Paradise found

Jul 01, 2006 9:30 PM  By

The name Wayside Technology Group probably doesn’t ring a bell. But if you are a software professional or a longtime follower of the catalog industry, you may recognize the former name of the company: Programmer’s Paradise. Even as the Shrewsbury, NJ-based distributor of software for engineers and other computer professionals changes its corporate name this month, it retains the Programmer’s Paradise brand. But Wayside includes two other divisions as well: Lifeboat Distribution, the company’s wholesale division, which focuses on building partnerships with emerging software publishing companies, and TechXtend, a new division set up to provide software and hardware installation services.

The name change doesn’t symbolize a desire to disassociate the company from its flagship brand. Rather, says CEO Simon Nynens, it signals the company’s identity as a unified and integrated technology company. Programmer’s Paradise, he says, sounds too “cataloglike.”

Not that there’s anything wrong with that. After all, as Programmer’s Paradise the company nearly doubled its sales during the past two years alone, from $69.5 million in 2003 to $137.6 million in 2005. And according to analyst James Devlin of Uniondale, NY-based investment firm Henley & Co., the company is projected to reach $165 million in sales this year.

Devlin, among others, credits much of Programmer’s success to CEO Nynens. Although the 34-year-old was named to the post only this past January — replacing William H. Willett, who remains chairman — Nynens has been with Programmer’s Paradise for eight years, having previously served as executive vice president and chief financial officer.

“Simon certainly has a clear vision of where he wants to go, and he has the ability to recognize niche opportunities that are really important,” says Jeff Largiader, vice president of sales and marketing, who has been with the company for 23 years. “The TechXtend initiative is an important one for the company to differentiate itself from other resellers.”

A low point — and a turning point

The last time Programmer’s attracted much media attention was in 2001, when it sold its European operations to Leipzig, Germany-based PC-Ware Information Technologies for nearly $12.8 million. The European business, which sold in the U.K., The Netherlands, France, Italy, Austria, and Germany, accounted for 59% of Programmer’s $217 million in revenue in 2000 — but also contributed $5 million toward a total loss of $17 million. (An $8 million write-off of goodwill and a $2 million loss on the actual sale itself also contributed, Nynens says.)

“We went into Europe in 1992 with an Italian subsidiary going bankrupt to see what we could do there,” Nynens explains. “We started buying companies in Europe and never really integrated them. Our revenue became entangled. There wasn’t a tremendous amount of synergy. It was difficult to integrate the companies.”

That’s why Willett asked him in 1999 to restructure the European companies in an effort to sell them. “It took me half a year to do that and another nine months to sell them,” Nynens says. Revenue for Programmer’s “took a hit,” he admits, but that was to be expected. “We took a loss in 2001 of $4.5 million,” he says. “We wrote off everything and in 2002 focused on business.”

Part of that focus entailed stringent belt-tightening. “When I became CFO in 2001, I really went through all the expenses, including pens and pencils,” Nynens recalls. “We really tried to preserve cash. That really helped us return back to profitability. When you have a very low-margin business” — typical margins for business-to-business software are around 10%, he says — “you have to control your costs. We closed our credit facility and paid off $6 million.” The company returned to profitability in 2002 and has since been profitable, Nynens says.

The other part of the plan focused on expanding beyond the lower-cost, low-margin software development programs that made up the core of Programmer’s product line. To that end, the company expanded its Lifeboat Distribution subsidiary, which Nynens says had always served the competitors of Programmer’s Paradise — other resellers — with the specialty software that Programmer’s sold directly to the end users.

“When the company restructured in 2001, Lifeboat got a major boost from its strong relations with the software publishers,” says Nynens. Lifeboat now accounts for more than 60% of the company’s overall revenue.

Visualize this

Lifeboat Technology really made waves when it expanded into sales of virtualization software five years ago. As Nynens explains, virtualization software allows a single host computer to create and run one or more virtual environments. The software is most often used to emulate a complete computer system in order to allow a guest operating system to be run — for example, allowing Linux to run as a guest on top of a PC that is natively running a Microsoft Windows operating system. Currently a small number of servers are virtualized — estimates range from 5% to 10% — but computer analysts expect this number to skyrocket during the next few years.

“The key to growth for Lifeboat is to represent more software publishers as their distributor,” Nynens says. With its strong ties to Programmer’s Paradise, Lifeboat appealed to many software publishers, who thought highly of the company as a service-oriented direct-to-user seller. “As Lifeboat was, and is, known for its friendly, professional, and knowledgeable account executives, more and more software was purchased through Lifeboat Distribution,” he says.

According to Nynens, most companies that add virtualization software hire outside help to install the software and migrate data from one server to another. This situation led to the launch this year of TechXtend. “We started with a couple of consultants and are now growing this new business,” he says. “We’re going to add to that a hardware offering and a software offering because a customer wants everything.”

TechXtend will be a wholly owned subsidiary of Wayside Technology Group and will focus on chief information officers and other C-level executives. TechXtend will have a separate catalog, sales force, and marketing strategy, as well as a new Website.

Catalogs still key

Although Wayside markets to computer pros, print catalogs remain a key element of its contact strategy. Last year the company mailed approximately 2 million catalogs. Its house file stands at about 500,000.

“We’re concentrating on the flagship Programmer’s Paradise catalog, but also on Lifeboat and TechXtend,” Largiader says. “They’re very well received and continue to be extremely popular with the developers.”

The Programmer’s Paradise catalog remains the company’s flagship publication, Largiader says. “We use a magalog approach and provide news and information about software development products, including in-depth descriptions, articles, promotions, interviews, and technical briefs.” It mails six times a year.

In addition, Largiader says, “we’ll produce and mail specialty catalogs depending on what’s happening in the market.” These may be dedicated to a particular technology, software category, customer segment, or vendor. “We have offered specialty catalogs this year supporting the Windows.Net platform, the enterprise as a category, corporate developers, and vendor-dedicated catalogs for VMware, Intel, and Software FX, as well as an annual publication focused on our ‘riding the crest’ top-selling products.” The company also mails catalogs specifically for government and education customers.

Interestingly enough, only a small percentage of sales are completed online, as many companies still require purchase orders. “But 100% of our customers are online and review our Website in order to select the right software,” Nynens says. “We are now working hard to release our updated Website in July. This Website is built on Microsoft Commerce Serve 2007 software. We are a beta-team member for this software release and will be one of the first to release a site built with this technology.”

The new Website will feature several state-of-the-art features, including customer-specific pricing for major customers, faster checkout, and videos with product demonstrations. Later this year Wayside will add “tips and tricks” sections to its Website, in effect creating a portal where developers can exchange the latest and greatest about products and help each other with questions regarding functionality.

“We can’t just focus on price,” Nynens says. “We need to have additional information for the customer.”

Gearing up for growth

In January, Nynens presented three company objectives: to grow gross margin in terms of dollars; to focus on net income; and to improve the productivity of sales employees. How does he plan to achieve these goals? By investing in IT, marketing, and human resources.

For instance, he explains, “we invest in technology to facilitate EDI [electronic data interchange] transactions with our largest customers, resulting in a lower cost of doing business for both the customer and us and higher productivity per sales employee because they can serve more customers.” The EDI solutions were in place in April; the company is now rolling out the technology for most of its Lifeboat customers.

Wayside is also spending heavily on technology. For instance, all employees recently received new 19-inch flat-screen monitors.

Some changes are less high tech and more high touch. The company has removed all its vending machines selling soda and snacks; instead it now provides free fruit for workers. Employees also receive free shirts embroidered with the logo of their division. “If you want employees to care about the company, it starts with involving everyone,” Nynens says.

Along those lines, after Nynens returned from an advanced management program at Harvard University last fall, he initiated “change” meetings involving all employees. “Every single employee was able to come up with new ideas,” he says. “We handed out the book Our Iceberg Is Melting, from John Kotter, the change management guru from Harvard, who also was available over the phone to help us with this process.”

The meetings have resulted in employee buy-in for the changes made and have also led to an increase in productivity because of employees’ increased satisfaction, Nynens says.

Wayside has also set aside a significant budget for events. The staff elected five co-workers to form an event committee, which has total freedom as to how to spend this budget. So far, Nynens says, “we have had a bowling event, happy-hour events, and a ‘family fun’ day with a picnic and a boat tour are the next events. As you can see, I am very passionate about the company.”

But Nynens realizes the difference between a sprint and a marathon. A lot of companies fall into the trap of generating quick revenue growth to please investors he says. “In 2001 we were always giving guidance [to Wall Street analysts]. I said we shouldn’t give guidance — let’s focus on the business and people, and let the chips fall where they fall.”

Bottom line, Nynens says, “you can’t have the short-term approach because it will kill you in the long term… I want us to focus on net income, building operationally, and setting this company up for growth.”

By the numbers

Year founded (as Programmer’s Paradise): 1982

2005 net sales: $137.6 million

2005 net income: $2.8 million

Number of employees: 110

Number of SKUs: about 76,000

Circulation: Mailed approximately 2 million catalogs in 2005. The company’s house file has about 500,000 names.

Ranking in BusinessWeek‘s list of the country’s fastest-growing small companies: 8