By Alex Woodie
Selling boxes in the midrange isn't easy. A shrinking customer base, falling margins on hardware sales, and tight IT budgets combine to put the squeeze on even the best-run reseller outfits. For longtime business partner Jim Kandrac, the shift was palpable enough to lead him to rename his Cleveland, Ohio-based company from United Computer Group to UCG Technologies.
It's notable that "computer" is no longer in the name of Kandrac's company. Are computers no longer important to the business? "The word computer is becoming more passé," he says. "They're still important, but they're less important."
In the heyday of the AS/400 and the iSeries, Kandrac's company would make 80 to 90 percent of its revenue from hardware sales. IBM's midrange server was the Golden Goose that kept United Computer Group humming, and put Kandrac's kids through college. But today, hardware sales account for less than half of UCG's revenues. The company still counts on a loyal group of customers in the Great Lakes region, but it's also been forced to broaden its horizons, and today UCG has customers spread across 31 states and Canada.
Serving such a geographically dispersed client base isn't easy. "It's challenging," Kandrac says. "In the old days, when you'd sell, you'd call somebody, make an appointment, and see them face to face. That's fine if they're local, but on a nationwide basis, it's more challenging."
To be sure, the midrange reseller channel has been evolving since the dot-com and Y2K bubbles popped in 2000. UCG has managed to hold its own and maintain share in a stable-to-shrinking market. But competition on hardware deals is fierce, and Kandrac is under no illusion that Power Systems sales will ever be as lucrative as AS/400 and iSeries sales once were, or that UCG will come to dominate the channel.
"We're a boutique firm," he says. "We're not going to be a $200-million business partner. It's not really our market. We're definitely in the midmarket. We've done business with 1,500 companies, and have a core base of 250 or so. We're looking to reach out from that and look at different segments."
As Kandrac looks to the future, he sees new opportunities rising in certain areas. The biggest is cloud-based backup, disaster recovery (DR), and high availability (HA), which today accounts for 35 percent of UCG Technologies' revenues.
Over the past 10 years, UCG Technologies has carved a niche for itself in this market through VAULT400, a backup and DR environment. While the VAULT400 name is going away, the service itself isn't changing. And without the "400" attached to it, perhaps more customers will tap UCG Technologies to protect Windows, Linux, and UNIX servers as well. (The company has supported these platforms with VAULT400 for many years.)
Ten years ago, when you tried to sell a cloud-based solution, people would look at you funny, Kandrac says. But today, people just seem to get it. With that said, the cloud discussion around the IBM i has its particulars.
"The reason for going to the cloud with i is more administrative, and getting it off your plate," he says. "You don't have 10 people in IT anymore. You have four or five, and you want to spend more time on running and supporting your internal applications. If you look at the cost dollar for dollar, it's one thing. But when you start looking at the people and the resources--that's really where the money is saved."
Kandrac is also keen to sell business software--in particular the IBM i-based ERP software from his partner, VAI. The combination of industry-specific software for apparel, durable goods, retail, food, and pharmaceutical companies and cloud-based backup, DR, and HA and VAI's applications gives UCG Technologies an edge, Kandrac says.
Security training is a new thing for UCG Technologies. Last fall, the company announced that all subscribers to its cloud backup solutions would automatically receive ransomware awareness training from its partner, KnowBe4.
The ransomware epidemic is rampant at the moment, and several of UCG Technologies customers have fallen victim to cyber criminals who trick unsuspecting employees into clicking on links that then encrypt the contents of hard drives.
"Do we make a lot of money? Not really," Kandrac says. "But I feel it's so critical to protect the data, so we include it. It's a cost. I get it. But there's no magic dust out here we can sprinkle to take care of data."
Kandrac ran into IBM CEO Ginny Rometty at the recent PartnerWorld conference, and came away believing that things like Watson and analytics could have a real future. Whether or not it plays with the IBM i platform has yet to be seen, but the pervasiveness of data is certainly getting to a point where it might.
"I think people have to be creative and ultimately come up with new ideas," Kandrac says. "When big data and analytics and Watson first came out, I wondered if this was new term for business intelligence and whether you run it on spreadsheets or Cognos. I'm starting to sink my teeth more into Watson and the cognitive era, and my eyes are starting to open. I'm a conservative person so I don't jump on the bandwagon, but I see how it can potentially help."
There's nothing on the drawing board at this point, but Kandrac recognizes the importance of being nimble. The stress and toil of the rebranding exercise ("It's like December 8, 1987--the day I started the business--all over again") was a potent reminder that creation and recreation is a never-ending process.
"I need to sink my teeth into something, and sink my teeth into things that are valuable for my client base, and how I can do more with less," Kandrac says. "Our eyes and ears are open."
Reprinted with permission from Guild Companies. Copyright 1996-2016 Guild Companies, Inc. All Rights Reserved.