Computer Hardware Reseller Business Plan

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Executive Summary

By focusing on its strengths, its key customers, and the underlying values they need, American Management Technology will increase sales to more than $9 million in three years, while improving the gross margin on sales and cash management and working capital.

This business plan leads the way. It renews our vision and strategic focus: adding value to our target market segments, the small business and high-end home office users, in our local market. It also provides the step-by-step plan for improving our sales, gross margin, and profitability. In order to implement these changes and improve profitability, we plan to borrow another $100,000 long-term this year. The amount seems in-line with the balance sheet capabilities.

AMT is built on the assumption that the management of information technology for business is like legal advice, accounting, graphic arts, and other bodies of knowledge, in that it is not inherently a do-it-yourself prospect. Smart business people who aren't computer hobbyists need to find quality vendors of reliable hardware, software, service, and support. They need to use these quality vendors as they use their other professional service suppliers, as trusted allies. AMT seeks to fulfill these needs and become the leader in business information technology for its region.

AMT provides both computer products and services to make them useful to small businesses. We are especially focused on providing network systems and services to small and medium business. The systems include both PC-based LAN systems and minicomputer server-based systems. Our services include design and installation of network systems, training, and support.

In order to accomplish our objectives, our keys to success over the next three years are:

  • Differentiate from box-pushing, price-oriented businesses by offering and delivering service and support--and charging for it.
  • Increase gross margin to more than 30%.
  • Increase our non-hardware sales to 20% of the total sales by the third year.

AMT was founded as a consulting-oriented value added reseller (VAR), became a reseller to fill the market need for personal computers, and is emphasizing service and support to differentiate itself from price-oriented competitors.

We have one location--a 7,000 square foot store in a suburban shopping center located conveniently close to the downtown area. It includes a training area, service department, offices, and showroom area.

AMT is a privately-held C corporation owned in majority by its founder and president, Ralph Jones. There are six part owners, including four investors and two past employees. The firm includes 21 employees, under the president and four managers. Our main management divisions are sales, marketing, service, and administration. The service department handles service requests, support, training, and development. At present, we are weakest in the area of technical capabilities to manage the database marketing programs and upgraded service and support, particularly with cross-platform networks. We also need to find a training manager.

Recent changes in the computer reseller market have adversely affected AMT. These include margin squeezes, longer collection periods, and lower inventory turnovers. All of these concerns are part of the general trend affecting computer resellers. The margin squeeze is happening throughout the computer industry worldwide.

The only way we can hope to differentiate well is to define the vision of the company to be an information technology ally to our clients. We will not be able to compete in any effective way with the chains using boxes or products as appliances. We need to offer a real alliance that includes such intangibles as confidence, reliability, and knowing that somebody will be there to answer questions and help at the important times.

Our support services, with which we hope to capture market share will include such services as; training, upgrade offers, installation services, network configuration services, etc. The company will seek to aggressively pursue new opportunities.

AMT focuses on local markets, small business and home office, with special focus on the high-end home office and the 5-20 unit small business office.

The last study we saw published has retail sales growing at 5% per year, while Web sales and direct sales are growing at 25% or 30%.

There are several different kinds of computer retailers within the industry including:

  1. Computer dealers: often focused on a few main brands of hardware, usually offering only a minimum of software, and variable amounts of service and support. Their service and support is not usually very good and their prices are usually higher than the larger stores.
  2. Chain stores and computer superstores: usually offer decent walk-in service, with very aggressive pricing, and little support.
  3. Mail order: offer aggressive pricing of boxed product. For the purely price-driven buyer, who buys boxes and expects no service, these are very good options.

None of these direct competitors provides the customization and service that small businesses such as our clients truly need.

Small business buyers are accustomed to buying from vendors who visit their offices. They expect the copy machine vendors, office products vendors, and office furniture vendors, as well as the local graphic artists, freelance writers, or whomever, to visit their office to make their sales. Many small companies turn immediately to the superstores (office equipment, office supplies, and electronics) and mail order to look for the best price, without realizing that there is a better option for them at only a little bit more.

We need to effectively compete against the idea that businesses should buy computers as plug-in appliances that don't need ongoing service, support, and training. Our focus group sessions indicated that our target home office markets think about price but would buy based on quality service if the offering were properly presented. They think about price because that's all they ever see. We have very good indications that many would rather pay 10-20% more for a relationship with a long-term vendor providing back-up and quality service and support; they end up in the box-pusher channels because they aren't aware of the alternatives.

We currently depend on newspaper advertising as our main way to reach new buyers. As we change strategies, however, we need to change the way we promote ourselves. We will be refocusing on our core message of service through radio, cable TV, sales brochures, direct mailers and newspapers. We need to sell the company, not the product. We sell AMT, not Apple, IBM, Hewlett-Packard, or Compaq, or any of our software brand names.

The Yearly Total Sales chart summarizes our ambitious sales forecast. We expect sales to increase from $5.3 million last year to more than $6 million next year and to more than $9 million in the last year of this plan.

1.1 Objectives

  1. Sales increasing to more than $9 million by the third year.
  2. Bring gross margin back up to above 30%, and maintain that level.
  3. Sell $1.5 million of service, support, and training by 1998.
  4. Improve inventory turnover to 6 turns by 1998.

1.2 Keys to Success

  1. Differentiate from box-pushing, price-oriented businesses by offering and delivering service and support -- and charging for it.
  2. Increase gross margin to more than 30%.
  3. Increase our non-hardware sales to 20% of the total sales by the third year.

1.3 Mission

AMT is built on the assumption that the management of information technology for business is like legal advice, accounting, graphic arts, and other bodies of knowledge, in that it is not inherently a do-it-yourself prospect. Smart business people who aren't computer hobbyists need to find quality vendors of reliable hardware, software, service, and support. They need to use these quality vendors as they use their other professional service suppliers, as trusted allies.

AMT is such a vendor. It serves its clients as a trusted ally, providing them with the loyalty of a business partner and the economics of an outside vendor. We make sure that our clients have what they need to run their businesses as well as possible, with maximum efficiency and reliability. Many of our information applications are mission critical, so we give our clients the assurance that we will be there when they need us.