Riding The Wave Of Opportunity
Storage VAR, Advanced Multimedia Concepts, realizes at least 40% annual growth since 1991 and reaches gross sales of $5 million in 1997.
Business Solutions, February 1998
"A good surfer will ride a wave in, but you have to jump off the board before you reach the shore or you will end up with a mouth full of sand," states Tom. In business, Danner rides the wave of new technology until margins begin to decline. He then paddles back out and searches for the next profitable wave of technology.
Danner founded AMC in 1991 and his wife, Sharon, a former national accounts manager for Panasonic, joined the company two years later as vice president. The couple has invested in business opportunities ranging from the manufacture of computer cables to the sale and installation of optical jukeboxes worldwide for Microsoft. Through diversification, the Redmond, WA-based company has seen its gross sales rise at least 40% every year since its founding. In 1997, the company is projected to post $5 million in gross sales - a 120% increase over the previous year's total sales.
Turn Frustration Into Opportunity
As an independent marketing consultant in the computer industry prior to founding AMC, Tom saw the potential opportunity in the multimedia market. Today, nearly every PC has a CD-ROM drive, but that was not the case in 1991. Back then, Danner was contacting multimedia manufacturers and getting customer leads. From the manufacturer leads, he would try to make a sale. Most of his orders consisted of a CD-ROM drive, software, sound card, and connector cable. This basic kit gave an end user the ability to read CD-ROMs which were beginning to appear on the market as software programs and games.
While selling these multimedia kits, Tom quickly discovered there were no standards among manufacturers for the cables which connected the CD-ROM to the PC. Because his company billed itself as providing "complete solutions," he had to track down the appropriate cable for every different multimedia order. "I was frustrated because every manufacturer and CD-ROM drive had a different cable. I talked to other VARs and integrators and they were all having the same problem," remembers Tom. "Solving that problem seemed like a big opportunity." Tom researched the cable specifications for every CD-ROM drive that was being manufactured at the time. He set up a separate division of AMC, called AMC Cables, to manufacture and sell the different cables. He offered over 400 different types of cables and people began to hear about it. He sold tens of thousands of cables. Dealers were buying cables by the hundreds. What had started out as an idea in 1991, accounted for 30% of AMC's revenue in 1992 and 1993. "AMC Cables drove our growth in the first couple of years. Most of our customers were paying with credit cards, which meant the money was in the bank as quickly as we could ship the product," recalls Tom.
CD-ROM drive manufacturers developed a standard cable configuration in 1994 and AMC Cables' business started to decline. The division now accounts for about 5% of total AMC gross sales. The Danners took the profits from AMC Cables and invested in new opportunities.
Expand Business By Solving Problems
The Danners have been able to recognize a customer need and satisfy it. The success of selling cables directly to the customer prompted the Danners to start a new division of the company called AMC Direct. This division sells multimedia hardware and software to end users and has a pricing catalog with monthly specials. It also has its own sales force which follows up on customer leads and takes catalog orders.
Several AMC customers have to produce hundreds or thousands of CDs for distribution. The CDs could contain the latest software program from a software developer or a quarterly report of a corporation. The CDs are then distributed to retailers and company officials, respectively. Before the CDs are distributed, a custom logo is usually silk screened onto the surface of the CD. It can be the logo of the software developer or simply list the contents of the CD. AMC took advantage of this need by investing in silk screen equipment. The company now purchases blank, recordable CDs and screens up to eight-color designs on the medium. Customers then record on the CD and distribute the finished product. This portion of AMC became especially lucrative when it secured Microsoft as a client. AMC produces tens of thousands of custom-logo designed CDs for the software giant.
Using Sharon Danner's sales expertise and technical ability, the company began to do large-scale installations of CD storage technology. She leads a division of the company which installs and services storage systems, such as jukeboxes. AMC's biggest account is with Microsoft. AMC is installing jukeboxes at most of Microsoft's worldwide corporate offices.
When the Danners embark on a new business opportunity, they create a new division within the company. By having separate divisions, the couple can more accurately measure the success of each venture. Tom and Sharon monitor expenses, sales, and profits for each division.
Stay On Top Of Trends
While AMC is jointly held by Tom and Sharon Danner, there is a clear division of labor in how they explore new business opportunities. Sharon is persistent when talking to customers and vendors at trade shows. "I want to find out what a customer needs and can't seem to find. I listen for conversations about new products that customers are excited about," states Sharon. "I try to drill deeper than the typical surface conversation."
Tom reads voraciously to stay on top of the latest industry and financial trends. He gets his information from numerous periodicals such as PC Magazine and Computer Reseller News or on the Internet. "I try to be as globally aware as possible," says Tom. "I think of myself as more of a planner than a listener."
Typically Sharon will approach Tom with the latest information she gathered from a trade show. Tom can usually relate the information with something he has read. The two begin to brainstorm on the idea to explore it as a possible business opportunity. "Being the only two principals in the company, our conversations are likely to take place at the dinner table or on the ride to work," adds Tom.
If an opportunity shows potential, as was the case with silk screening logos on CDs, Tom and Sharon begin to develop a business plan for implementing the technology. The cost of new silk screening equipment and the personnel to operate it was calculated using liberal expense numbers. Sharon conservatively estimated the potential number of customers for this service by talking to integrators and present AMC clients. "After putting the numbers on paper, it still looked like a good opportunity and we pursued it," states Tom.
Catching The Next Wave
According to Danner, at some point the profit margins will dry up in almost every business opportunity. At that point a VAR needs to find a new technology and revenue stream. For example, AMC used to earn high margins on the sale of CD-Recordable (CD-R) drives in 1994, but this is no longer the case. As the technology became more widely available, margins began to decrease and CD-R drives became a commodity product. "A few years ago, customers had to come to places like AMC to get CD-R technology. Now customers can find that technology in most retail stores," says Tom. With the margins on stand-alone CD technology beginning to decline, the Danners have already targeted DVD (digital videodisc) as the next wave worth catching. DVDs are identical to CDs in appearance, but store up to seven times the data.
Because of their increased capacity, DVDs will play a role in the software development, entertainment, and corporate storage industries. AMC intends to sell stand-alone DVD-ROM drives, but Sharon believes the highest margins will be realized by providing larger DVD installations. As a VAR, AMC will integrate the new DVD drives into existing CD jukeboxes. This will allow the user to read both CDs and DVDs. "DVD is a technology that should provide high margins for a long time and we are meeting with manufacturers to stay on top of this technology," states Sharon.
The Imaging Opportunity
Being able to install imaging systems looked so lucrative that the Danners formed a new company called AMC Imaging Solutions in the fall of 1997. Tom was skeptical of the imaging business, but Sharon's initial "gut" instinct was supported by real numbers. She determined the company's initial investment in new imaging hardware and software would be about $30,000. New employees at AMC Imaging Solutions will be paid a salary and commission based on how many images are scanned. She talked to other VARs who installed imaging systems and compared their volume of work against industry standards. "We plan to get back our $30,000 investment after the company has been operational for about six months" states Tom.
Rather than forming a division of AMC to handle imaging, the Danners created a new company called AMC Imaging Solutions. One of the reasons for this was to keep the profits or losses of the imaging business isolated from the rest of the company. Tom believes AMC has the potential to become a publicly-owned company in the future and a new start-up imaging business may drive profits down. "Imaging has tremendous potential for profit, but it may take a year to realize it," states Tom.
Forgoing Large Salaries For Company Growth
Tom Danner was recently conducting a final interview with a prospective employee. The subject of salary came up and Danner's thoughts began to drift. He was thinking about how he and his wife were taking home less income for the sake of reinvesting more money into their company. He looked around the conference room at the eight leather chairs. "I was thinking, 'These chairs were expensive. The money I spent on these chairs could be in my bank account,'" recalls Danner.
While AMC has grown consistently since its founding in 1991, Tom and Sharon have forgone large raises and annual dividends. "Growth usually means immediate increases in equipment, personnel, and overhead costs," states Tom. "It takes time before growth translates into profit."
Admittedly, neither Tom nor Sharon are taking home the pay they want. However, now that AMC is a profitable company, the Danners plan to experience some of the rewards for the time, money, and emotional commitment they have invested in the company. They have met with an accountant and a management consultant. Both have advised the Danners to increase their salaries. "They have encouraged us to take advantage of the company that we worked so hard to build," states Tom. "It is time for us to be more generous to ourselves."