23 Sep PDS survives with technological reinvention
Oconomowoc, Wis. – Craig Schiefelbein believes in reincarnation – in the business sense.
What else could explain the six – and still counting – reiterations of his company, Paragon Development Systems, Inc., a technology services provider celebrating its 20th anniversary with a very important streak intact – 19 consecutive years of revenue growth.
PDS is a rare breed – a memory chip broker that managed to survive 20 years in the chaotic world of technology by constantly reinventing itself. Schiefelbein, president and CEO, said the company’s story is about recreating itself faster than the competition.
The company still manufactures its own brand of PC, but 19 consecutive years of revenue growth – its annual revenue now exceeds $85 million – is testimony to the wisdom of adding pieces like 24/7 support, asset, storage and life-cycle management, and now IT outsourcing and mobile data services.
“The example here is to demonstrate that all competitive advantages other than agility are static and will fade,” Schiefelbein said. “Now, certainly, most industries are not as dynamic as IT, but the fact remains [that] the only long-term competitive advantage is agility.”
Over the years, PDS has gained admirers with this ability to adapt. Sharon Manke, security officer for Oconomowoc’s First Bank Financial Centre and a member of the Oconomowoc Area Chamber of Commerce Board, has tracked the company for several years. Its evolution amazes her, particularly given its humble origins – four friends in a basement throwing in loose change to become equal owners.
“I think they are always ahead of the game,” Manke said. “I don’t think Craig or the company, itself, is reactive. They are always proactive and always on the cutting edge of what’s new, what needs their customers are going to have, and how they can serve them.”
Then, things began to change…
In each chapter of its history, PDS was faced with changing market dynamics that forced it to veer in different directions. Each time it changed course, it managed to dodge a bullet.
PDS actually started under another name – Memory and More, which offered memory chips for PC upgrades to computer resellers. The “More” in Memory and More meant that if customers ever received faulty memory, M&M would have replacements shipped overnight at its expense.
In the beginning, when many memory brokers were fly-by-night outfits, this promise was a differentiator, and the company was fast out of the gate. But after M&M reported $2.4 million in sales its second year, competitors got smart and the low cost of entry brought hundreds of memory brokers into the market. Profit margins narrowed and survivability became an issue, and M&M’s partners began shaping the company’s first reincarnation.
With channel relationships already in place, the second coming occupied a parallel space – computer component wholesaling. The company distributed all the parts that make up a computer, and business grew in a diversified model that saw M&M ship multifunction cards, floppy drives, and hard drives to resellers.
After a couple of years, consolidation began to erode the number of component wholesalers from 200 to only two – Tech Data and Ingram Micro – and M&M’s founders would have to be excused if they sensed déjà vu. “All of M&Ms reseller clients could now buy their components for the same prices as M&M,” Schiefelbein recalled. “Again, margins were thin and survivability was in question.”
Life number three occurred when the company decided to assemble all of the components into PCs and establish a reseller program. Company reps would go to Mom & Pop computer shops and provide training, parts, warranty reimbursement, and cooperative marketing dollars. It had the look and feel of a reseller program, and it worked. By 1992, M&M was a computer manufacturer and distributor to 600 resellers nationwide.
Needless to say, it was too good to last. Consumers became more computer savvy and abandoned small computer shops for mass resellers. The crude strategy that smaller computer companies employed to wrest market share from IBM began to backfire.
“They would take the cover off of the computer and say, “See it’s not IBM, it’s Intel, all computers are the same,” Schiefelbein said. “Hence, buy on price. It worked – IBM lost market share.”
In 1993, 200 resellers remained from M&M’s customer list, and despite aggressive sales efforts the following year, that number dwindled to 38. Once again, a bullet was heading straight for M&M.
To dodge this one, the company would abandon its client base and establish a direct PC purchase program in 1995. The M&M name was changed to Paragon Development Systems – Paragon being the name of the PCs – and the company’s fourth life would center on large enterprise accounts.
“We could provide product training, parts closets, and warranty reimbursements, and enterprise organizations could be self-maintainers,” Schiefelbein explained. “This was very popular in the late 1990s, and the company quadrupled in size over the next four years.”
Y2K give and take
That’s when the next shoe dropped. In 1999, with 100 percent of its revenue coming from PC sales, Y2K was beneficial because almost every business replaced its PCs. However, with customers breathing a sigh of relief because new PCs would avoid the perceived risks of Y2K, they had no need for a normal product replacement cycle.
With hardware purchasing at an all-time low, it was time to become a services company, which required a major cultural shift. PDS would spend much of its time helping the IT organizations of large companies improve the way they managed their life cycles, and its pattern of sustained revenue growth continued.
The final reincarnation occurred in 2003, when clients asked PDS to actually manage their IT assets rather than show them how. To incorporate this sixth business model, PDS invested millions of dollars to become an outsourcing option, but it enabled the company to do for clients what it has done for itself.
“The biggest growth sector now is helping clients develop an overarching infrastructure strategy,” Schiefelbein said. “It’s trying to make sure they have a virtual infrastructure that makes them agile.”
Along the way, PDS built a new headquarters in Oconomowoc and added offices in Brookfield and Madison, and its target market became medium and large-sized organizations. Many of them will be in attendance Sept. 27-29 when PDS holds its “Play to Win” conference in Madison.
The company’s agility requires a culture that embraces change, and it feeds that by providing its 215 employees a sense of ownership with profit-sharing, creative input, professional development, and the responsibility to innovate. It not only makes for a low turnover rate, an imperative in an industry with a worker shortage, it enables PDS to innovate both through reinvention and with ideas like its Rack N Roll packaging and delivery system.
Jim Rice, president and CEO of the Information Technology Association of Wisconsin, said the company’s emphasis on agility is “spot on,” but added that technology organizations cannot rely on strategy alone. “The question that it begs is: ‘Why?'” he noted. “The buzzword is agility right now, but what makes a company successful as an agile company, assuming that they embrace that, versus a company that embraces agility but is not successful?
“I think, based on my understanding of this company, that there is a culture and a leadership that really flows down from its CEO and founder.”
Strategy over tactics
Schiefelbein acknowledges that PDS would be out of business if it had settled for refining itself tactically to be a better chip broker, component wholesaler, or PC distributor. Instead, strategic changes were anticipated ahead of time so the company could evolve quickly enough to keep its growth record intact. It’s not an easy way to operate, Schiefelbein conceded, but it can be exhilarating if approached the right way.
“It’s the ability to recreate our business model,” he said, “that has enabled us to compete in this world.”
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