Lay of the LAN

Charismatic, successful, determined and a good bloke, LAN Systems general manager Nick Verykios makes a point of having something interesting to say. After an hour at the table, Gerard Norsa came away convinced that distributors are as relevant today as they have ever been.

What's your understanding of the changes in the IT marketplace at the moment?Overall, I don't think the activity level in the channel has decreased but there is a clear differentiation as to what is going to bring sustainable profits and what is just a short-term hope.

The corrections and consolidation in the industry have also taught us to concentrate on the most profitable transactions rather than the ones that come first - to prioritise opportunities and determine the quality ones, rather than just anything and everything that comes our way.

How do you make that distinction?By having very deep and strong relationships and forming trust over a period of time. This low cycle is a reality cycle. Rather than being a down cycle, the market is showing its characteristics of the future so you have to look at what exists in the market and then determine what you can exploit as a business opportunity.

Are there still quality opportunities out there?Absolutely. The trick is to be able to identify them - to have the patience as well as the managerial and workflow systems in place to identify them. You have to know what is wasted energy and what isn't.

Are there patterns to identify quality opportunities?There are technologies that promise good returns. For example, security offers are almost 100 per cent quality opportunities because you have to provide a lot of value.

What do you see as the best opportunities in the marketplace now?I think security is still a good opportunity so long as it is sold in the way that end users want to buy it. The management of storage is also a good opportunity. Wireless and mobile is lucrative business as is voice-over-IP (VoIP). Based on the work we do with analysts, they are the areas that seem to have the answers.

Are your customers ready to push those technologies?Some are ready, some are willing to be ready, and some just don't want to know.

What sort of mistakes and innovations are you seeing from your vendor and reseller channel partners?We get really excited when we see our resellers coming up with innovative ways to finance a deal or when we see them doing more groundwork before they recommend a solution to their customers. When they focus on the affordable fulfilment of the technology solution, it makes them look more responsible. We also get excited when we see resellers start to sell and push some of the newer technologies, because that is where the demand and the quality opportunities are. It's not in the traditional stuff.

On the other hand, I really shake my head and cringe when I see resellers who are not prepared to acknowledge value and focus purely on price - when they want you to do something for them but they're not prepared to pay for it. The resellers doing that are the ones suffering. There has to be recognition of value, and integration of that value into their solution so they can sell technology and the business solutions that go around it. This is what end users really demand.

In terms of vendors, their job is to create the best technology they can and then create the demand for it. They should stay out of everything else. The vendors that don't let the channel do their thing make me cringe but I'm in awe of those that do.

I am in awe of resellers who know how to make the translation from technology to business productivity gains. Those who flog boxes make me cringe.

There appears to be a shift of emphasis where distributors have to prove the value they are adding. Are you comfortable with that?Absolutely. If I can't charge for the things I do that cost me money, then I shouldn't be doing it. The vendors are asking us to be more of a full service distributor for them because we've proven we can do it. From a customer point of view, many resellers come to us because a vendor has changed its model and they want us to team with them. They acknowledge we've been adding value for them and are prepared to keep that going. Some resellers still just see us as a place they can buy product from or get credit from, which is fine if there is decent margin involved.

Do you see an improvement in the quality of business practices within the channel?Yes. What we're seeing is more and more of our resellers coming to us and saying let's work together so we can figure out how to exploit quality opportunities profitably rather than just as lone soldiers. True partnerships are starting to exist between resellers and their distributors, resellers and vendors, and distributors and vendors.

This bizarre love triangle, which has always existed, is starting to become more respectable and acceptable. The respect is starting to exist for the value that each tier introduces to the equation. Ultimately, the beneficiary will be the end user because they are going to get responsible solutions based on what they need to stay in business. Only then can the bizarre love triangle become legitimate.

Is the Australian IT supply chain model different to the rest of the world?From what I can see, yes it is. Our vendors are branch offices. In many ways, they are just big sales, support and services offices. They are generally not charged with creating unique ideas or selling technology into our culture, so someone else has to and it is usually the distributor or reseller. Distributors have to create more demand, even resellers have to do this, which is something you don't see too much of in America and other large markets.

The logistics side of our business has to be a hell of a lot more efficient because of the cost of getting things around the country. So much space, so few people, the tyranny of distance and all that. Meanwhile, distributors have to provide instantaneous support because there is no developer of the technology on hand in most cases. Resellers also have a more active involvement in the decision-making process, which is vendor-independent, whereas in the US the vendor is more involved. Having said that, what you don't get in Australia that exists elsewhere is loyalty. There is very little loyalty in Australia, which shows some immaturity still, so you have to build your business with that question mark in mind.

How was 2001 for LAN Systems?

Our revenues were up 19 per cent. Our profit was up. Our market shares were up. Our balance sheet is healthier and our cash position is good. That's the financial position. All lovely. Getting there was amazingly difficult. We had to get up every morning and look in the mirror and ask if we were doing the right thing and whether we were heading in the right direction as far as our customers are concerned.

The market was very tough and there was a lot of growing up for us. Five years ago we were a $4 million company; today we're a $200 million company. We had to grow up fast, which put a lot of focus on our managerial expertise rather than just market, channel or technological expertise.

As far as the market is concerned, it has been very, very tough because when such economic and industry circumstances prevail, you've got nothing left. However, if you know why the economy and the industry is not that fantastic then you can account for it.

It's not that the industry hit a brick wall. It's just that the industry hit maturity. It was basic economic theory. Supply outweighed demand. Demand didn't go away, it was corrected and supply wasn't corrected fast enough, so the over-abundance of supply - too many resellers, too many vendors, too much of everything - was realised and recognised. We realised and recognised early enough and changed our business accordingly.

There is a perception that LAN Systems has a heavy reliance on Cisco. Is that true and, if so, are you attempting to alleviate that?The only reliance we have is on our people, nothing else. We choose our vendors very carefully and they are based on the technology they bring. We support what is in our judgement the technology leader and what is in the market's judgement the market leader.

If Cisco went away would we be devastated? No. While it is the majority of our business, we have built the right kind of business. The market would fill itself with other vendors and we'd stock their products. The reality is I don't concern myself with that because Cisco is not going away. A big part of our growth has been in areas where Cisco doesn't play anyway. There has been a very conscious effort to expand the business but that has been totally vendor-independent.

How is 2002 shaping up for LAN Systems?Bigger technology rollouts are starting to happen again, which we haven't seen for six to nine months. We're seeing it in our services business, through our staging facilities, project delivery and mass customisation; when they get utilised a lot we know there is some pent-up demand starting to come back.

I think 2002 is going to see a slow first half and a good second half. That slow first half is in comparison to the good second half, by the way, not in comparison to what has happened in the past. I'm not basing that on hope and fear, I'm basing it on the good activity level of our resellers.

How has the integration with Westcon and the merger under the Comstor banner panned out?It is over and done. We patted ourselves on the back because we achieved it during such a tough period without coming unstuck.

Is it a challenge for distributors to stay relevant in the 21st century?No more than it was in previous decades. Relevant is the perfect word. To be relevant is to do something that somebody gives a damn about. Distributors don't go away. The relevancy becomes obvious by looking at the way the rest of the world works outside the IT industry and seeing that distribution is an absolutely necessary phenomenon.

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