Simon Smith: Why the key to distribution is segmentation

In six-and-a-half years as managing director, Simon Smith has built Actebis UK from scratch into a distributor with a turnover of £77m, according to results for the year ending December 1999.

For someone who wasn’t one of the original candidates for the managing director’s job at Actebis UK, Simon Smith has done pretty well. In six and a half years, he has built Actebis UK from scratch into a distributor with a turnover of £77m (according to its most recent results for the year ending December 1999).

No mean feat in itself, although he’ll probably be happy to admit others have grown more quickly. The question is whether they have managed to remain profitable, which Actebis UK has done every month since June 1995.

He also reveals that the company “put the brakes on a little bit” in 1997, when turnover was up only £5m on the preceding year at £41m, while it consolidated and put the systems in place to ensure it didn’t hit a hurdle later on, something many other fast-growing distribution businesses have discovered to their cost.

But how did he come to be heading up the business? Smith reveals that he had forged links with someone from Actebis head office while doing a presentation for his previous employer, Hanny Magnetics, in Monte Carlo. “We kept in touch and he gave me a call, saying Actebis wanted to open a UK office and asked whether I was interested in the sales and marketing or sales manager job.”

Smith replied that he wasn’t interested in the sales and marketing job (he was already European sales and marketing manager at Hanny), but would like to put himself forward for the managing director post. After knocking a business plan together, Smith was selected for the job. “Actebis gave me £100,000 and said get on with it.” This took place in October 1994, just as Smith went into hospital to have an operation on his right shoulder. He tells the story of coming around from the anaesthetic to find his mobile phone ringing. While still in a groggy state, he answered to find his boss on the end of the line exhorting him to find a building for the UK subsidiary.

Actebis UK started in February 1995 with a team of ten or so, selling monitors and storage products — it now employs 70 staff. Smith identified a “massive opportunity in the sense that the storage and components market had very little structure — with a lot of brokers, wholesalers and traders — we came along with a very low-cost business and provided a structure. We developed a very simple sales and product marketing matrix, segmenting products by customer type to maximise return.”

Products are split into seven areas: storage, components, peripherals, networking, software, supplies and telecoms. Out of these, the two big ones are storage and components. The distributor also segments its customers in five main categories: retail, volume assembler and wholesaler accounts, major accounts, resellers and call centre business. The sales force is split by customer base.

The segmentation of customers and product sets is very important to Smith’s view of successful distribution. “The key is to be very focused,” he says at one point, adding at a later point when talking about the Web and how it will work, “everything has to be segmented by customer and product”.

Services future 

One area where Actebis UK has no real presence is services, although Smith says it’s something the distributor is looking at. “We will evolve and change our model as we’re moving our product set much more to the higher end. It’s certainly a big part of the future in storage. We can see where the future is and we'll move much more away from the commodity to the high-end. Our aim would be to become more of a service provider.” He reveals that the company is in discussions with a couple of vendors in the storage and components arena which would fit with its move to take on high-end products, but is unwilling to give any more details.

As for other future developments, he reveals it will maintain its strength in components, while developing mobile and TFT businesses. The mobile part will focus on notebooks and PDAs and will probably begin by selling its parent company’s brands: Targa for retail and Peacock for the business market. Unlike its parent, Actebis UK doesn’t sell complete PC systems at the moment — and is unlikely to for now given the difficulties in trying to break into the market with a new brand. However, at a later stage of the interview when I mentioned the idea of building machines for system builders to badge themselves, something akin to Hammer plc’s V2 business, he says it is a service the distributor could be looking at.

The TFT push comes as part of its plans to build up the monitor business. In addition to the Targa brand, Actebis recently signed a deal with Hansol, the distributor’s “first recognised local brand”. Smith says it is “looking at developing the monitor business — there are significant opportunities there, with particular development and focus on the flat screen market”.

On the software side, Actebis has a Microsoft OEM contract which Smith says “is a great franchise to have”. He reveals that it is talking to other software vendors about distributing to the OEM market. “They’re not in competition with Microsoft, but in additional areas. A lot of vendors have sold the box but not done OEM.” Actebis UK is hoping to get agreement to run a pilot from the vendors it is talking to. I ask whether it would make sense to do something similar for storage software, given its existing storage business, and he replies in the affirmative, but doesn’t say anything more.

As for supplies, he describes this as more of a service than a full product range, but says the distributor is looking to add to it, although he’s quick to stress: “Not in a big way.” Actebis UK is looking at providing the “attachments” to products for its customers, to supply not only the “bits in the middle” for system builders, such as components and storage, but also the elements you add on.

On the subject of the Web and where it fits in with the future of Actebis UK, Smith says the distributor is “pretty much the same as anybody else”. He believes that it will evolve to a point where the account manager manages accounts and the Web is used as a form of transaction. “Where the traditional sales person hammers the phones, it will become more about account management.” He believes the product segmentation philosophy will apply as powerfully in the Web space as anywhere else because areas such as storage and components “will need a lot more handholding”.

He reveals the distributor is “in the evolution now. We’re just preparing ourselves for it”.

Different strokes 

No discussion about Actebis UK can take place without reference to its parent in Germany. And yet, it becomes apparent during our conversation, that it is difficult to draw direct parallels between the two businesses. For his part, Smith is often at pains to point out that the UK subsidiary is not a carbon copy of the German parent — and is unlikely to become one.

He stresses that Actebis started in Germany 13 years ago and evolved into a broadliner. As for the UK, “to evolve into a broadliner from where we are now, you’d have to throw away a profitable business. It’s a different model”. Smith says every country is driven by the different characters heading the operations. They all learn from each other and take ideas from other parts of the business. “It’s a very flat hierarchy,” he claims.

Actebis has a declared intent to be in the top three in all the markets it operates in. It intends to become a worldwide player and the countries in Europe where it needs to establish a stronger presence, Smith readily concedes, are the Nordic territories and the UK, because it is in the top three or four everywhere else. But although it is presently well short of this target in the UK, it isn’t something which seems to concern Smith.

That’s not to say he isn’t doing anything about it. He definitely conveys the feeling that Actebis is gearing up for growth in the UK, but it won’t necessarily be confined to its present incarnation. Indeed, Smith stresses that beyond the expansion measures for the Actebis UK operation listed above (as well as opening an office in Wales), other initiatives are likely to take place outside the distributor.

“We’re in no particular rush,” he says, “we’re not going to throw away a profitable business. Our key is to be very focused. We will make steps to be a big player — but other new areas will come from acquisitions and new ventures. If you just have one salesfloor doing everything, you don’t get anywhere. In the UK, if we did an acquisition, we would keep it separate [from Actebis UK].”

The UK operation recently reorganised, bringing on another managing director, Roger Mather, to handle the back office functions, leaving Smith to handle the sales and marketing. “We have two strong characters in preparation for the next steps,” Smith says. There’s definitely the sense of a gearing up for something, but what and when are a bit difficult to get out of him.

He argues that the current downturn could prove a good time to start new businesses because vendors will be looking for new routes to market. “The opportunities are massive. If you remain flexible, it’s the best time, because everybody else is looking internally at their cost structure and you can look externally.” It also makes prices of any potential acquisition targets “more sensible”.

Despite the impression of a building readiness to move on to “the next step”, Smith is still very cautious about what this might entail. “We’ll take opportunities in the UK when we feel it’s right to do so, without damaging our business. We will react to opportunities that present themselves.

We’re geared up to react — we’re preparing ourselves.” He stresses that the company is looking long-term and isn’t going to take any quick decisions. The UK has always been one of the most profitable businesses in the group and “we made a decision to take our time with the UK and when the right opportunity comes along, we will take it”.

One thing he can’t do is be very specific. “We might go for a totally different angle, we’re looking at lots of things. That’s why I can’t say anything categorically.” But he adds that whatever does happen, “the key is timing”.

Looking into the future 

I ask Smith what he thinks about the discussion over the viability of a fee-based model being introduced into the distribution channel. “It will definitely happen,” he replies, “particularly for big broadliners.” But he believes it will depend, yet again, on product. Some will be better suited to the fee-based approach than others because different products require different business models. “That’s where a lot of people get it wrong,” he argues.

He believes that in the future distributor growth will come not from vendor acquisition i.e. getting more and more franchises, but from the acquisition of customers. “There will be less resellers, so you might see Ingram Micro and Tech Data tendering for a reseller’s Compaq business, for example. The pure acquisition of customers will be the future.”

As the interview draws to a close, he says the main watchwords in distribution are to “keep it simple, fast, flexible and responsive and you’ll be successful”. While some might be unimpressed by the impact which Actebis UK has had on the market, Smith is unconcerned. “When Actebis started in the UK, so did Vobis, Escom and Peacock. We’re the only one left — which I’m quite proud of.”

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