The past two and a half years have seen more than 75 electrical distributors sell their businesses. Some have sold to national chains, others to fellow independent distributors and some have sought investments from private equity firms and continue to manage the business.
The commonality in all these acquisitions is the lack of a successor who is either passionate for the business and/or passionate about the electrical industry.
It happens. There are businesses that are built for perpetuity and then there are businesses that are not. It is not “good” or “bad,” it “is.”
But, while the big get bigger and hence have more resources to invest in their business to seemingly give themselves a competitive edge, these acquisitions create reminders, and opportunities, for independent distributors.
There are three ways to view the acquisition market:
- FOMO – yes, “fear of missing out.” You look at the transactions, you look at your company and say to yourself, “who is my next generation of leadership?” If you do not have an answer and are of the appropriate age you may be thinking “should I consider?”
- Focus – the thinking here is “I’m in it for the long haul, or at least awhile. I enjoy the business; it is profitable, and I need to manage and invest wisely to stay on the path.”
- Opportunities Abound – in this mode you recognize that change in the market can create opportunity for you.
For those with FOMO, you have evaluated and determined a path. For those committed to remaining independent here’s some things to consider as you refine your playbook.
But, the first caveat, and it is an obvious one, is that large companies have more resources. While they can outspend you, that does not mean they can out-think you, know more about your market, act quicker, know the customers (and prospects) in your market more intimately or have more passion for the business than you and your team. Your energy, drive, commitment, focus, industry and local market insights, nimbleness and customer relationships will help you achieve your goals.
Let us talk about the type of distributor who is focused on a specific market segment and/or geographic area. I like to say that many of these distributors do not have an interest in “world” domination. They are happy serving their local market and their local customers. In many instances these distributors are in tertiary and/or rural markets. The lack of significant (dollarwise) growth opportunities is not a negative. These companies are the backbone of a community…and many of them are IMARK members.
If this is your company, then the objective is increasing focus.
Steps to consider supporting your vision and to achieve your goals include:
- People. Having quality, trained people who are committed to the business and can simultaneously “think” and “do” is important. It is better to compensate a little more for quality than to have quantity. Review your performance metrics, review your comp plans, conduct coaching/mentoring, and invest in training…product, skills, and industry knowledge. Also, while this can be difficult for many, ensure you have a good mix of veterans and “younger/new” talent so that you are continuously training people for the next level of responsibility and experience.
- Systems. Technology is becoming increasingly important in running a distributorship. Getting more from your ERP system is important, especially since it is a repository of information. Utilizing this information to better understand opportunities is critical. This could be around understanding sales, margins, identifying opportunities within customers, capturing customer information and more. Also, consider how you can automate repetitive functions so that “technology/systems” can do these tasks so that your labor investments can be put to better usage.
- Digital. You have heard that digital, defined as e-commerce, is important. Perhaps your customers are not seeking to transact over the web, but they are looking for product information, spec sheets and pricing and want to be self-sufficient (or they have others in their company who are seeking it.) You need an informative website. But, more importantly, the distributor of tomorrow is going to have more electronic connections with customers—text, email, marketing electronically, direct connections and more (and yes, you’ve heard of AI and ChatGPT…these will influence the business.) Someone in your company needs to be responsible to understand industry trends, understand what customers are using/what competitors are offering) and you need to this to “keep up with the Jones’.”)
- Marketing. Think of marketing as communications and visibility. You know your customers, but they need to subliminally remember you. You need to do the marketing, emails, promotions, branding and more to keep your name front and center and keep your suppliers’ names and products visible. Further, the manufacturers expect this. While co-op funds are more limited than ever, investing some here can make a dramatic difference.
This is a “steady Eddie” approach.
Now let’s touch on what to do if you are seeking to capitalize upon opportunities and want to grow your business and take market share.
Remember, an acquisition in your market means that there is “change” in your market. But you are the “constant” in the market. For you it is “business as usual.” Your staff is focused on serving customers and supporting manufacturers. Your business is strong.
The other guy is experiencing change which means their people are wondering “what will change,” customers are wondering “what will change,” reps are wondering “will my line win or lose as they consolidate?” and, inevitably, acquired companies now report to someone else, hence there is an increased level of bureaucracy and/or delay in decision-making. The independent you competed against is now different.
Capitalizing on the change is dependent upon your vision and growth goals. To “take the next step” consider:
- Pursue Talent. There will be “talent” available. Should you target some people who could strengthen your team? You may need management staff, a tech person, a gear, or lighting specialist and/or inside and/or outside salespeople. Some may inevitably reach out to you if they know you are in growth mode. Some you may want to put feelers out to. Perhaps to target others you develop a role and enlist an industry recruiter who can put out “feelers.”
- Marketing. Or, better yet, consider this prospect development.
- Which of your customers were already doing business with the acquired company? How can you further penetrate these accounts? Which accounts could you never get into because they were doing business with the acquired company…should you call on them?
- Do you need to assign some accounts to salespeople and have a defined follow-up strategy?
- Do you need to develop some marketing communications materials to share with the prospects that highlight your strengths and services?
- Perhaps this is the time to launch a significant marketing/promotional campaign with key suppliers that the acquired company has? Target discretionary business. Want to think big…launch an incentive program? Could be for the remainder of the year, could be longer? (And yes, involve your existing customers). If the program is based upon growth, these “new” or “small to you” companies would have low goals, making them “instant winners” but giving you significant incremental sales and profits.
- Services. You know the acquiring company’s playbook and what their services are. How? Talk to friends who compete with them in other markets. They will eventually share/deploy the same playbook with the acquired company. Determine what makes sense and beat them to the punch.
- Digital. Yes, it’s that word again. If you are focused on growing, digital will be even more important. Everything from internally automating functions to customer engagement tools. Channel Marketing Group recently conducted an online seminar titled “Digitalization for Modern Distributors.” If you would like a copy, email me.
- Branch Expansion. Depending upon the competitor acquired, there could be opportunities to expand your footprint. Will the acquirer close duplicative locations? If so, could you pick up a branch worth of people? Will a key supplier want coverage in that market?
The key for this type of distributor is that, before there are changes in the marketplace, you must have a desire for growth and ideally a plan. This is a mindset and strategy issue for ownership and then something the management team has bought into. Taking advantage of marketplace change is an opportunistic growth strategy that can be capitalized upon if you are in growth mode and have the resources to grow.
While some envision an industry where a significant percent of the business is controlled by national chains, like Canada where about 75%-80% of the business is conducted by national chains, as an independent distributor you control your destiny.
The strengths of an independent distributor lie in the inherent traits of an entrepreneur— independence, focus, commitment, nimble, determination, personality and more.
When the IMARK name was created, the “I” stood for independent, individual, intuitive and initiator. The MARK focused on marketing because the two, when combined, were a powerful force in a market. Today, these same traits can differentiate you to capitalize upon opportunities to prosper and secure the future of your company and team.