Double Your Sales Through A Vertical-Market Approach
Integrator Advanced Systems Consultants strives to double its annual sales from $2 million to $4 million by adopting a narrow market focus.
Ten months ago, Advanced Systems Consultants (ASC) lost $80,000 on an installation for an automotive manufacturer. ASC's mistake with the automotive customer? Agreeing to install a bar-code verification system for a fixed price. Customer? Agreeing to install a complex bar code verification system for a fixed price. Says Pete Gilstrap, the president of ASC, "In the past, we sold to every vertical market imaginable, and as a result, we weren't experts in any one market. As a result, experts in any one market. We ran into some unexpected hurdles installing the system for the automotive manufacturer. These hurdles dragged the installation out several months longer than we expected, which increased our costs." ASC is an automatic identification and data collection (AIDC) systems integrator.
However, because ASC had agreed to a fixed price, it was powerless to bill the customer for the extra time and materials needed to complete the installation. ASC came to two conclusions after that painful experience. For one, ASC decided to narrow its vertical market focus. Secondly, ASC decided to limit the installation of custom systems and focus on its strengths, including warehouse management systems and route accounting solutions.
After posting 1997 gross sales of $2 million, Gilstrap hopes ASC's decision to narrow its focus will help the company reach $4 million in gross sales over the next two years. In the following pages, he describes why ASC made the changes it did.
The Danger Of "Being Everything to Everyone"
Lacking a focus in its early years, ASC was a classic "jack of all trades and master of none." "We even provided a bar-coded solution for tracking caskets," says Gilstrap of ASC, which was founded in 1990. "We never turned customers away, no matter what they wanted or what market they were in."
However, always saying "yes" to customers created problems for ASC, including:
Developing market expertise - Previously, it was difficult for ASC's employees to develop expertise in a wide range of different markets. "Typically, each employee only worked with customers from the same market two or three times a year," Gilstrap explains. "It's tough to really get to know an industry that way."
As a result, Gilstrap says, customer relationships suffered. "For example, we only had four engineers who were familiar with our automotive applications. If they were all out on an installation when an automotive customer called in for support, no one would be available to help the customer."
Now, ASC only focuses on warehousing/distribution and transportation (route sales). As a result, ASC's installations are smoother because they are very similar, even for different customers. Plus, engineers are now cross trained.
Excessively long system installations - Customizing systems sometimes took as long as nine months, Gilstrap says. Customization is time-consuming because integrators have to design each system differently, based on customers' unique needs. "Customizing a system for one customer sometimes took us up to nine months," Gilstrap says. "So when we finished one project, we'd basically have to start all over for the next customer. Then, we'd spend another six to nine months developing a system for that customer. That limited the number of installations we could handle at once."
Consequently, Gilstrap decided to focus on ASC's efforts on the company's off-the-shelf warehouse management and route accounting systems. ASC now only makes minor modifications to those systems as necessary. "Now that we've developed standard solutions, we don't have to start from ground zero each time we work with a new customer," he adds. "As a result, we've lessened our installation time significantly for each customer. In some cases, installations that used to take us nine months can now be completed in six weeks. That in turn has allowed us to work with several customers at once."
Accommodating Off-The-Shelf Systems
Gilstrap knew that Advanced Systems Consultants would have to make some fundamental changes once it decided to move away from customized systems. Here, he summarizes changes that the company has made in several key areas:
Support - Says Gilstrap, "Offering standard solutions allows us to install more systems. And as we began to install more systems, we needed to proportionately hire more people to service and support those systems."
Gilstrap has doubled ASC's number of support technicians. (These technicians are responsible for helping customers resolve post-installation system problems).
Programming/development - In addition to building a larger support team, Gilstrap has trimmed ASC's programming staff. The company doesn't need as many programmers now that it no longer customizes every system.
However, even before ASC developed a standard system, Gilstrap had wanted a "leaner" programming staff. "VARs and integrators can have too many programmers working on a project," he explains. "Programmers have to communicate on the details of projects so that they don't duplicate their efforts. Invariably, a large team of programmers spends most of its time communicating with each other instead of writing code. Some of the best systems available have been developed by small teams."
Advertising/marketing - In the past, Advanced Systems Consultants did very little advertising. ASC preferred to rely on word-of-mouth referrals from existing customers.
However, ASC recently began running ads. "Over the past year, the competition among warehouse management system providers has increased," he explains. "I want to develop a presence in the face of greater competition."
Gilstrap advises VARs and integrators to focus on vertical-market-oriented, end-user magazines. Advanced Systems Consultants had good results from an ad and a subsequent direct-mail campaign involving a vertically-focused magazine.
For example, ASC advertised in a trade publication written exclusively for companies that deliver ice. (ASC targets companies with fleets of delivery trucks, including ice delivery companies). As a test, ASC later followed up with a direct mail piece to 100 of the magazine's readers.
As a result of the mailing, ASC received 15 responses from the 100 letters. "We were pleased with the 15% hit rate, because that was about double the response we had expected.
"The positive response showed me that we should be advertising in vertically-focused publications," Gilstrap says. "And the response also convinced me that we were taking the right approach in focusing only on specific markets."
The Pros And Cons Of A Narrow Focus
According to Gilstrap, ASC has turned down sales opportunities since it decided to narrow its vertical market focus. "We are not providing systems outside of warehouse management, production management and route sales," he says. "I don't want to get away from our concentration."
He admits that turning down sales has been difficult. "We have declined opportunities that could have been multi-million dollar contracts. Of course it isn't easy to turn down those opportunities. But in the long run, we'll be better off with a narrow focus."
On the plus side, Gilstrap says a narrow focus will produce several benefits:
- Developing expertise - By focusing on fewer markets, Gilstrap expects ASC's staff to become experts in those markets. "VARs and integrators that narrow their focus generally become better at what they do," Gilstrap explains. "With a narrow focus, you're working with the same types of customers and installations."
Word of mouth referrals - VARs and integrators that always sell to the same markets generally get more word-of-mouth referrals, Gilstrap says. "Customers from the same markets generally talk at their industry events," he says. "For example, we used to sell a lot of systems to the utilities market. And our contacts at Dayton Power And Light gave us valuable referrals after they talked to several other utility companies at a trade show."
Should You Adopt A Vertical Focus?
Gilstrap won't soon forget the installation where ASC lost $80,000. Though he doesn't relish that experience, it still was valuable in that it severely impacted the company's future direction. "During that installation, it felt as though we were trying to hit a moving target because we had to follow regulations we weren't prepared for. It was frustrating because that prolonged the installation. But it convinced me we had to learn our markets better."