Data#3: Cautiously optimistic

Data#3 has been a real success story over recent years. Matthew Sainsbury sat down with managing director, John Grant, to discuss the course he’s taking to chart the company through the troubled waters of the current economy.

Cautious optimism best describes Data#3, and managing director, John Grant’s expectations for 2012.

The company, which has enjoyed healthy growth over the last few years, has continued to post positive expectations and reports despite what Grant terms a “cautious” market. On January 30 it posted to the ASX an expectation of revenue growth of 15 per cent for the six months ended December 31, 2011.

The caveat in that is that profit for Q4 will be slightly down on the same period last year at 9.5 per cent, but it’s far from a sign the company is struggling, Grant claims.

“Our results have been influenced by what we choose to do, and we chose to maintain a level of investment in the first half, which has eroded a bit of the profitability, so when we say ‘down nine and a half per cent,’ that’s down compared to the same time last year, and we had an exceptionally strong first half last year,” he said.

This is growth that is almost entirely organic. Data#3, in a stark contrast to the strategy of acquisition tat propelled fellow reseller, Anittel to a revenue growth of over 1000 per cent over three years, is not interested in making acquisition. Grant would like to see it expand its geographic presence, especially in south and western Australia, but not by buying into existing, established companies there.

“We keep our ear to the ground on that but we’ve not been a prolific acquirer at all,” Grant said. “We’re pretty hard markers, so I’m not factoring in any growth other than organic growth this year.”

That is not to say the company is being passive or conservative, however. In a potentially risky move, it recently announced a substantial partnership with EMC, a major rival to some of Data#3’s other partners. The vendor itself does fit with Data#3’s strategy to partner with the premier multinational vendors, but the solution to allay potential fears from those partners? Make substantial commitments to maintain the business with those corporations.

“We invest heavily with our strategic and key vendors. We go to market together. We support that go to market with investments in the right expertise within our business from both a design and delivery point of view, and that’s been very successful for us,” Grant said. “And it sees us in the top rung of resellers in terms of those global vendors which is exactly where we want to be.

“There’s no way we’re going to sacrifice what we’ve got, but EMC offers another significant market opportunity.”

Spreading the business around

Integral to Data#3’s success is in covering a wide range of technologies, and keeping its finger on the pulse of the market. Where some areas of the market are showing signs they may be flat in the near term – Grant isn’t expecting an explosion of demand for datacentre technology as the cautious environment puts pressure on organisations to make the most of their existing technologies.

The supply chain part of the business is also proving to be flat. What growth Grant expects from that section of the business has more to do with substantial investments in efficiencies in supply chain that Data#3 is making than an upswing in demand.

But in other areas there are very positive signs indeed. A new business, dubbed workforce productivity, works around using the application software at the desktop to give users a more productive personal working environment. There are high hopes for that, Grant claimed.

“It’s a small practice at the moment but the response from the customers has been excellent, so we see that continuing to grow,” he said.

Data#3 has also invested in software development (it’s a partner to Microsoft in that space), and, of course, the licensing and Cloud business. Like everyone in the IT industry, Data#3 has quietly built capabilities around Cloud, though it takes a more balanced approach than some of its rivals.

“Our position is the message that the IT industry has been giving our customers and the marketplace generally that it’s all about Cloud is an unrealistic message,” Grant said.

“It’s actually about transition to cloud and offering customers solutions in appropriate areas of technology and application. Customers are going to be dealing with a hybrid environment for a very long time, if not forever. We’re an organisation that will provide choice.”

Looking inwards

In addition to searching through the market for opportunities for growth, Grant said Data#3 would continue to push for internal efficiencies. One of his great concerns is the current cost of people, with a significant amount of Data#3’s overhead coming from its people.

The company has made substantial investments in improving its own efficiencies, as the company has found its margins somewhat compressed, and is carrying more cost than Grant would like.

“We’re trying to drive greater productivity for all the people in the business. We’ve done that through new premises investments, new systems investments and creating a much more mobile environment for us to work in,” he said. “We’ve also worked on the systems behind our business from document management and all of our collaterals and so on. Operating very efficiently is core to us.”

The business culture running Data#3 is not Einsteinian in complexity, Grant joked. It’s about basic principles of business: maintaining good customer and vendor relationships. More importantly, it’s vital to back up what you say you can achieve.

“That customer focus is really clear, but unless you’re capable of what you say you can do it doesn’t stack up,” Grant said.

“I don’t think this is Einstein-like stuff. A you’ve got to understand what your customers are trying to do, and you’ve got to make sure you connect what you’re capabilities are to what your customers need to do in order to get their outcomes.”

Financial expectations

Data#3’s upward trajectory continues, with the Brisbane-based integrator forecasting first half revenue growth.

The integrator is anticipating revenue growth of 15 per cent for the six months ended December 31, 2011, which it claims is “well ahead of overall industry growth.”

It is also quoting an expectation that profit is expected to be 9.5 per cent down on the previous quarter, but “well ahead of the long term trend”.

Data#3 managing director, John Grant, said, “This is a very solid first half result, consistent with our expectations and ahead of the trend of recent years.

"Data#3 has achieved strong growth in revenues during a period of challenging industry dynamics. This performance is indicative of the company’s continuing ability to win market share.”

The greatest impact of the uncertain global financial market and local political issues was on the business’ product and integrated solution’s business, the Data#3 statement claimed.

However, this was offset by growth in software licensing, managed services and the people solutions business.

On the new EMC partnership

Data#3 has announced a new partnership with EMC, one of the world’s largest storage vendors.

The integrator has become an EMC Signature Partner, the highest partner level possible, demonstrating that the integrator has made major investments into the partnership.

The partnership was a year in the making.

Data#3 group general manager, Laurence Baynham, said the partnership was a reflection of the increasing demand for data in customers. "It's consistent with our strategy to partner with world leading vendors," he said.

Data#3 already partners with IBM, HP and NetApp for storage, but Baynham is confident Data#3 will continue to grow all businesses.

"We've always had competition in our products," he said. "We have significant growth plans with all of our storage vendors."

The EMC product range has been identified as a complementary one to the existing Solutions Framework that Data#3 offers customers, and will apply across the integrators on premise, Cloud and hybrid offerings.

Baynham said the attraction of EMC now was threefold: it offered a complementary product range to Data#3's existing portfolio, it has made significant inroads in software that is proving influential in customer demand, and it's made big strides in improving its attraction to the channel.