Scott Frew is a veteran of the IT distribution space, making his mark as owner of LAN Systems, which was sold to Westcon Group in 2000. Five years after the acquisition of his latest venture, Firewall Systems, he talks to NADIA CAMERON about the parent company’s strategies, market challenges and what’s on the agenda.
How has Distribution Central fared this year?
Scott Frew (SF): It’s been fantastic. We went from $53 million in turnover to $95m. We’re a bit short of doubling revenue, which is what I try to do, but it’s very positive. The most positive part was that most of it was organic growth. We only signed two new vendors right at the end of the year, which was Avaya and NET, so growth was all due to our current manufacturers.
Were there particular siloes that did better than others?
SF: I wouldn’t say better than others. If you take Firewall Systems, which is the leading business in our group, it’s harder for them to grow because they’re already in a dominant position. But they had a very solid year. NetWorld [Systems] is still a smaller business unit, but it’s growing very fast, and the percentage growth is fantastic in comparison. SAN Systems has done very well and we’re getting tighter and tighter with NetApp. Like any new relationship with a $4bn plus operation, there are still things to do, and NetApp is going from direct to indirect, which is a change in philosophy from a systems point of view. You take that annuity business: We’ve taken NetApp’s business value from ‘we don’t know’, to 98 per cent. So they’ve obviously seen an uptick in renewals business and better attached rate. Unity [Systems] is brand spanking new, and Red Education is still growing its training base – we now have Red Education Singapore. And Annuity Systems has done so well we’ve demerged that whole operation into a company called iAsset. Annuity has been so successful that manufacturers want the Annuity portal for their global channel control. So I decided to disengaged the back-end of Annuity, run it as a separate US and Australian operation, and then have Annuity Systems as the Australian front-end for our business.
Has your go-to-market strategy changed in light of the economic downturn?
SF: Of the three distribution businesses I have started up, all have been during tough economic times. LAN [Systems] was right in the middle of the messy, post-1980s rubbish, and Micro Networks was when the stock market crashed. The guys that go down the tubes when the likes of a GFC is going on are the ones that have never started to build organisations in tough economic times and who don’t understand the dynamics of what happens when things go bad. The other thing that shelters Distribution Central is we don’t sell PCs or servers – we are all infrastructure. Even when I had LAN, if the economies are good, networks grow, when the economy is bad, people want to make things more efficient. Provided you are in that infrastructure piece, and you keep showing people where the opportunity is to save money, they will go for it.
Do you think resellers are aware enough of those market forces?
SF: Some guys have been in the game long enough to have experienced those times, but the IT market has always been very dynamic, so when one organisations goes, you’ll find two more will start from scratch. They’ll see an opportunity a big company couldn’t see and they’ll go and leverage it. That’s what I like about this game – it is always changing.
Is it better to be a traditionalist or innovator right now?
SF: You have to be a bit of both. You have to understand the past, but manipulate it to create the future. All we have done is work out we are a technology company, and we need to use technology to make life easier.
How about the broader distribution market – are you seeing a lot of impact on your competitors?
SF: We are a disruptive distributor and an aggressor taking market share. I don’t see internally how other distributors are faring and I’m isolated by the vendor pillars where we actually compete – a lot of our deals are exclusive. I think they’re struggling to sell what their value actually is. If your value is to be a global operation with warehouse with credit, well there’s Ingram Micro. And how are you going to compete with them? They are the biggest distributor in the world. If that’s your only value, you aren’t going to cope. In my case, I still have my old value proposition, which is to have lots of engineers to support the reseller base, but we’ve taken the position that at the margins resellers make, they can’t invest in technologies to make their lives easier, so we have done that for them. The millions of dollars we have invested in our systems is to take the heat off them. And if we do that, then they will keep buying from us.
Distribution Central however, is in a part of the market where there’s a lot of vendor mergers and acquisitions going on.
SF: I don’t see it as any different to 10 years ago. When switches came out – where’s SMC or Campana? There were those early adopters who won huge market share but couldn’t sustain it. There’s always this state of flux. Our job is to find the best technologies in the market that we want to play in, and make sure we stay on top of that. So you do have a level of churn. And like those vendors who evaluate their distribution channel every year, every financial year we sit down and go through who made the numbers and who didn’t, whether it was our fault, the vendor’s fault, and are they still the vendor of choice in that area. We also watch the Gartner reports closely because most, if not all, of our vendor partners are in that top right-hand corner and that’s where we want to be. We want to be a technology leader, not just a market leader.
