Escape The ID Card System Comfort Zone
Expecting 20% sales growth, $10 million IdentiSys Inc. ventures into selling time and attendance, access control, school food service, and point of sale equipment.
Why would a four-year-old ID card system VAR with 2,000 customers start selling technologies such as time and attendance, access control, school food service, and point of sale (POS)? Why not? After all, ID cards can be used with all of those technologies. Oh, and don't forget - the economy stinks, which means it is always prudent to have a backup plan in case sales of your primary technology go south. "With the prices of both desktop and large ID card printers continuing to fall, we believe companies like ours must diversify or they'll be out of business within five years," explained Mike Shields, CEO and president of IdentiSys Inc. (Minnetonka, MN). "Customers have been asking us about technologies like time and attendance and access control for the past few years. In fact, in some instances, an ID card system is an afterthought for these companies. Their main concern is installing or updating a security system." During the past 18 months, IdentiSys began selling time and attendance, access control, school food service, and POS hardware/software and services. This year Shields expects these technologies to account for the company's 20% growth in sales revenue.
Time And Attendance Isn't Just For Tracking Employees
What IdentiSys quickly discovered about time and attendance technology is that these systems (i.e. software and terminals) are not always used for eliminating employee time sheets and automatically populating payroll programs. For instance, one of IdentiSys' customers is a convention center that bought a photo ID card system (i.e. card printer, ID card software, digital camera) for identifying its employees. The customer later asked IdentiSys for an inventory control solution for tracking approximately 100 sets of keys and 50 two-way radios used throughout the facility. "We customized our time and attendance solution to accommodate their needs," explained Steve Blake, IdentiSys' cofounder and executive VP of sales. "Now, during shift changes, employees use a time and attendance terminal to scan the bar code labels on the radios and key rings along with their ID cards. This way the center knows who has what key ring or radio at any given time." Blake said the photo ID portion of this project cost nearly $15,000, and the time and attendance products and services added another $25,000.
Another unusual application of IdentiSys' time and attendance technology was implemented by a religious charity organization operating numerous homeless shelters. Like the convention center example, this customer began its relationship with IdentiSys by purchasing a photo ID badging system for employees. Later, the organization decided to track what services the homeless were using at all of its various centers. To do so, ID cards were issued to homeless people visiting the shelters. Time and attendance terminals were also installed at each location. "Before a homeless person receives a meal or bed, a shelter employee has to swipe the person's card in a reader," Blake said. "The time and attendance equipment added approximately $5,000 to this project for us."
Start Out Slow With Access Control
With access control technologies, Shields said IdentiSys' strategy is to "learn to walk before we run." As such, the company is concentrating on projects with 10 or fewer doors because those types of customers are less likely to want additional items such as security cameras and alarms integrated with an access control system. "We would like to have more basic access control experience before we move into environments encompassing other technologies," Shields said. Currently, IdentiSys installs the access control terminals but subcontracts the wiring and locksmith work because of the expertise (e.g. local/state building code requirements) needed for these portions of a project.
IdentiSys frequently competes with other access control vendors for these types of jobs. "Many access control companies have been successfully selling their equipment and the cards used with these systems," stated Shields. "Often, these companies charge list price or more for the cards and supplies [e.g. lanyards]. But for us, the card portion of the project is our expertise, so customers are usually surprised at how much lower our costs are compared to an access control vendor's."
IdentiSys currently has 12 access control customers, half of which were previous ID card system customers. One of the clients IdentiSys had never done business with before is a public school system with 60 schools with kindergarten through 12th (K-12) grades. After purchasing access control systems using blank proximity cards, the customer added an ID card solution for its employees. The school system is currently speaking with IdentiSys about adding cafeteria POS systems. This additional POS equipment (e.g. touch screen terminals, POS software, back office software) could boost this $40,000 project to nearly $500,000 in sales revenue for IdentiSys.
POS Technology Offers Add-On Sales
As with access control, IdentiSys is being selective at first with its foray into the school food service market. In particular, the company is focusing only on cafeteria solutions for the K-12 market. Most of the schools IdentiSys is targeting for this technology are existing ID card solution customers. In addition to developing more contacts, the company sends representatives to industry trade shows like those sponsored by the American School Food Service Association.
"Food service technology offers more sales than ID card systems because the equipment usually needs to be installed at all of the schools in a school district," commented Deb Ross Ferril, VP of operations at IdentiSys. "With an ID card solution, a district could only buy one card printer to badge all of its employees. Furthermore, many school cafeterias have multiple checkout lanes, which means a need for more POS equipment."
Ferril said many schools are reluctant to implement student ID cards with food service systems because they believe card use slows down lunch lines. Frequently, keying in a PIN at the checkout is the preferred method of payment since it is fast and keeps the children who receive free and reduced lunch programs anonymous. This method also reduces the amount of money kept at schools because kids don't need lunch money since they can just debit their lunch accounts.
In the fourth quarter of 2002, IdentiSys began focusing on school POS systems. Thus far, the company has not closed any deals but does have nearly a dozen proposals being considered. For example, one school has purchased an ID card system from IdentiSys and is currently considering time and attendance and food service solutions. The total project would cost approximately $150,000. Ferril said college and corporate cafeterias may be future growth areas for this technology once IdentiSys has gained some experience with this technology.
The Cost Of Diversification
While IdentiSys' new technologies aren't a radical departure from the company's core competency, adding any new product line is always a risk that involves some level of financial commitment. IdentiSys didn't add any new employees to sell its new technologies, but it did spend approximately $65,000 on various training courses related to these products.
IdentiSys is a large ID card system VAR run by a staff of executives that used to work for many years at an ID card printer manufacturer (see the sidebar on page 78). These are people who know the business and have been running a company that earned $10 million in 2002. Does their diversification strategy make sense for your business?