aggressively to bring all Texas billing under one roof, while customer bills in the western region will continue to be processed locally. Making the process as opaque to the customer as possible is a top priority. “We don’t want the customer to experience any disruption,” he said. “The expertise of our people during the integration process has really helped to avoid fumbling the football and disrupting the customer. That goes back to having quality people.” ♦
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Dealer Spotlight
Third Generation of Family Leadership at Gordon Flesch Company Honors Past, Sets Sights on Future
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atrick Flesch remembers that special feeling he had while climbing into his car, fresh off his first copier sale of a $2,000 Sharp unit to a small construction company in Oak Brook, Illinois. That sense of satisfaction that accompanied closing the deal was more than enough to whet his appetite and project a future in the office technology space. Sure, he was the son of Tom Flesch, the top executive at
Gordon Flesch Company President Patrick Flesch addresses attendees at a Technology Summit, held at Lambeau Field, home of the NFL’s Green Bay Packers 26
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Gordon Flesch Company (GFC) of Madison, Wisconsin. But a career in the family business wasn’t preordained. The checklist for family members included getting a college degree and working three years outside of the company (Flesch started at CDW). But perhaps the greatest prerequisite for the job was passion. And after working in virtually every aspect of the business while growing up, including prospecting for the local rep, delivering machines off the truck and filling toner orders, Flesch knew his professional heart was in the right place. The 2019 campaign represents his first full year as president of GFC, having been elevated to a top executive position (along with brother/COO Mark) late last year. He has taken the reins of a 63-year-old business founded by his grandfather, Gordon, who first hung his shingle as a typewriter company. Backed by a strategic relationship with Canon that has flourished since the 1980s, GFC has grown to $160 million in annual revenue, exclusively through organic growth. The third generation of leadership assumes the helm at an exciting juncture in the company’s history. GFC has expanded well beyond MFPs into areas such as managed print and managed IT (including cybersecurity), enterprise content management, cloud services, apps (including the new AskGordy), software and integrated solutions. And while its most recent expansions into We Saw It In ENX Magazine
Indianapolis and Appleton, Wisconsin, were wholly organic, the dealer now has its sights on acquiring existing companies to complement its Midwest footprint. We sat down with Patrick Flesch to learn more about how GFC will continue looking toward the future with innovative technology offerings while maintaining the core Midwest values and ethics this family dynasty have long embodied. How is business so far in 2019? FLESCH: Our fiscal year, which wraps up Sept. 30, got off to a great start. We typically have a little bit of a lull rolling into October and November, but they were really good months. Then we hit a bit of a slump and had a horrible winter. In the Midwest, we had some 40-below temperatures, which didn’t help. But we rebounded nicely with strong months in May and June. We’re on a roll right now and we’re bullish on the rest of the year. I see us finishing with pretty strong growth numbers compared to 2018. Growth in the print world is difficult. The MSRP of equipment is going down year over year, so you have to sell that many more boxes in order to outpace your previous performance. For instance, this year we’ve sold 700 more units than we did last year. Our hardware has climbed as a result of that, but not incrementally the way one might think based on that volume of units sold. continued on page 28
Third Generation of Family Leadership at Gordon Flesch Company Honors Past, Sets Sights on Future
Employee members of the Gordon Flesch Foundation (shown from left): Dan Mercer, Cheryl Halverson, Jeff Peters, Scott Sherman, Matt Freymiller, Tim Ryan and Jackie Shultz
What does GFC pride itself on? FLESCH: We hear the term customer experience being tossed around a lot. Customer service has long been a calling card of Gordon Flesch. Our customers and prospects know that they can always find a lower price somewhere else, but if they want the best in breed in regards to service performance by a vendor, that’s when we shine the most. Our level of professionalism is really strong. We carry ourselves a certain way. We have a certain way in which we conduct business; the ethics that we bring into play are second to none. That reputation that has been built over time. Late last year, the company announced your promotion to president and Mark to COO. How do you plan to put your signature on the company while maintaining the core principles that have enabled GFC to prosper for more than 60 years? FLESCH: Given the success we’ve had over the last 60 years, Mark and I didn’t want to come in and make changes right away or make unnecessary changes. There are certain things that Mark and I are focused on—modernizing our buildings and modernizing our technology internally so that we can 28
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project ourselves as a true technology company. We recently renovated and built a production demo/customer experience center here in Madison that we’re really proud of, complete with state-of-the-art equipment. We’ve installed a new audio-visual system throughout the company for video conferencing. It was a big investment that will certainly go a long way toward enhancing our image as a forwardleading technology player. We’re working on developing mobile apps for customers to utilize. We’re starting to implement some forward-thinking, cutting edge items. At the same time, we’re focusing on what got us here, which is what Gordy and the second generation of Tom, John and Bill were able to put together. We’re not losing sight of our core competencies and are continuing to focus there as well. Cybersecurity has become a focal point under your managed IT platform, which included the hiring of former Continuum expert Chera Pupi as a sales manager for GFConsulting. What are your objectives in this area? FLESCH: It’s a huge topic right now, especially in the IT space. It’s the number-one thing on decision makers’
minds. Recognizing that influence, we made the shift to a dedicated sales force last year. Part of that was bringing Chera on board from Continuum. She’s been a home-run hire for us. We’re also able to lean on our partnership with Continuum to ramp up that security offering. We’ve had many conversations with them about new products and services around security that they’re bringing to the table, and how we can sell them to current and prospective clients. They’ve really worked closely with us in putting together great programs to execute on it. We’re going to implement a strategy for all Gordon Flesch IT customers to commit to a basic-level security package. It is important that we be on the same page with clients when it comes to cybersecurity; otherwise, we probably aren’t a good fit to do business together. We’ll be rolling that out later this fall and we hope to have all of our customers converted over to a basic cybersecurity platform, at minimum, by Jan. 1, 2020. This is above and beyond antivirus and firewall protection. Last summer, GFC unveiled the AskGordy virtual assistant built on the IBM Watson A.I. platform. Talk about the role it plays in leveraging ECM data. FLESCH: We acquired a company in 2015 called Cambridge Connections. It’s basically our think tank, the R&D arm of the company. It’s led by Mike Adams, a very intelligent guy who has excellent relationships at IBM and other large players in the IT space. He was really the driving force behind AskGordy, our first release from the Cambridge Group. What it allows customers to do is point their
Gordon Flesch Company technicians hard at work on a printing device continued on page 30
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Third Generation of Family Leadership at Gordon Flesch Company Honors Past, Sets Sights on Future priced and the most reliable in the industry. When you add in our strong service organization, it’s really a powerful combination. We’ve been the top volume dealer for Canon five years in a row. It’s a tremendous partnership.
For each of the past three years, Gordon Flesch Co. has held Tech Summits at various sporting arenas, including Lambeau Field, Wrigley Field and Nationwide Arena
unstructured data, which they have situated in enterprise content management systems, and leverage the power of IBM Watson by pointing those documents to IBM Watson. It’s a natural language processing software through which users can ask questions of the repository. That gets digested through IBM Watson, and IBM comes back with relevant topics and results that are based on what they perceive as the intent of the question. It’s not a keyword search. IBM Watson is able to take that question and search the relevant data that it “thinks” would be applicable to what you’re trying to figure out. It’s all in real time and can be accessed through a mobile app at your voice command, be it iOS or Android. AskGordy enhances a clients’ ECM systems. If they’re not using a document management software platform, this won’t have any value. But if they do have their data in an ECM platform, then it can be a very powerful tool. We’re talking to current clients about these capabilities and we’re close on a couple proof of concept orders. We’re also in discussions with IBM about having its ECM salesforce selling AskGordy as an add-on to FileNet, IBM’s ECM system. That’s our long-term hope. They’re playing in the Fortune 500 space every day, and we think this application has much more attractiveness in the enterprise space. 30
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What has enabled GFC to become the nation’s leading independent Canon dealer? What are some of the factors in your success? FLESCH: This relationship really got rolling in the 1980s and 1990s. Canon would come to market with a machine that would basically sell itself, offering the features and technology that no other manufacturer could match. We had exclusivity in some of those markets, so we were the only option if the customer wanted to buy this cutting-edge technology. It was a beautiful thing for us and we were able to capitalize on it. Over the years, Canon continued to put out great products that are competitively
Talk about the role that organic growth has played in the GFC’s success story. What are some of your strengths in this regard? FLESCH: We still refer to Appleton and Indianapolis as our emerging markets, because we went into them organically. But they’ve really been wonderful growth engines for us. If we had not made those moves, our top-line revenue would look a whole lot different today. The other piece is the GFConsulting Group, which encompasses our ECM sales team, our managed services sales team and the Cambridge folks. It’s not so much expanding into new markets as it is adding more products and services for our customers to consume. What was your biggest challenge in the past year? FLESCH: Internally, we had some sales realignment. We used to have our traditional print sales folks selling IT services and ECM, and they brought in specialists to help drive those opportunities. We took that away from them because we wanted them to double down and focus on hardware as their
Attendees at a Wrigley Field Tech Summit learn more about Gordon Flesch Company’s wares continued on page 32 We Saw It In ENX Magazine
Third Generation of Family Leadership at Gordon Flesch Company Honors Past, Sets Sights on Future
John and Jeanie Flesch unveil Bucky Badger, the official mascot for the University of WisconsinMadison, prior to a parade in 2018
craft. It was a big investment on our part to build up dedicated sales forces on both the ECM and managed IT sides. These kinds of changes always present challenges. Chera has done a great job in building her team up, and now we’re at full capacity. We’ve really incubated the managed IT and ECM group and added some dedicated sales people who really know that technology, and it seems to be working well. In hindsight, it was definitely the right decision and we have a lot more horsepower going forward. The GFC Foundation has donated roughly $2 million since its inception, and your parents have pledged a Family Welcome Center at Wisconsin-Eau Claire. Can you talk about the importance of corporate philanthropy? FLESCH: It all started with Gordy. He had a true belief that we all need to be involved in the communities where we work and live. He felt we needed to give back to those communities who have been so good to us and our families. That philosophy carried over to the second generation, and now Mark and I feel strongly about that concept, as well. Our charitable foundation is made up solely of GFC sales people, service technicians, 32
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administrative folks and executives who sit down and look at all the applications and make selections as a group. In each market, we’ll support five to six different entities. Delivering those checks and seeing the great work these organizations do in the community is amazing. Our foundation members really enjoy being a part of those presentations. I think it brings our employees closer together and it means a lot for them to know how much we give back. What are your goals for the next 12-18 months? FLESCH: I think we’re going to be focused more on the inorganic growth space, pursuing some of those opportunities where there might be a good synergy for us to acquire a dealership. We’ll also be focusing on the consulting group. The managed IT services business has the ability to really propel our company from a revenue and identity standpoint, underscoring that we’re not just a copier player anymore. We really are a business technology provider. How do you view the industry changing in the future, and what are you doing to adapt?
FLESCH: Given the deals we’re seeing, particularly the Staples-DEX merger, you wonder if this industry is going to move more into an e-commerce-type of arrangement in which the buyer acquires products over the web versus having interaction with the reseller or sales rep in order to acquire the technology. But I think we’re a long way from that. Implementing that technology is still complex in a way that requires the dealer to be involved to assist with the process. But it’s something we have to keep our eye on. We’re doing some work in the background as a defensive play, so if that shift does get momentum, we will be able to pivot and adapt to meet customer needs. It’s important to be equipped with a great security offering, and we have that covered both on the print side and through Continuum for managed IT. But you never know with this industry. You have to be nimble, you have to keep up to date and educating yourself, which we try to do. What do you like most about your job? What is your least-favorite aspect? FLESCH: Definitely the people within our company. In our culture, we don’t care that much about titles or rank. We just want to take really good care of our customers and be successful and win in the marketplace. I think we have a great attitude from top to bottom as it relates to how we handle customers and interact with each other. We have fun at work. Sure, it’s a job and we need to get things done, but we have a good
The Gordon Flesch Company family keeps growing, with David and Mary Eickhorn introducing baby Dex
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Conversely, I hate losing deals. I’m not as involved intimately as I was with my previous role, but I still am a sales person at heart. If we’re ever involved in a larger opportunity and we come up short, that always stings. I think I dislike losing more than I enjoy winning. You celebrate a win, then go out and find the next one. But the losses stick with you. Outside of work, what do you do for fun?
time doing it and we try to enjoy the successes, celebrate those wins and work together to improve. When we do lose, we try to figure out why. I also enjoy getting in front of customers and being part of those relationships. It’s getting
more difficult to make time for that, but managers and reps know that’s what I enjoy. They do a nice job of bringing me into opportunities in which we can spend time with customers and build those relationships.
discover
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Customer service is a pillar of Gordon Flesch Company’s value proposition, as employees take in-bound service calls at the Technology Logistics Center in Madison, Wisconsin
FLESCH: I love spending time with my family. We have three boys—ages 8, 6 and 2. Chasing them around is a lot of fun, and during the summer it’s all about the swim team, basketball camps, soccer camps. I just enjoy watching them compete and play sports. We love to travel and try to go up to northern Wisconsin a few times every summer. Day trips always make for a great time. Golf is another passion of mine. Between work, family and golf, there’s really not a lot of free time to do anything else. ♦
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Erik Cagle
Channel Insight
Smart Office, Collaboration with Technology Heavyweights Keep Momentum Rolling for Marusic and Sharp
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ike Marusic makes no bones about it. The humble MFP was, is and always will be the key launching pad from which opportunities can abound for office technology dealerships. But that’s not to say the president and CEO of Sharp Imaging and Information Company of America (SIICA) isn’t excited about the possibilities that the future office brings to the tech table. Just having completed his first year at the helm of SIICA, Marusic is flush with doubledigit growth in placements among dealers. This spring, he led a successful four-city roadshow that enabled him to take the pulse of what dealers were seeing with Sharp, and the feedback was sterling. And now, with the national dealer meetings on tap in October, the OEM is set to unveil its smart office platform
Mike Marusic, president and CEO of Sharp Imaging and Information Company of America 34
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of hardware and software designed to take information sharing within the office to another level. Critical to Sharp’s success in the smart office realm is its relationships with some of the biggest technology players in business today, beginning with Microsoft, with which it authored the new Windows collaboration display. Best of all, from a dealer standpoint, Sharp isn’t looking to drag its valued customers outside of their comfort zone, and Marusic is confident the OEM can help dealers stay in step with the evolving office needs of end users. We caught up with Marusic to gain insight into his first year in the corner office. We also learned more about how Sharp will leverage its own strengths, and those of its valued partners, to maintain the momentum it has enjoyed. Tell us about your career path leading up to your current position at Sharp. MARUSIC: I was a political science major who somehow ended up going to an accounting firm, and now I work in technology. It’s been a strange path. During grad school I started with Arthur Andersen, and it was a nice way to understand the financial side of businesses. After graduate school, I went to Panasonic, where at the time I thought I was going to be doing fun stuff like TVs and stereos. But I ended up being in the office automation group, which was the office products area. It’s funny how We Saw It In ENX Magazine
fortunate that turned out to be. I worked in a variety of planning, sales and product manager roles in their computer peripherals group. I did that for about 10 years, the last two of which I ran marketing for the copier group. That set the path for joining Sharp. I’ve been here almost 17 years, and I’ve had two great bosses in Ed McLaughlin and Doug Albregts. Both of them were great at letting me go off on projects in addition to marketing, which helped me understand all of the facets of the business. About eight years ago, I saw a big opportunity in the display area as an office tool, and I asked if I could run the sales and marketing for that area. I did that for a couple of years and had some success. When Doug joined about a year after that, he asked me to come back to the copier side. Ironically, my last act in the display area was hiring John Sheehan to replace me running sales for the display business, and he’s my senior vice president of sales now. I took over the COO role about two years ago, and that was the perfect cap to get me ready for my current role running SIICA. It has been a little more than a year since you took over as president and CEO of Sharp Imaging and Information Company of America. What have been some of the challenges and successes that marked the first year? MARUSIC: I did have a heads up about assuming that role, so I was able to get a running
Sharp set up a booth earlier this year during InfoComm 2019, where the manufacturer unveiled a smart office concept
start and that really helped. Doug was great during the transition. Coming from the organization, I already had the team in place that I wanted to work with—we’re all on the same page. That was invaluable to me going into the position. I think the biggest challenge was the dealer community would have a number of concerns about losing some of the leadership positions at Sharp. John Sheehan and I hit the road and visited as many dealers as we could while addressing their needs. John has done an amazing job of managing our sales team in the last year. Our market share in the dealer community dramatically increased last year, after being flat to declining for several years. Through June, our best month so far, dealer placements are up nearly double digits. I’m pretty confident that the trend is going to continue. The biggest adjustment for me was the direct side of the business, where I hadn’t spent a lot of time during my previous roles. These days, I’m spending more time focusing on Sharp Business Systems. For a manufacturer, it’s a tough balance between direct and indirect operations. Obviously, from a placement standpoint, close to 75-80 percent of our placements are through our dealer channel, but we need the direct channel for representation in certain markets. Last year, for the first time since we
started SBS, the mix between SBS and the channel business changed. It had steadily been moving toward SBS but this year, the mix shifted back toward the channel. And that’s even with SBS showing some nice growth. We don’t have an exact target mix of what we’re trying to do in our direct operations, but it’s always good to have both sides growing organically. Outside of the external things, for me the biggest change in what I have to think about every day is the development of our people. We’ve dramatically
increased our spending in training across all levels of our organization. We started our first women’s leadership development program, called WISE (Women Influencing Sharp’s Evolution). It was one of the first projects I initiated last year. I’m optimistic it’s going to drive not only additional opportunities for our people, but more importantly as an organization, it will ensure we have leadership that’s more reflective of our markets and our team members. That was a real positive for us in the last year. The last piece is an investment we started in college recruiting. The common theme among dealers is how hard it is to get good people to join this industry. We’re being more aggressive recruiting people out of college and bringing really talented individuals into the field. So far, that’s already been a noticeable success within the organization. We’re hiring tech-savvy people who have a completely different perspective on the office and collaboration. In June, Sharp showcased a smart office setup at InfoComm 2019 with its latest Pro AV technology. How was it received by dealers? MARUSIC: It’s the largest Pro AV show in this space. For us, that smart office concept is really gaining traction across the dealer community. We are in a unique position relative to our competitors in the document space in that we have a large IT business within the Sharp brand.
Attendees at InfoComm 2019 showed great interest in Sharp’s new Windows collaboration display continued on page 36
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Smart Office, Collaboration with Technology Heavyweights Keep Momentum Rolling for Marusic and Sharp the most valuable things in addition to the hardware part, it’s the experience we’re getting at Sharp. It’s hard for a document OEM to change how people work in the office. It really has to come from these companies that are leading in the software space. Being able to do that with Microsoft has been a real plus. Not only do we have this outstanding product in the WCD, but we’re also gaining tremendous insight into how it can impact our document business.
Sharp’s commitment to leveraging third-party technology from global heavyweights such as Microsoft helped pave the way toward the Windows collaboration display
Not only are we leaders in the display space, but we also purchased the Toshiba Notebook business last summer. We have front-row seats to see what’s happening in the document, display and IT spaces. We’re hitting those spaces aggressively, and I think it’s really helping us leverage that into what the leading IT companies are doing. InfoComm was overwhelmingly positive, especially the Windows collaboration display from Sharp, which is a revolutionary offering. Across all our spaces, it was valuable to show how displays and laptops could be integrated to help move information throughout an organization, and we received outstanding feedback. This spring, we did the roadshows with our document dealers and gave them a taste of what’s to come with smart office. When you look at both channels, I think it gives us an insight into what’s happening, especially in the document channel, where the opportunity for dealers to expand their offerings within the concept of their business model and programs they’re familiar with, is overwhelmingly positive. We’re not asking dealers to diversify outside their strengths. We’re giving them more opportunities within what they know. Can you provide an overview of the Windows collaboration display? 36
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MARUSIC: It’s really a unique product that we’ve developed with Microsoft and Foxconn. We’re taking the advantages of the Microsoft Office 365 suite and leveraging it across all of the office spaces with different hardware than you normally see from Microsoft. It blends hardware and software for a unique user experience that allows the information to move around with them. At its core, the WCD is an interactive display, and that’s a space we have a lot of experience in with our AQUOS BOARD interactive displays. Because it leverages 365, Microsoft Teams and the Azure Cloud platform, it revolutionizes how people will work by interacting with their office
What will be the key to scaling future office/smart office solutions within the dealer community? MARUSIC: This is probably the biggest challenge. We’ve got a good handle on the technology part, but it’s more about the change in the mindset of the dealer. If you focus on the hardware and the clicks only, it will be a tough migration for dealers. This channel evolved from the typewriter industry to copiers and smart MFPs. Throughout that time, we’ve been leveraging different technology tools that allow people to share information. While the technology changes, that core role doesn’t. The ability to help customers make that transition is what the dealer community has always been about. As we look to make this migration, a lot of those tools that we’re so comfortable with—the business model, the comp plan, other copier-centric processes— they need to be adjusted and modified to reflect the ability to get into the IT
WE ARE IN A UNIQUE POSITION RELATIVE TO OUR COMPETITORS IN THE DOCUMENT SPACE IN THAT WE HAVE A LARGE IT BUSINESS WITHIN THE SHARP BRAND.
Mike Marusic
technologies. Whether you’re hosting things in the cloud, using Teams to collaborate or just using the Microsoft 365 suite, it allows touch to become a key part of how people interact with information. I think it’s a home run. For the dealer channel, it provides another recurring revenue stream without having to learn a completely new space or market. If I look at one of
spaces. Maybe software becomes a bigger part of the business. For a company like Sharp and the dealer community, it’s the biggest adjustment everyone’s going to have to make. Will dealers be able to change that mindset and go after this business? They’ve always been able to adjust to technology changes in the past. The scalability of it is not so difficult. We’re already launching these initiatives
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continued on page 38
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Smart Office, Collaboration with Technology Heavyweights Keep Momentum Rolling for Marusic and Sharp in our direct operation. It’s really the dealer community and adjusting their mindset to what’s important to running their businesses. What was the strategy behind holding a series of roadshows in four cities in addition to October’s national dealer conference? What kind of feedback did you receive from the roadshows? MARUSIC: The roadshows are very time consuming and expensive to do, but they’re invaluable. We find that we meet a different group of people at roadshows than we get at our dealer meetings. At the dealer meetings, we’ll get the owner and maybe top leadership of a dealer. With 400 dealers, it’s really tough to drill down into the organization. At the roadshows, we get the dealer’s sales reps, sales managers and service managers, because it’s more like a training event. I think my favorite part is we get a lot of one-on-one time with sales people, and their feedback is great. There’s no filter on a salesperson, especially when you’re at a cocktail hour. They won’t mince words with what’s good or bad in your organization. We’re implementing a lot of the insights and ideas that they give us. The dealers’ reps like that more personal touch of a roadshow, which has 150 to 200 people per show, versus 1,000 people we have at a dealer meeting. But we love doing both.
An example of how Sharp’s Windows collaboration display enhances business not only across the board room, but across the globe as well
encompass all of the technology coming out that will impact the office. I think the document space is really too focused on the not-invented-here mentality, where all of the OEMs believe they should build all the tools and products. That’s simply not how success can be built in the IT space. I saw that directly when I ran our display business. You realize that in a true conference room or videoconferencing system, our displays are probably 10-15% of the total cost of the integration. Then there are large IT companies that will drive most of the
THE CORE BUSINESS FOR SHARP AND ITS DEALERS WILL ALWAYS BE THE MFP. IT REALLY IS AN ENABLER TO ALLOW SHARP AND DEALERS TO GET INTO OTHER CATEGORIES. Mike Marusic
At the Chicago roadshow event, you noted that Sharp is in talks with Apple, Microsoft, Google and Amazon to review products that will come to light in the next few years. How critical is thirdparty partnerships to the vitality of today’s traditional MFP manufacturers? MARUSIC: There are a lot of smart people in this industry, and all of us have innovative ideas. From a practical standpoint, it’s hard to be able to 38
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innovation. When I look at how we’re going to approach this market, we talk about the Windows collaboration display. At the dealer meeting, we talked about a meeting bot that we were going to introduce. Our relationship with Foxconn got us into the door with Microsoft. All of our ideas were on target, but the ability to implement it without a Microsoft and without understanding their approach to the office and how
they’re going to move information…I think it would be foolhardy for Sharp alone to create how work will be done. Partners like Microsoft, Amazon and Google are all innovating in the IT space. Let’s face it, they have a larger customer base, and they’re more mission-critical to a lot of the office customers. Working closely with them to develop products is the key. When you meet with them and talk to them about two-, three- and five-year roadmaps of technology, I think that is so invaluable to Sharp. We didn’t have that access before Foxconn became involved with Sharp, but because they’re partnered with these companies, we’re getting insight into what’s going on. I think it really helped us in planning out our future strategy. I think we’ll see all of the traditional MFP manufacturers paying more attention to that space and trying to get those relationships, because they are critical to really developing the future technology we’re all going to use. As the Smart Office continues to emerge and evolve, what does the future of the MFP look like in dealer portfolios? MARUSIC: The core business for Sharp and its dealers will always be the MFP. It really is an enabler to allow Sharp and dealers to get into other categories. We are unique in our industry because you
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often hear people are trying to disrupt the service model of our industry. During the roadshows, I made the point that the service model is the magic sauce that helps this industry survive. Having that close relationship with your customers and helping them through problems is critical. Over time, you’re going to see the mix of the business change. Everyone understands that the category of pure document MFP is flat to declining in terms of revenue and placements. But that doesn’t mean it’s going to go away. With information-sharing categories of displays, tablets, laptops, even the software that helps collaboration, dealers leveraging them will be able to continue to grow. The copier will always be the core of our technology offering, but we’ll be able to sell so many other products by understanding the other technologies that are adjacent to information sharing. Paper and digital are the only ways you can share information. If it’s digital,
it’s either on a phone, laptop, tablet or large-format display. Obviously, having the laptops and large-format displays, as well as desktop displays, puts us in a great position. What are your goals for the balance of 2019, and what will you look to accomplish in 2020? MARUSIC: We must continue to build on our momentum. We got off to a great start the first three months of this fiscal year, when we were planning the roadshows, and we wanted them to help continue that momentum. In April, we had our internal kickoff meeting, and the team said we should name it “Accelerate,” to accelerate the momentum. In April, May and June we had double-digit sales growth, so I guess it’s working, and we want it to keep going. For the balance of the year, we want to maintain that sales growth and prepare for the smart office launches. This fall, we’ll introduce the hardware
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and software that’s the cornerstone of our smart office strategy. As we continue to grow the revenue, we need to find time to build out the future. That is very time consuming, and the team is excited about not only the results we’re getting now, but it’s optimistic about the smart office because of the feedback we’ve received. In 2020, it’s purely the execution on that vision. With all the innovations on tap in the second half of 2019, we’ll be helping our dealers enhance their business and getting them involved with smart office technology and new revenue streams. In October, when we have our dealer meetings, we’re going to be fully loaded with all of the smart office products and technology. I believe it’s something nobody else can offer. I think 2020 is going to be better than 2018, and 2019 is already off to a great start. If we can keep this up, I think people will look at Sharp in a different way. Hopefully, we convey and execute that in the next year. ♦
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Erik Cagle
Business Profile
Service Analytics and Consulting Competencies Allow NEXERA to Address Next Era of Dealer Business
F
or years, the trade press, consultants, manufacturers and industry think tanks have preached to the office technology dealership masses. The message of their sermon? The need to offer the most-comprehensive menu of products and services to end users, extending beyond the MFP box with managed services and ancillary offerings that transform dealers into those single-source providers. The idea is to enhance customer stickiness and discourage end users from looking elsewhere for any needs that fall within the dealer realm. So it comes as no surprise that those people who are dishing out this advice are also taking their own medicine. A prime example is the merger between BEI Services, a long-recognized leader in business intelligence data and benchmarking tools, and Business Systems Consulting, which offers dealer guidance in fields ranging from sales and finance to human resources and admin. With a wealth of growing services, including M&A consulting/ preparation and no-meter billing through one of the industry’s first imaging device as a service (iDaaS) platforms, the newly-christened NEXERA speaks to all-in-one dealer support. BEI Services was founded in 1993 by Wes McArtor and Greg Moseley. The company’s strong suit was service benchmarking, backed by the industry’s largest database of comparative performance metrics; evaluating both machine and technician performance to bolster profitability and enhance the customer experience.
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Dick Elixman started Business Systems Consulting in 2007 after spending more than 25 years in the industry with companies including Litton Business Systems and Imagistics International. Business Systems Consulting’s aim was to guide organizations in creating their strategic vision, including strategic financial planning, productivity analysis and employee mentoring. The two organizations had bumped into each other frequently on the industry circuit, and about a year ago, McArtor and Elixman began exploring the possibility of a union. Like the oft-parodied melding of chocolate and peanut butter, bringing the two forces together was essentially a no-brainer. After working through the logistics and the plan of attack moving forward, the merger and rebrand was announced in tandem with ITEX 2019 this past spring. Moseley remains CEO, with McArtor as president and Elixman the CFO.
Blended Synergies
“We’ve worked together in a variety of endeavors over the years, so we’ve had history,” McArtor noted. “As we saw more and more of our customers individually using both of our services, we realized that virtually every one of these customers had opportunities for us to assist them. So now when we see issues in any particular area of the company, we can also understand how that’s impacting the other areas.” Given the intertwined nature of dealer challenges, the comWe Saw It In ENX Magazine
Wes McArtor, NEXERA
bined competencies enable NEXERA (with the tagline “Helping dealers thrive in the next era of imaging”) to take a more-holistic approach. It addresses processes and people, stepping beyond the identification of problems to provide customers with roadmaps toward gaining efficiencies across the full spectrum of their businesses. Having the analytics and the benchmarks provides for a great launching pad to enable dealer clients to do better, but absent an actionable game plan, dealers may be more likely to spin their wheels. “So many times, owners leave a dealer group meeting, or hire consultants, that give them great ideas. But many times those ideas never see implementation because the dealer’s people haven’t been involved enough to understand the whys and hows,” McArtor said. “Our strength is helping these team members succeed, via coaching and mentoring to specific outcomes. We need to spend our energy and time on developing people using the analytics to guide us, so we have some kind of measurement that says, ‘Here’s continued on page 42
Service Analytics and Consulting Competencies Allow NEXERA to Address Next Era of Dealer Business
Dick Elixman, NEXERA
where we’re going, here are our goals and are we making progress toward those goals?’ That’s what separates us from others. There are other companies that can provide all the benchmarks in the world, but they don’t teach you how to fix it.” McArtor notes that the union and rebrand have been positively received by clients and prospects, and NEXERA’s team of 24 specialists is helping to spread the word about the unique value proposition the merger has created. And as the consultation isn’t limited to the service aspect of an operation, NEXERA can break down all the elements, from contract billing to finances. In addition, it can outline the correlation between the various departments and illustrate the impacts they have on the overall health of the operation. Most importantly, it paves the way to a plan of action dealers can follow.
How it Works
Typically, a dealer will approach NEXERA regarding a specific pain point. NEXERA staff who touch upon certain elements within an operation will sit down, virtually, with the client’s key personnel via a webinar to discuss what needs to be done. “The first process is really about fixing what’s happened in the past,” McArtor said. “Sadly, most dealers’ employees are trained by another employee, which at times creates systemic problems that were not intentional, but can severely impact process and data accuracy.” Online training and coaching follows to make sure all pertinent parties are up to speed on the solutions necessary to avoid 42
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repeat mistakes. For example, NEXERA has a client that had hundreds of customer numbers for one customer—a difficult process to remedy in any ERP. NEXERA was able to correct the problem and train the new billing person on how to avoid this in the future. The key, according to McArtor, is to ensure dealer systems are improved going forward. After an issue has been solved, NEXERA will schedule monthly or quarterly reviews to ensure that fixes, suggestions and training have been followed through on as instructed. This could entail bringing in other inter-related departments, if needed. “Often times in the process, we see other things that either (clients) weren’t aware of or aren’t part of their core expertise,” McArtor noted. “An owner sometimes doesn’t understand all the metrics around what’s going on in service. Sometimes they become compartmentalized around their sales organization and maybe finance, but aren’t keenly aware of what’s going on unless they’re billing for inventory or service. A lot of times, our evaluation process is about taking a holistic approach and looking at all the operations, focused on the pain points but also looking at where we can make improvements that would ultimately bring more profitability or efficiency to the dealership.”
Best of Both Worlds
Elixman has long been a fan and proponent of BEI’s analytics, which he feels are the only true measure for looking at key performance indicators and everything related at the employee level when it comes to service. The same process for coaching service personnel is the same blueprint he ascribes to for coaching sales. “It is such a great combination of entities, because most of the time, we find that dealers just need help of some sort. And maybe it’s just a few hours, but we’re in a position to do that with the team that BEI has,” he said. “They have four individuals who all served in large dealerships as service managers. They understand day-to-day operations versus simply looking at a benchmark.” Now that the organizations are under one umbrella, McArtor notes the next step is developing tools with
the core competencies of both teams, such as interactive dashboards and more interactive coaching-development programs. NEXERA’s exclusive iDaaS billing program will be a critical component going forward, and McArtor is interested in expanding into areas in which data analytics components do not currently exist, such as managed IT. NEXERA is also catering to the needs of dealers who are considering selling, acquiring or preparing their firms to be passed on to the next generation of ownership. For sellers, NEXERA helps clients improve their EBITDA through methods such as improving manpower efficiency from a service perspective. With buyers, NEXERA can assist in the due-diligence process, and improve an obtained business by eliminating operational inefficiencies. As for succession scenarios, NEXERA can help that next generation of ownership operate the business in a way that it can be successful.
Change Management
McArtor notes the industry is in flux, given the decline of print, evolving billing methods, the A3 to A4 convergence and the need for dealers to diversify—all impacts to NEXERA’s client base. “Successful dealers will have to learn how to adapt to these changes,” he said. “But the key to being successful is going to be how do you take your existing and most valuable resources— the people—and help them make these changes successfully.” As NEXERA builds upon its brand awareness, McArtor wants to ensure that integrity continues to be a focal point in its endeavors by delivering on what is promised. “We take care of our people the same way we want them to take care of our customers,” he said. “We are still merging cultures and processes that will improve our efficiency and how we communicate internally. “In the long term, we will continue to develop best-in-class management tools to help our dealers make their companies more profitable. The new name has been well received, and because we can address some other aspects of a company’s business, it has opened new doors that were previously closed to us.” ♦
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Jim Kahrs
M&A Lessons
“I Wish I Had…”—Selling a Business Presents Valuable Lessons Having participated in hundreds of business sale and purchase transactions, I’ve had the unique opportunity to learn what dealers think as they reflect on the sale of their businesses. Human nature often compels people to doubt themselves and look back at the things that could or should have been done differently.
I
’m going to outline 10 things dealers told me they would go back and change if they could do their transactions over again. Hopefully, those of you who are considering a future sale of your business will be able to avoid these missteps, whether your sale is today or more than 10 years from now.
something about it earlier; either by holding the employee accountable and repairing the situation or letting the employee go. They often realize that it would have been best for all concerned—employee included—to simply part ways.
1. I Wish I Had…Made the Difficult Employee Decisions
No one incurs debt with the idea of damaging their company. It’s always a means for capitalizing on an opportunity or solving a problem. At face value, debt isn’t always a bad thing. However, when it comes time to sell the business, many owners are not prepared for the effect it will have on the final value received. Business sales are almost always done on a cashfree, debt-free basis. This means the seller retains whatever cash they have on hand at closing and pays the liabilities that exist at closing, including accounts payable, lines of credit, business loans, vehicle loans, floor planning loans, etc. As such, every dollar of debt acts to reduce the net value received by the seller. In addition, any debt that is secured by a lien and a UCC filing would need to be paid off at the closing, if not before. So the effects are felt immediately. Owners we’ve worked with who had a bunch of debt have, one for one, wished it had been paid off earlier. Regarding liabilities, there is a subsection to consider. By definition, deferred service revenue is a liability to the business for service contracts longer than one month that you have billed and/or been paid for already. Because you have the money (or the A/R if it’s been invoiced) there is an obligation to service that account for the prepaid period. When most of your contracts are monthly contracts collected by the leasing company and remitted to you, the liability is minimal. However, some dealerships have chosen to bill the service contract for the full term of the lease up front. In this case, the dealership gets paid by the
One of the hardest things a business owner can face is an employee (or more than one) who isn’t cutting it. I’ve seen too many situations in which a long-term, key employee is retained longer than he or she should be, whether because they’re no longer a good fit or they aren’t producing at the level they should be. Often this is done out of loyalty or sympathy. But these issues come to light in the discovery process. Buyers figure it out quickly, leaving the dealership owner to tap dance around why they have this less-than-ideal employee. Most dealers who have faced this say they wish they had done
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2. I Wish I Had…Paid Down the Debt
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leasing company in advance. Unfortunately in most cases, the money is then spent, leaving the liability to deliver service, parts and supplies for the next 36 to 60 months with no money on hand to cover the costs. It is important to understand that buyers will look to deduct the liability for prepaid/deferred service from the purchase price. I’ve seen cases in which this equates to hundreds of thousands of dollars. In extreme cases, it can even lead to a business with a negative value. Though it seems like a great cash-flow move, taking multiple years of service payments up front is a slippery slope that can—and most likely will—come back to hurt you later.
been showing, thereby reducing the purchase price. The general rule is that in order to secure your own financial future (as well as your present), you need to pay yourself at least a fair market wage for your role. This forces the business to create the money needed. If you put yourself at the end of the line, the money will often run out before you get paid. If you own the building you’re operating from, this would also include rent. I’ve seen too many businesses that pay themselves below-market rent. This creates the same effect as paying yourself below-market compensation. Not only will you make less money as you go along, you’ll end up with a business that’s worth less than you thought it was.
3. I Wish I Had…Built a Strong Sales Team
The effects of poorly managed inventory are far reaching. One impact that many owners don’t consider is carrying too much inventory, especially equipment. Acquirers don’t like to get a lot of equipment in an acquisition. First, it adds to the money needed to buy the company. Second, there will be quotas to attain post-closing, and starting with a lot of equipment (usually purchased by you to make quota or earn a rebate in an earlier period) puts the new owner behind the eight ball. Of course, no dealer wants to lose what they paid for the inventory on hand at closing. The best solution is to keep inventory levels moderate in the months leading up to closing a sale. Another inventory issue that’s tough for owners to swallow is the handling of obsolete product. No one wants to pay for something and then throw it into a dumpster. Buyers will look closely at inventory and only accept what is truly sellable or useable in the immediate future. If you have obsolete inventory, it’s best to handle it prior to taking your company to market. More importantly, I’ve had quite a few clients tell me they wish they had managed it better all along so that they could have sold off as much as possible before it became obsolete.
This seems like an obvious one, but is often overlooked. When exploring a business, acquirers regularly consider how they will be able to maintain or grow it going forward. The easiest way is to take over a well-producing sales team. As such, the lack of a strong sales team can hurt a potential sale. This is especially true when most of the sales are being done by one or more of the business owners. In this case, the buyer usually requires the owner to stay on for a longer time period than he or she might want to in order to transition the customer base.
4. I Wish I Had…Trained My Replacement
Many of the business owners we work with aim to sell their businesses and hand over the keys at closing. In reality, this is a rare situation. The buyer will most likely want the owner(s) to stay on for a transition period. However, this period can vary greatly depending on the circumstances. The best way to ensure that the time is minimized is to have someone in the business already who can take over your role. When your contribution to the business is in the form of high-level vision and leadership, with little to no day-to-day transactional responsibilities, you are easier to replace. At the other end of the spectrum, if everything in the business runs through you, it is almost impossible to replace you quickly. In these cases, buyers will often require that the owner stay on for a few years. This may not be good news if you’re looking for a quick exit.
6. I Wish I Had…Better Managed My Inventory
7. I Wish I Had…Known My People Were Backlogged
5. I Wish I Had…Paid Myself More
As the owner of a business, it can seem that everyone else is in line to be paid before you; employees, manufacturers, vendors, the government, etc. In the day-to-day cash flow struggles, many an owner has cut or forgone their own pay to make ends meet. This often becomes very real when negotiating with a buyer. If you have underpaid yourself, the buyer points out that they will need to pay someone more to do the job. In modeling this out, the buyer reduces the profit you’ve
Business valuations are largely based on historical financial performance. As such, the accuracy of your financials is critical. I’ve seen too many situations in which the financial reports are not accurate due to backlogged entry. For example, when payroll is done by an outside payroll company, the basic requirement is that you have money in the account to cover the paychecks and various payroll tax payments. When dealer personnel are busy, it’s easy to put payroll entry aside as a way to cope with other tasks. However, if it isn’t done on a timely basis, you’ll have an income statement that shows more profit than what was really created. I’ve seen the same situation with credit card expenses, cash application, closing service calls, customer billing and more. During due diligence the buyer will be digging into the details of the business’ financials. When you have issues with backlogged work, they almost jump off continued on page 46
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“I Wish I Had…”—Selling a Business Presents Valuable Lessons they would be. When the books haven’t been audited, we’ve seen some big swings in the final numbers.
10. I Wish I Had…Looked at My Business Through the Eyes of an Acquirer
the screen. Not only does this lead to embarrassment for you, but it creates doubt and uncertainty in buyers. They start to wonder what else they can’t trust in your data. I’ve seen problems like this lead to a deal falling apart.
8. I Wish I Had…Tracked the Add Backs Better
Every deal we’ve participated in had some level of profit add backs. These range from the personal expenses of the owners (entertainment, personal travel, country club memberships, boats, cars, etc.) to business expenses or one-time expenses that won’t be incurred by the new owners going forward (accounting fees, legal fees, certain donations and sponsorships, extraordinary training, leasehold improvements, etc.). Of course, the nature of these add backs can sometimes lead one to intentionally not leave a paper trail. While that makes sense for obvious reasons, it can create a situation in which you don’t get proper credit for add backs because they cannot be proven. In addition, it leaves you not knowing how much profit you are actually making. I have found that when asking owners to ballpark what their add backs will be, most underestimate it considerably.
We all get caught up in day-to-day issues, and sometimes find it difficult to step back from the business and view it from the outside. I’ve had many clients tell me they learned a lot through the sale process and wish they had known much of it earlier. When you look at your business through the eyes of an acquirer, you often see things you never saw before. You just need the willingness to look at the business differently and accept some guidance. One of the reasons we offer a dealership valuation program is to provide the road map for this type of business review. Those who have completed the process come away with a list of items to address and a roadmap that leads them in a better direction. Looking back at a significant business or life event always gives one pause to consider what could have been done better. The beauty of being part of a tight-knit industry is the ability to learn from those who have already been where you’re heading. My hope is that you’ve found a few nuggets of useful information in the items above and can use this data to improve your company and set yourself up for a successful future. ♦
9. I Wish I Had…Handled the Tax Process Better
Paying taxes is something no one enjoys—most would rather get a root canal. Because of this, the process doesn’t get the attention it should. The first regret I’ve heard on many occasions is that owners wish they hadn’t always filed for an extension. Reviewing tax returns is an important piece of the due diligence process. When the most-recent year isn’t available for nine months after the close, it creates problems. Along with this, most owners have their accountant prepare their tax returns using documents provided from the business’ internal accounting system. Yet many do not go back and make the accountant’s tax adjustments in the system. This leads to internal financial reports that may be dramatically different from the tax returns. When buyers see this, it raises questions. The final tax issue relates to regular audits. This is particularly important for larger companies with more than $10 million in annual revenue. Having your books formally audited annually will not only provide tremendous insight into what’s happening in your company and how well you comply with generally accepted accounting principles (GAAP), but it will make the due diligence process much easier. In larger transactions buyers will often bring in an outside accounting firm to complete what is referred to as a quality of earnings assessment. This is an audit of the books to prove out the net income. When the books have been regularly audited by an accounting firm, things go very well and the final numbers usually end up where we thought 46
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Ian Elliott
Market Intelligence
Reshaping the Office Products Industry: Delving into the Role of Technology in the Disruptor’s Path
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The office products industry is ripe for channel agnostic disruption. But first, the technology platform that eliminates barriers in the current value proposition must be deployed. This will then become the trigger for a disruption that will start in the transaction-dependent office products vertical before it moves on to overwhelm the equipment channel.
usiness transformation and disruption are overused terms we hear with ever-increasing frequency. It’s common for innovators to promote themselves as “the next big thing” while comparing their concepts to widely recognized disruptions such as Uber (paid ride) and Netflix (entertainment) industries that have already transformed. While it’s quite common for innovators to believe they’ve created the latest disruption, often this is not the case. While they may have developed a value proposition that provides incremental improvement, it’s far less likely the barriers that combine to block disruption will have been fully eliminated. A little more than 10 years have passed since we had to visit the local Blockbuster to rent a movie for the weekend. Then Netflix arrived and transformed the experience by delivering movies on demand directly into our homes. In doing so, they eliminated the time it took for us to get to and from the store, they removed the friction resulting from frequent supply constraints on popular new-release movies, and they wiped out late fees, the biggest source of profits in the legacy model. Amazon is also a disruptor because they transformed the shopping experience by removing barriers, causing the downfall of many high-street retailers who failed to respond to the threat. They use technology that presents the widest choice of products possible, the most-competitive prices and the fastest delivery. It has become unnecessary to physically go to the store, even if some of us still prefer to do so.
Disruptors are attracted to large, mature industries; typically, the players inside those industries cannot see or understand the threat of disruption until it’s too late. Usually, it takes an outsider who has a completely different perspective to come up with an alternative that will be adopted by the market. Regardless of how valuable a product, service or company has been in the past, loyalty rarely counts compared to the convenience or the benefits of other simplifications in the process that are introduced by a competitor. It is our view that the office equipment, products and supplies industry is ripe for a technology-led disruption event, one for which resellers are poorly prepared. The most-common technology platforms resellers operate on were built to support the way business was done in the past, but aren’t as adaptable to future market changes. • These platforms do little to help independent resellers survive the threat posed by Amazon and other online competitors. • While some may be evolving, there is little evidence of a movement toward technology designed to remove barriers built into the current value propositions. • They are incomplete solutions that do little to help technologically unsophisticated owners improve their online presence. • Lack of systems integration impedes the ability to convert raw data into actionable business intelligence. With more than 70% of buyers searching online for answers before engaging with a salesperson, it has never been more important for the independent resellers’ website to become a destination for addressing a potential buyers’ research.
Technology and the Digital Workplace
Technology is also disrupting the way people work. Though, Amazon or no Amazon, the process used to provide customers with the office products and services they need hasn’t changed substantially during the last 10-15 years. Furthermore, it is failing to adequately account for the ground-shift in how workers operate, where they operate from and how businesses are starting to adapt to these changes. 48
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We Saw It In ENX Magazine
Software tools, in combination with access to the internet, underlie massive changes in workflows as documents are “born” digitally. This reduces, or even eliminates, the need for printed output. The internet enables 24/7 access to digital filing cabinets and facilitates remote sharing and collaboration for content creation and approvals. These two technology factors combine to remove the shackles that used to tie workers to corporate offices. • An important consequence is the rapid dispersal of the workforce away from the corporate office. • This trend serves to eliminate the time workers used to waste commuting to and from their employer’s office. • The combination of software tools, internet access and remote working means workers are becoming more efficient than previously possible. These factors must also be considered alongside the changing profile of the workforce, as millennials continue to make up a larger share. It’s important to understand that they typically have a different outlook for their career paths than workers from previous generations. While it may be a difficult change for legacy employers to accept, they choose to exercise more control over their lives, value leisure time more highly and elect to work more on their terms than those of legacy employers. Typically, if their employer does not permit them to work flexible hours remotely, they will choose a different one. This means the employer who decides not to accommodate the lifestyle preferences of a millennial is unable to attract or retain the best talent. Now think about this trend in the context of the typical set of office requirements. Instead of using the employer’s capital assets and services (furniture, copier machines, office space, bandwidth, etc.), someone else’s assets are utilized instead. This has profound implications on the future requirements of a business—it will purchase less furniture, lease less space, and buy fewer technology products, business equipment items, office products and supplies for their corporate office. Although many of these products and services may still be needed, more and more will be for remote locations rather than the corporate office. This dynamic complicates the process and responsibility for cost control, and becomes an entirely different ballgame for the traditional management structure to deal with. Indeed, this is one of the numerous friction points that underlie the employer’s reluctance to allow workers to work remotely.
Obsoleting the Central Print Station
When people worked more regularly in the office, and when just about everything was printed and copied, there was a strong argument for establishing central print and copy stations designed for low-cost, high-output requirements. These circumstances supported the business case for expensive copier machines and spawned the managed print, service and repair business model, along with multi-year contracts and cost-perpage billing models. But reduced print volumes and dispersed workers mean this value proposition is no longer appropriate for many businesses. Furthermore, despite the shift in customer requirements, the channel that sells copiers has been slow to adapt because doing so would have a profoundly negative impact on their current business model. Instead, the channel continues
to sell an old value proposition based on brand-centric solutions from dealers operating within territorial boundaries that are closely controlled by their original equipment manufacturing (OEM) partners. While you can configure and purchase a brand-new Tesla online, just try doing the same for a copier machine! Consequently, many businesses continue to purchase or lease high-capacity copier machines and organize their office around the central print location, even though they may no longer need to do so.
Changing Spend Patterns
Consumers are diverting their spend toward online solutions such as those provided by Amazon. While this trend may be gaining traction more quickly in transaction-heavy channels (such as office products and supplies) in which comparison shopping is simple to do, it would be naive to think it won’t continue into the office equipment channel. Furthermore, this is likely to take place regardless of the bundling of services and multi-year contracts that are designed to make comparison shopping more difficult—they may delay the threat Amazon poses to this channel, but will not eliminate it. It’s common for many of the dealers to start thinking they must copy Amazon’s business model to compete or, worse still, join their marketplace to develop their online presence. Setting up an e-commerce store to compete with Amazon is unlikely to succeed, and joining their marketplace ultimately results in the handing over of customers. Neither are viable strategies. Remember, Amazon incurred 15 years of losses and spent billions of dollars building its value proposition and today, it doesn’t even make its profits from shopping. Instead, it makes the bulk from Amazon Web Services (Cloud Hosting) and Amazon Prime (memberships and digital content). Dealers who leverage Amazon’s technology (rather than their own) to try and remove barriers in their current value proposition advance Amazon’s endgame and accelerate their own downfall. Think about the inverse relationship between customer loyalty and an alternative value proposition that eliminates existing barriers. Consider how the equipment channel has
We Saw It In ENX Magazine
continued on page 50
August 2019 | www.enxmag.com
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Reshaping the Office Products Industry: Delving into the Role of Technology in the Disruptor’s Path resisted taking the lead to reduce the total cost of ownership related to printing devices and their output. Think carefully about this in an environment of ever-reducing print volumes. The page-wide-array business inkjet printers from Memjet and HP have been available for years, but their market penetration is very small despite their lower cost of ownership. One of the main reasons market penetration is low is likely because the revenue per device is as little as 25% that of an over-priced, under-utilized, legacy copier device. How many dealers can embrace a value proposition that generates a quarter of the revenue the current one does? Not many, so instead they focus on rolling existing customers into new equipment leases and evergreen service agreements to protect themselves from external threats. However, this legacy value proposition is increasingly vulnerable to a new proposition that eliminates: 1. Customer friction points incurred with complex, multiyear agreements. 2. Provisioning excess print capacity. 3. Deploying equipment that requires frequent service and repair. The legacy value proposition is even more vulnerable to a new proposition that also solves the other emerging problems businesses face, particularly those of managing a spend in locations outside the central office that will become increasingly difficult for purchasing managers to retain control over. It’s a value proposition that: • Leverages existing technology to monitor print volumes, cartridge reorder points, and authorized vendors for resupply. • Goes beyond helping manage the spend on traditional office equipment and supplies by providing a scalable solution that helps manage the myriad other issues of a remote workforce. • Helps customers onboard and offboard employees, their company-issued assets and their company-related activities. • Allows customers to intelligently determine what their true requirements are and only to purchase what they need. • Facilitates flexible bundling of products and services configured so customers only have to buy what is needed without having to get a lawyer involved to provide the okay for a CFO to sign-off on. • Provides seamless access to reordering portals using mobile apps designed to accommodate a dispersed spend—significant amounts of which will be initiated by remote workers—while ensuring the corporate purchasing department has full control over that spend. In delivering such a value proposition, resellers can present customers with a compelling case for supplying a broader range of products and services they need to survive in a shrinking market. Unfortunately, not every independent reseller can survive in a shrinking, changing market. The question becomes whether 50
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the only survivor will be Amazon, or if it will be Amazon alongside a large group of financially healthy, independent resellers. Resellers can thrive locally by delivering services the giant behemoth can’t. But they must adopt the technology necessary to match the logistics performance of Amazon while also providing the range of products and services their customers need. Unfortunately, while local service, management access and know-how are all attributes customers value, even when these are combined with “Amazon-grade” logistics technology, it’s unlikely to be enough to deal with the long-term online threat.
SETTING UP AN E-COMMERCE STORE TO COMPETE WITH AMAZON IS UNLIKELY TO SUCCEED, AND JOINING THEIR MARKETPLACE ULTIMATELY RESULTS IN THE HANDING OVER OF CUSTOMERS. NEITHER ARE VIABLE STRATEGIES. Remember, taxi customers and movie viewers didn’t define the services Uber and Netflix provided, just as the customers for office products and equipment will not define the services they will embrace in the future. It must be down to the visionaries who understand the barriers and who have the capabilities to deploy a system that eliminates them. This and only this will serve to disrupt the industry, while also serving to potentially take the initiative away from Amazon and other online threats.
Technology and the Disruption Cycle
Even when technology is available that eliminates existing barriers, there must still be someone sufficiently motivated to pull the trigger it represents before the disruption cycle can begin. Think about the equipment reseller who is compromised by top-line objectives and can’t pull the trigger because it results in a potentially catastrophic reduction in revenue. Then consider the office products channel sales resources which, although they may already sense an opportunity in the equipment channel, are not equipped to talk to prospects trained to listen to serviceoriented sales pitches. Unfortunately, while the office products dealers may be less conflicted to pull a disruptive trigger, they’re not currently equipped to do so in the channel in which the biggest opportunity may lie. What all this means is that an additional burden is placed on the technology solution before it can become a trigger for the disruptive event. Ultimately, this solution must be sufficiently intuitive and compelling, so it will be embraced by resellers in the office products channel and rapidly adopted by customers in their transaction-oriented business model. Only then will it move on to be adopted by customers in the service-oriented equipment channel. Ultimately, once the process has started, the equipment dealers will have no option but to adopt it, or they will go out of business. ♦ We Saw It In ENX Magazine
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Britt Horvat
Technical Tips News Briefing
Xerox WC-3655/3615 & B405/B400 Fuser Modules: Repairing and Rebuilding
the Fusers for the WorkCentre 3655/3615, Phaser 3600 and VersaLink B405/B400
T
his issue, we’re exploring this specific set of machines due to the sheer volume of them sold in the field. They’re great for being compact, relatively quick (especially the 55 ppm 3655) and reliable. The knock against them is that they are not good for printing on envelopes. Let’s focus on rebuilding the fuser modules as some really good aftermarket heat rolls and pressure sleeves are now available. There are two versions in this series so far. First came the 3655FA fusers for the WC-3655/3615 and Phaser 3610. These are usually sold in a maintenance kit along with the BTR assembly (transfer roll) 115R00084 (115R84). Valid part numbers for the fusers alone would be 126K30919, 126K35550 or 126K35551. The newest models in the “3655 style” are the VersaLink B405 and B400. These have an extremely similar fuser. The heat roll, pressure sleeve and most other parts interchange nicely, but the fuser itself is not interchangeable. The B405 fuser also usually sells in a maintenance kit (115R00119), although again there are a few valid part numbers for the fuser alone: 126K36841, 859K00950 or 126K36840. One thing that differentiates the two fusers is an indexing resistor on board, which has different ratings the machine will recognize for the right fuser. The other difference is a new feature on the B405/B400 fuser—the manufacturer added two little gray sliding pieces, one
PARTS YOU MAY NEED:
• Fuser heat roller (3655FHR) • Fuser pressure sleeve (3655FPS) • Fuser heat roll bushings (heat sleeves) (3655FHS) and bearings (3655FHRB) • Pressure sleeve lubricant (PSL)
B405 Fuser - difference: Envelope Adjustment Slides
near the top front and one near the top rear. These are designed to change the pressure in the fuser so it can handle envelopes better, but it is a rather impractical fix. If the customer wants to run envelopes, they need to stop the machine, allow it to cool down for a while, turn the machine around and open the back door to access the fuser. They then have to slide the two little gray pieces to the envelope position. When done with envelopes, they need to remember to return the slides to the regular paper position. This type of fuser has a typical heat roller and a pressure sleeve which slips over a core with a fabric-like Slip Sheet inside, and a pair of oil wicks/pads. They should have enough slip sheet lube inside to make it turn with as little friction as possible. Good lubricant in there may well turn out to be the most important key to getting good longevity out of your rebuilt fusers.
Orientation
Before you begin, take a look at photo #1 so you’re clear when we reference top versus bottom, front versus rear and inner face versus outer face.
REBUILD PROCEDURE:
1. Secure the picker fingers which are mounted to the exit chute (top inner cover). When the exit chute is off, the picker fingers will fall off easily. Use masking tape to keep them in place (photo #2). The tape will also be helpful later when you’re reassembling— when you install this exit chute, you need to keep the fingers away from the heat roller. Holding all four fingers up at once is tricky without tape. 2. With the fingers secured, remove the Exit Chute (two screws, photo #3).
TOOLS NEEDED: VersaLink B405 Fuser Assembly 52
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www.enxmag.com | August 2019
• #2 Philips head screwdriver • T-10 safety torx driver (or bit) • Needle-nosed vice-grip pliers
Photo #1: Securing the picker fingers continued on page 54
We Saw It In ENX Magazine
Xerox WC-3655/3615 & B405/B400 - Fuser Modules
Photo #2: Remove the exit chute (shown without tape). Photo #5: Tension Levers
Photo #3: Picker Finger close-up
Photo #4: Removing the Springs
3. Extract the two pressure springs (needle-nosed vice grips work well for this, photo #4). These are fairly heavy springs, so make sure to grip them tightly or you could lose them. 4. Remove the two green tension release levers. Use a small flat-head screwdriver blade to pry them gently away from the metal bracket in which they’re seated. (photo #5) 5. Take off the outer cover (the one with the temperature warning). Start by removing two screws (photo #6) from the outer face—one near the front end and one near the rear end, tucked into alcoves near the gray locking knobs. Then fully open the jam clearance gate and pivot the outer cover upward. Next, shift the cover toward the gate to extract the two nubs which seat it in place (photo #7). CAUTION—the exit gate is fragile (yep, I broke one already), so remove it now to help protect it.
Photo #8: Pivot out and then slide off the Pressure Sleeve Assembly 54
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6. Hinge the pressure sleeve assembly away, and slide it up and off the two metal pivot brackets (photo #8). Once it’s off, remove the two pivot brackets from their pivot points. 7. Take apart the pressure sleeve assembly. Look it over closely first, because it will fall apart once the two hubs/ends come off and the old sleeve is slipped off. (photo #9). 8. Inspect the pressure sleeve’s slipsheet. This piece must not be grossly distorted, nor torn. Lubricate both sides of the slip sheet with slip-sheet lube, working the oil into the fabric-like surface to give it as much slip as possible. Also, add some lube to the two wicks—wick 1 is mounted to the metal core, wick 2 is on one of the two plastic core pieces (photo #10). These wicks serve as a reservoir for the lube. 9. Remove the contact/clip from above the indexing resistor (at the front end of the fuser, photo #11). Release the larger bottom contact/clip where it hangs onto two plastic nubs, and the indexing resistor’s shuttle will slide out (photos #12 & 13). 10. Remove the metal guide bracket (two screws, one at either end). Be
Photo #9: Press Sleeve Hub / End
www.enxmag.com | August 2019
Photo #6 & 7: Removing the Outer Cover… 2 screws, pivot away and then shift cover to unseat two indexing nubs.
Photo #10: Pressure sleeve assembly – in pieces
careful not to lose the metal contact piece after the rear end’s screw is out—once the bracket is off, the contact is only loosely mounted to it. 11. Remove the heat control/electrical cover. This requires peeling off the small square sticker from the center of the cover which has the wrench symbol crossed off. Next, you’ll need to remove one screw (T10 safety torx, photo #14). Flex the cover to unseat it at the front and rear ends. Note that the little white idler gear at the rear end can fall off easily once this cover is removed. Remove this gear now, so you don’t lose it. 12. Release the thermostat (thermal fuse) and pop the front heat lamp log off the thermostat (photo #15). 13. Pull the red heat lamp terminal and its spade lug through the lower frame. Then lift the front end of the heat roller out of the lower frame and
Photo #11, 12, & 13: Indexing resistor shuttle and contacts
We Saw It In ENX Magazine
5. Finally press “Yes, Reset.”
Photo #14, 15, & 16: Electric/heat control cover (one screw), Disconnect red heat lamp terminal from thermostat, Slide the heat roll off of the front heat lamp terminal.
slide it off over the end of the heat lamp (photo #16). 14. On the heat roll you will find a pair of bushings under a pair of bearings. Replace these pieces and add some high-temperature grease as needed. 15. Reassemble everything. Note that you will want to reinstall the two green tension levers before you put the springs back on. Nice work! You just saved your customer some money
while keeping a perfectly good piece of equipment out of a landfill.
Resetting the Fuser Counter:
For WC-3615 / WC-3655: 1. Press the “Machine Status” button. 2. Touch the “Tools” tab. 3. Next touch “Admin Settings” followed by “Service Tools.” 4. Touch “Reset Transfer Unit/Fuser,” followed by “Reset.”
For WC-3655 (you need to first log in as administrator): 1. Press “Login/Logout” and enter the username (default is ‘admin’), then enter the password on the next screen (default is ‘1111’). 2. Press the “Machine Status” button. 3. Next touch the “Supplies” tab. 4. Then touch “Supply Counter Reset,” followed by “Reset CRU Life.” 5. Finally press “Reset Counter.” For VersaLink B405 / B400: 1. Press the “Home” button. 2. Choose “Maintenance” (gears icon). 3. Touch “Supplies.” 4. Touch “Maintenance Kit.” 5. Press “Reset,” followed by “Confirm,” and “Close out.” ♦
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EMPOWERING THE ART OF PARTNERSHIP
When you partner with us and become a Toshiba Business Products Center, you’ll receive all the tools you need to provide your customers with the technology and support they want. Get trained to sell a full line of awardwinning MFPs, backed by the Toshiba Quality Commitment Guarantee. Plus, with no sales quotas, financial commitments or minimum orders, becoming a Toshiba Business Products Center is as simple as one, two, three: 1. Call an Authorized Toshiba Distributor 2. Complete the Training 3. Become a Toshiba Business Products Center and Start Selling
National Distributors: ACM Technology 800-722-7745 Collins Distributing Co 800-727-0884 International Digital Solutions 888-372-3700 Supplies Network 800-729-9300
Š 2018 Toshiba America Business Solutions, Inc., Electronic Imaging Division