\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Here\u2019s a phrase I created in the early 1980\u2019s to describe what I clearly saw as the last chance to make high margins on the sale of computer hardware to businesses.\u00a0 In the day of the mainframe and then the minicomputer, margins for manufacturers exceeded 35% and dealers were granted a 35% margin as well.\u00a0 Even with the usual discount of 10%, the margins on hardware were high, especially when applied to prices that exceeded $30,000 per sale.\u00a0<\/p>\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 In the early eighties, IBM helped the PC become a tool of the office, and the product crossed over from use by early adopters to the mass market.\u00a0 Many other PC vendors flooded the market, including an uncounted number of \u201cwhite box\u201d manufacturers who created systems out of components imported from Asia.\u00a0 New retail channels popped up everywhere, competing for this lucrative, growing business segment. \u00a0New magazines were rushed to market, thick with advertisements for computer systems and components at bargain prices.\u00a0 Many companies found internal employees able to install these computers and load software easily, without employing outside professional services.<\/p>\n
\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 And those of us depending upon the high margins from more expensive minicomputers found ourselves competing with these same PC\u2019s, now growing to be as powerful as the much more complex and expensive computers of just a few years ago.<\/p>\n
[Email readers, continue here…]\u00a0<\/em><\/span> Yet, there was one segment of the PC market that was not only growing but maintaining its margins as well as providing more professional services work than any other segment of the industry.\u00a0 Most of us could install a computer, but almost none of us could network that computer with others in the office or with other offices without equipment we did not understand, configuration tasks we could not perform, and training we could not offer.\u00a0 So we called upon our local value-added reseller with networking experience, often blessed with an earned certification by Novell or Microsoft.\u00a0 We paid high per-hour charges for professional services and unknowingly paid high prices for the networking equipment.\u00a0 But we were, as a class, happy with the fact that the computer and software costs had fallen so much that the networking costs were not an overwhelming portion of the computer budget.<\/p>\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Observing this, when in a planning session one day, I told my staff that we needed to find an area to defend our margins, one that still enjoyed the mantle of mystery to our customer base.\u00a0 Because, I said, \u201cWhere there\u2019s mystery, there\u2019s margin.\u201d<\/em>\u00a0 We did find that niche and used it successfully for several years, in charging to certify and configure a company\u2019s self-purchased PC\u2019s so that they would work efficiently with our software systems.\u00a0 No employee of our customer company could do this because no employee knew our software and its requirements for database setup, multi-user security and more.\u00a0 We were able to add $1,500 or more to each small installation, and much more for large installations even though we no longer sold the PC hardware.<\/p>\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 I told this story often in speeches to software and vertical reseller organizations, and the \u201cmystery\u201d expression stuck. Not only that, but I began to hear it restated back to me describing other industries in which similar progress had caused companies to search for a \u201csecret sauce\u201d they could defend.\u00a0<\/p>\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 It was only a small step to incorporate this into the strategic planning sessions for all companies that I later advised or served as a board member.\u00a0 And it still is important today.<\/p>\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 I am an investor in a large home service company that specializes only in technology installations and repairs for the home and small business customer.\u00a0 With a fleet of Mini Cooper cars all marked with the distinctive logo and colors of the company, this fleet serves a growing need for fixing computer crashes, infected computers, networking issues, audio-visual installations and even fiber-optic installation in-home for a major phone-bandwidth supplier.\u00a0 They discovered the niche that many home owners and small businesses could not fill or understand.<\/p>\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Can you find a pain point where the customer cannot apply a solution without your help?\u00a0 One where the cost and value are both defensible in maintaining higher margins?<\/p>\n","protected":false},"excerpt":{"rendered":" \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Here\u2019s a phrase I created in the early 1980\u2019s to describe what I clearly saw as the last chance to make high margins on the sale of computer hardware to businesses.\u00a0 In the day of the mainframe and then the … Continue reading