“That scares most people to death, but then I need to redefine the word,” says Wallace. “I would say lethal is: We’re quick, we’re sharp, we’re fast, we do what we say we’ll do, we do it when we said we’d do it, and the result of what we do will be to accomplish what we said it would accomplish.”
That may sound like a pretty tall order for a 21-year-old, family-owned business, but Wallace doesn’t care.
“That should have nothing to do with anything,” he says. “I don’t want to be [known as] a closely held, family corporation. I want to be a good, sharp, aggressive, tough, ethical corporation that, oh, by the way, is family-owned.”
He seems to be well on his way.
“In the first 14 years of the company, if you look at any three-year span, we doubled the company every three years,” he says. “We did that for a long time, then Y2K came along and a lot of things changed in our industry. One of those changes was that growth.”
The first sign that something radically wrong was happening in the industry was a sharp drop-off in pricing.
“Way back when we started this business, a gigabyte of storage sold for between $20,000 and $40,000,” Wallace says. “Today, a gigabyte of raw storage costs less than $1. That requires change.”
Here’s how Wallace reinvented and repositioned Cranel to survive that enormous bump in the road.
Absorbing the shock
“Coming through the ’90s, there was so much money in this industry,” Wallace says. “Part of it was driven by the Y2K hype. Every company had tons of people hired to go fix real and imaginary ghosts. The money was just knee-deep.”
Cranel was one of the benefactors of that push for updated, Y2K-proof technology. The company’s sole line of business at that time was reselling computer storage and document imaging products to other businesses.
“Three to four years in to the company, we could see [the price] begin to move,” Wallace says. “I don’t think anyone in the industry thought it would go from a $40,000 to $1 change. We kept hearing it and reading about it, but I don’t think we really realized it was going to go that fast.”
Nevertheless, Wallace wasn’t about to wait and hope that disaster didn’t strike. Instead, he started carving out a new niche for Cranel before things got bad.
“You have to learn to not follow the market,” he says. “You have to try to figure out where it’s going ... and try to get in front of it as far as you can. Of course, the farther out you are, the greater the risk because it may not go where you’re going.
“But try to be as proactive as possible instead of reactive. Because when you’re reactive, you’re playing catch up and, boy, that’s hard to do.”
Wallace says he’d already begun to change Cranel’s business model pretty substantially by 1990 well ahead of the great IT crash that left many once-thriving tech companies floating down a river of red ink into oblivion.
“We were a reselling product-based business,” Wallace says. “If we would’ve stayed in that model, I question whether we would even exist today. We had to change from a product-based business to basically a solutions-based business.”
That meant changing nearly everything Cranel and its sales force had ever known.
Rather than just selling products, Cranel’s new plan was to sell the product as well as the installation, integration and everything else that went along with it. Cranel needed to become a turnkey solution provider.
To do that most effectively, Wallace broke the company into separate divisions under the Cranel Inc. umbrella.
“We needed to diversify,” Wallace says.
In 1994, Versitec, a support and maintenance arm of Cranel, was born.
“To some extent, it is more immune to the economic swings, thank goodness,” Wallace says. “During Y2K, there was a huge amount of product moved in to businesses. They didn’t need anything for a long time after that. That made the sales in that arena dip rather strongly. But they still had this equipment that they had to maintain and support so that business continued up and to the right that whole time for us.
“We picked a business which, in this case, was in the realm of what we do. Our customers were the same customers. It was just a slightly different effort.”
Another diversification move that helped Cranel ride out the plunge in hardware prices was the evolution of Cranel Imaging.
“It’s the last of our product-based divisions,” Wallace says. “Even though it is our lowest-margin division, the contribution per head is the highest in the company.”
After all, the equipment that Cranel Imaging sells presents a huge opportunity for Versitec in terms of maintenance.
“We can make more money maintaining that equipment than we can selling it,” Wallace says.
So having Cranel Imaging get a foot in the door with customers is paramount to Versitec’s ongoing growth.
The same can be said of Cranel Inc.’s third division, Adexis, which sells data storage equipment and implements hardware and software solutions in mid-sized to large corporations.
In the mid- to late-’90s, IT departments were moving from centralized, mainframe-oriented computing systems to open systems. Those systems were more costly and more complex to manage, presenting an opportunity for Cranel to provide services to customers to help them manage the complexity.
“The demand for content going up almost outstripped the prices coming down,” Wallace says. “That was part of the reason we could maintain our growth. We were sitting here with curves going two different ways, and they kind of canceled each other out to some extent.”
While the new, three-pronged business plan for Cranel Inc. seemed to be keeping revenue high, the dramatic, sweeping changes took a toll on employees.
“We humans are creatures of habit,” Wallace says. “We like our ruts. Change is very hard for employees. And we were finding that, for some people, change was not to be. They just could not accept what we set out to do and, unfortunately, we lost some of those people.”
About half of Wallace’s sales force had to be replaced following Cranel’s switch from a product-based business to a solutions-based company.
“Not all of your people will join in adopting change and, as much as I appreciate them being here, they were so uncomfortable they had to move on,” Wallace says. “Those were sad times. It’s for me very personally painful to, in effect, go to someone and say, ‘Thank you for giving me your best, but we’ve now grown and it’s no longer good enough.’ That is extremely painful for me as an individual. But nevertheless, you have to do it for the people who are still there.”
Wallace is grateful to the nearly 200 employees who comprise Cranel Inc. today and especially to those who were both willing and able to tough out the changes along the way.
“One of my greatest thrills is every February, we recognize longevity,” Wallace says. “We have a fairly good proportion of 10-year people here.”
Still, there are many more whom he would have liked to have kept.
“In a growing company, sometimes it’s hard,” he says. “People who like what they do in a $10 million company may not like what they need to do and must do in a $100 million company. In our case, the company went through some radical changes.
“We stalled around $30 million and went through some pretty radical people changes around that time. That change jumped us into $80 million, and we went through them again. That group has gotten us where we are today.”
With a new corporate focus and new employees ready to embrace Cranel’s solutions-oriented business plan, all that was left was to find the best way to market those changes to customers and the rest of the outside world.
“Our marketing people had to take a totally new approach to what they were doing,” Wallace says.
In fact, all three divisions had to develop separate marketing materials and brand images.
Making the shift from one business to three, and from product-focused to solutions-driven, took Wallace out of his comfort zone, too.
“We did go outside and get a whole lot of advice to go do that,” he says. “You have to be comfortable that you can work with and co-exist with people who are smarter, quicker, faster, better than you are.”
Wallace also relied heavily on advice from business authors.
“To me, marketing is an absolute science,” Wallace says. “I read as much as I can put my hands on. There are some marketing authors out there who have had some good impact on this company.”
He specifically points to Al Ries and Jack Trout, who together wrote a number of marketing books, including “The 22 Immutable Laws of Marketing,” “Marketing Warfare,” “Positioning: the battle for your mind,” and “Focus: The future of your company depends on it.”
Former General Electric chairman and CEO Jack Welch also carried much influence at Cranel.
“We are big fans of Jack Welch’s No. 1, No. 2 philosophy,” Wallace says. “On the vendor side of our business, we want our vendors to be No. 1 or No. 2. That vendor has a huge sales force that’s out pulling the product.”
Applying all that knowledge, as well as the lessons of his own experiences as the owner of three separate businesses prior to Cranel, Wallace has developed an ongoing focus for Cranel that he calls M.A.P.
“The M part is margin,” he says. “We absolutely put the focus on margin. The A part is annuity. We had to put product sets in there that had an annuity effect so we didn’t start at zero every month or every year. The P is for productivity. That doesn’t mean getting out a bigger whip and getting salesmen to sell more.
“Productivity was putting things in the price books that were three-year spans instead of one-year spans. It was putting things in the price books that were all-inclusive, life-care products that span a large number of events instead of picking up each event one at a time. That’s part of why we’ve been successful in driving our margins up.”
And driving up margins is especially important in the face of dropping sales volume.
“One of the changes as you drive from the product to the solution side of the business is you will struggle to keep your volume up,” Wallace says. “Our volume went down about $5 million last year, but we feel we are doing the right thing because our gross profit was higher on less volume.
“Now we are going back to driving the growth side of our business again. But we are doing it with different product sets and different efforts.”
Through all the twists and turns of change, Wallace says, one thing at Cranel remained absolutely stable: the company’s ethos.
“It’s the stuff of which you’re made of,” he says. “It’s the inner makeup of the company. If you work hard to get that right, your chances of effecting change will be much better.
“If your goal is to make everybody happy, you probably won’t even make it as a company. But if you have the ethos piece right, the ethics piece right, the internal makeup right, the confidence right, the quality of your people right, the freedom to go do their jobs right ... if you get that right, your chances of success are much, much better.”
HOW TO REACH: Cranel Inc., (614) 431-8000 or www.cranel.com