The Hunt for Growth in a Mature Category

In the 1980s, Kodak must have felt on top of the world. Revenue surged upward toward its 1996 peak of $16 billion. At the time, Kodak was one of the most valuable brand names in the world, with 90% share of the US film market. Admittedly, it started to feel price pressure as Japanese competitor Fujifilm entered the US market, but there was still ample value for both players.

At the start of the new millennium, the two companies were neck and neck in global revenues, and both still relied on film for a strong majority of profits. But, this was all about to change: both faced rapid demand declines as consumers switched to digital cameras. The two companies embarked down very different paths in the early 2000s. Kodak never found a replacement for its declining film base, while Fujifilm successfully diversified into multiple adjacent industries.

The Kodak example is not uncommon. Success can breed resistance to change. After all, why turn away from everything that got us here? Even when they spot trouble on the horizon, business leaders can be hesitant to abandon a historically successful model. Kodak and Fujifilm both foresaw the digital future years before it came to pass. In fact, Kodak itself created one of the first digital cameras in 1975. Foresight is not the critical differentiator in this tale.

Business scholar Clayton Christensen coined the term “innovator’s dilemma” to describe the phenomenon whereby large firms lose out to new innovations from upstart competitors. New products have a predictable lifecycle. They rapidly grow from new user adoption. Eventually, the growth slows when the addressable market is tapped. Inevitably, sales start to shrink as new generations of users substitute alternate products for the same need.

The solution is continuous innovation. Growth in new products can offset the decline in old ones. But, few leaders greenlight innovations that could cannibalize existing revenue streams. Instead, they double down to fight the decline rather than hunt for new growth verticals.

Office print reaches maturity

Analysts have predicted the death of print for many years. While likely overblown, we do face the reality that office print offers weak growth potential. Everyone who wants a printer has one. Everyone who wants to print does. The market is largely tapped. Many IT buyers want to shift spending to newer and more exciting areas. This is what category maturity looks like.

Low growth is not catastrophic, but it does change the game. Print will continue to offer value for the channel for many years. But, it will be hard for dealers to grow, and competition will become fierce as players fight over a shrinking pie. Prices will fall, eating into margins, and industry consolidation will pit you against much larger competitors. If your goal is to grow, expand, and position your business for long-term success, there are better paths.

Reframe your mission

It is easy to fall into the trap of calling yourself a print vendor to the exclusion of all else. When you believe the whole world is office print, the market can look bleak. But there is so much more out there. This channel has the potential to offer far more value to its clients than print alone.

Instead, I prefer the term workplace technology. This channel should be in the business of helping IT leaders use technology to make the workplace run better. The face of the workplace might change over time. New technologies will emerge, and old technologies will fade. But, the channel has an enduring role in guiding IT leaders through this evolution.

Proven pathways

When I speak with dealers about expansion opportunities beyond print, there is great excitement tempered by self-doubt. Will I be able to sell this? Do I have the technical expertise? Can I make money doing this? Will I have credibility with my clients? Where do I start? 

Expanding into a new solution category is less risky than you think. A lot of the unknowns have already been figured out by others, and distributor and manufacturer partners can offer considerable support. You do not need to do it all alone. In fact, there are four well-worn pathways you can follow, and some of them are pretty close to home.

Specialty print. When we talk about print, many of us are focused on office laser print only. However, there are other emerging print segments that offer promising growth prospects: label printing, mobile printing, and MICR check printing. Collectively called specialty print, these are easy areas for print dealers to grow into. It is familiar technology to your sales and service professionals. The hardware, supplies, and service business model is similar to office print. You might even be able to leverage existing manufacturer relationships. Most importantly, market demand is growing for specialty print products, giving you an opportunity to win business.

Data capture and content management. Why not consider another document imaging segment – scan? I often wonder why more print dealers have not already caught on to the scan opportunity. It is a large and growing market. The core technology is familiar; after all, every MFP is just a printer with a scanner attached. Plus, there is good money to be made by combining hardware, software, and maintenance in one package like dealers do in print.

There is also a strategic rationale: anything you can do to win CIO attention at a client is good. Digital data management and workflow automation are top of mind for nearly all IT leaders. Hybrid and remote work have accelerated the long-term trend of digital data management. IT leaders want records cloud ready for easy access, which requires smart digitization of paper records. Once the data is digitized and indexed, the real fun begins: AI-driven advances in content management software allow for total automation of tedious tasks like mailroom sorting or invoice entry. With these solutions, you are no longer just selling a device; you are an essential partner in streamlining processes for efficiency.

Audio/video and conferencing. Digital display technology is not new, but lower prices and post-COVID work norms have swiftly accelerated adoption. When I started my career, a typical conference room had a Polycom spider phone and a whiteboard. That was it — even at Fortune 500 offices. Fast-forward to today, and that is a bare bones setup. Now, I rarely enter a meeting room that is not equipped with a display, microphones, speakers, and webcam at minimum.

What changed? First, prices have fallen on these devices, which has broadened access. Home users can now buy a 65-inch LED smart TV for less than $400, and the same trend has taken place in B2B. Second, remote work during COVID drove rapid adoption of video meeting technology. In 2019, I could probably count on one hand the number of video meetings I joined. In 2020, nearly every conference call was a video meeting.

Those dual trends have enabled and compelled IT leaders to rapidly outfit office collaboration spaces with video devices. While some offices demand bespoke setups requiring specialist design and implementation services, many organizations want simple, flexible, and affordable setups that are easy for most dealers to provide.

Computers and peripherals. The IT services model developed by MSPs gets a lot of attention in the imaging channel and not without good reason. As business IT needs grow, many SMBs struggle to manage them in-house, powering a wave of outsourced support providers. Margins are often healthy at scale. Revenue is guaranteed in multi-year contracts. The EBITDA multiples have historically been much higher for IT businesses than print businesses.

While this jump makes sense for some print dealers, many will struggle to make it work. The target customer is different: print dealers pursue large hospitals, school districts, and other major accounts; many MSPs focus on small offices without IT departments. It is expensive to build up the capabilities: you will need new infrastructure and personnel on day one even if you have no revenue. Plus, managed IT is going through its own transformation from on-premises to a cloud model and from RMM to a security focus.

In fact, I worry the IT services prospect distracts from a more accessible opportunity in IT hardware. Virtually every office worker in the country has a computer connected to an array of peripherals – monitors, docks, webcams, and more. This is a massive market with a built-in refresh and upgrade cycle. Even at lower percentage margins than print dealers are used to, there is considerable value in computers: prices and volume are high, and peripherals and accessories offer strong margin add on potential.

There is a more fundamental rationale for selling these products: IT is centered on the idea of the computer. IT leaders are invested in the core user workstation. A hardware focus can actually help boost services revenue should you go that route, and successful MSPs often source more than one-third of their revenue from hardware. Simply put, offering computers and peripherals builds your credibility as an IT vendor.

Where to go from here

There is no shortage of opportunity, and today is the perfect time to take the first step. Where to start?

• First, listen to your clients and understand their needs. While each expansion pathway is broadly applicable across verticals, your unique client relationships will be a better fit for some solutions than others.

• Second, honestly assess your core capabilities and build an approach that takes advantage of those strengths. Do not force fit an offering that you will not be able to do well.

• Third, critically evaluate partners to curate a winning portfolio. It is about more than raw product quality or price point. You need partners who will invest in your success and offer support resources to help you learn a new space.

• Fourth, commit to investing considerable effort over 6 to 12 months. Expanding into a solution category does not happen by accident. It must be a focus for the whole team in order to succeed, and it will take time to build traction.

• Fifth, be willing to reevaluate and pivot in real time. There are learnings in any new venture, and you will want to try new things based on that. Do not be afraid to experiment as you go.

Consistent innovation will keep you ahead of the curve and offer growth even in challenging markets. By expanding into new areas, you are delivering new growth potential to your business and new ways to add value for your clients. Set your business up for success and take the first step today. Lean into the disruption in our industry – do not fall victim to it.  

Philip Crean
Philip Crean

Philip Crean is chief commercial officer at Image Star, a nationwide distributor of hardware, software, supplies, and services for the workplace technology industry. Philip has spent his career charting paths for growth in mature and complex markets. Since joining Image Star, Philip has developed a passion for helping independent print dealers expand into new technologies.