Surviving Year One: An ID Card VAR's Story

There are things new (and sometimes old) companies don’t think about until it’s too late. Fundamentals that, during the first few months (and sometimes years beyond), cause sleepless nights and spur-of-the-moment decisions. What if you land a customer order that exceeds your credit limit? With limited cash flow, how do you survive when customers make late payments? The way you respond to  such situations can mean the difference between a growing business and the unemployment line. 3ID Management is one company that has survived such growing pains in its first year of operation. The VAR provides ID solutions (software, ID card printers, ID cards, badging supplies, and accessories) to companies of all sizes. As a 15-month-old business, the company’s cautionary tale provides insight on a few pitfalls that can curse any company, how to avoid them, and how to be successful selling ID solutions.

Improve The Cash Flow Of Your Business
Unlike some new companies, landing sales wasn’t 3ID’s biggest problem early on. Rather, as Alan Schiff, owner of 3ID Management explains, getting too many sales became a problem. “We were fortunate to have multiple multithousand-dollar orders early on,” he says. “However, our initial credit limit was a scarce $5,000. We had a few occasions early on where we had to figure out how to deliver an ID card solution to a customer when we didn’t have an established credit history.” In fact, 3ID was growing so quickly, it was commonly outspending its credit line. Naturally, as the VAR bought more and continued to pay its bills, its vendors were willing to extend higher credit limits. Still, Schiff says that if 3ID had created a financial plan from the beginning, things might have been easier for the company. As a new business, 3ID was instead focused on the day’s sales, the day’s gross margins, and operating cash. Schiff admits that he would have been better prepared for 3ID’s growth and business challenges had the company mapped out short- and long-term financial goals and strategies.

MoreInfo To see how another ID card VAR is landing sales, go to www.BSMinfo.com/jp/3790

“What are we going to do when we have our first $100,000 week? Where will we be from a credit limit when that happens? What are our options?” are financial-related questions Schiff should have asked. “Of course, we couldn’t have been prepared for everything, but we could have had preemptive conversations with our partners to determine what courses of actions we can take in certain financial situations.” As Schiff goes on to explain, vendors want to make the sale, even if it’s beyond a credit line. Indeed, if the vendor can’t make it happen, the project risks going to another supplier via another reseller. Had 3ID been more knowledgeable of its options with its partners, Schiff could have planned better. Luckily, the VAR didn’t lose any business over the situation, just sleep.

Schiff has some advice for other companies in similar situations. First, maintain close relationships with vendor and distributor partners so they trust you enough to help if you need it. Second, Schiff says that the most important thing 3ID did in its first year was to pay its bills often, even if not in full. “We’ve never stopped sending them money,” he says. “That went a long way toward building a level of trust.” Today, after building a relationship with its partners (see sidebar on 3ID’s relationship with value-added distributor ScanSource Security), the VAR has built $150,000 in available credit.

While covering the cost of landed sales was one problem, getting paid on time presented another. This is a problem that even established companies suffer from. However, the pain is even more acute for a new company. Schiff says that, as a new company, 3ID was so focused on chasing new business and servicing customers, no one was dedicated to ensuring the company was being paid on time. Once the VAR realized that cash flow could prevent the company from landing a deal, and delinquent accounts receivable was the reason, Schiff hired someone to focus on collections. “We had to make collecting money just as important as the next sale,” he says. “Since we’ve had someone focused on collections, we’ve seen a huge improvement in cash flow.” Today, the majority of 3ID’s customers are paying on time, rather than months late.

Minimize Operational Overhead
To keep overhead low, one the earliest decisions made regarding the company was to operate out of virtual offices. Today, Schiff feels confident that the decision was a good one. Rather than pay for office space and the associated utilities, each employee is given a PC (or laptop), a BlackBerry smartphone, and works from home. To maintain companywide communication, 3ID holds a companywide teleconference once a week. The VAR relies on a Web-based service from phonepeople.com for its teleconferencing capabilities. In addition, 3ID’s 1-800 number is sourced from phonepeople.com. With the service, each 3ID employee has a virtual extension that seamlessly forwards calls to their BlackBerry. Schiff says 3ID pays $30 a month for the service, which includes voice mail.

To manage customer accounts, the VAR relies on Salesforce.com, a provider of CRM (customer relationship management) software as a service. This Web-based software enables all of 3ID’s sales reps (spread across the United States) to share information on accounts and allows management to oversee past, current, and pending sales. In addition, Schiff says that Salesforce.com provides numerous built-in reporting capabilities that allow him to analyze sales by territory. The service costs 3ID $750 a year per user. “As a company operating out of virtual offices, we can’t afford to have IT staff,” says Schiff. “One of the greatest benefits of a CRM service is that we don’t have a server to maintain. Additionally, all the data is somewhere else where we know it is being properly managed and backed up.”

Today, 3ID Management is a growing VAR, both in terms of employees and revenue. While the decisions the VAR had to make early on have been the right ones, none were easy. Nevertheless, Schiff feels confident that he is wiser for having gone through the experiences. With the growing pains out of the way, he can now focus on what he does best — selling ID card solutions.