I admit it. I don’t get it. Why are there so many roll-ups in our industry? It seems like all industries go through a period of mass consolidation at some point. I get economies of scale, and I get that a larger entity is more attractive to a certain buyer, but let me make the case that as it stands, consolidating this industry is a bad idea. Here’s why.
First, let’s make the case for consolidating. Smaller imaging dealers are inefficient operations. They pay too much for hardware and supplies, and their service departments are bloated and inefficient. Too much profit is tied up in administration. Sales organizations are top heavy. Owners spend too much time “firefighting.” A strategic buyer will come in with expertise in all facets of the business and drive out inefficiencies. In some cases, they can reduce costs by 20%.
Buyers are so confident that your business is inefficient, that they pay you in advance for the changes they will make. Think about that.
You didn’t just fall off the turnip truck.
Every business can use an external set of eyes to review processes and make them more efficient. Most successful owners I know continuously do so. There are many best practice groups, like the CDAand SDG, where employees and owners meet regularly to compare results and share ideas. Can you ring out a few percentage points of margin still? Sure. 20%? I don’t think so.
There is not 20% “extra” gross margin left in this industry. If your business was that fat, you wouldn’t be in business.
Why not reap those profits yourself? If there are two places where costs can be driven out of your business, it's the sales and service departments. On the service side, BEI Services can benchmark your business against the industry, and show you how to perform better. Wes, Bud, and the team have been doing this for decades. Here’s the thing:
IF the consolidator is right, and your profits could increase by 20%, why let THEM realize that profit and pay you, with your own money?
2019 selling is not 1989 selling.
My biggest concern about roll-ups today is that I see little evidence that they understand how disruptive e-commerce is to the imaging industry sales chain. We all know that businesses run differently today, and the era of the A3 is in decline. If you disagree, then by all means, sell your business to a consolidator. It's not about paying salespeople less or driving up the number of appointments they make each week. The genie is out of the bottle. Customers are migrating to a digital sales model. They are BUYING products that are available through that digital model.
I will leave you with this 90-second video from Gary Vee (apologies for the expletives in advance.) It’s sad/funny to think about how badly Blockbuster misjudged the market for movies in 2007 when Netflix amounted to a rounding error in terms of revenue. Blockbuster misjudged their value proposition. Can you spot the parallel? Amazon. Digital revolution. Let’s talk about e-commercebefore it’s too late.