Reseller Trends Increase Commercial Business

Three leading government resellers try to increase revenues by seeking growth in the commercial markets they serve

While many successful businessmen subscribe to the credo, "Find a market, serve its needs and don't divert from it," a few of the most successful government resellers have implemented aggressive strategies for growth in the commercial market.

BTG Inc., Government Micro Resources Inc., and Sylvest Management Systems have all made commercial growth high priorities in their business plans, and they remain confident that they can attain success in the commercial market.

They claim to have found commercial applications for the existing services that they offer or to have developed new services without sacrificing what they have achieved for their traditional government customers.

Spurred by founder Edward H. Bersoff's entrepreneurial mandate, BTG Inc. wants to become a $500 million company by the year 2000 and a $1 billion company by 2002. BTG reported fiscal 1995 earnings of $156 million.

In order to transform the company and reach the $1 million mark, BTG needs to grow its business beyond the federal government market, which accounts for 90 percent of its revenues.

The Department of Defense provides BTG, which is a manufacturer, reseller and systems integrator, with 75 percent of its revenues. "We need brand-new customers and brand new markets," explained Brad Mack, the 650-employee firm's director of Business Development.

Mack reports that publicly held BTG is trying to use Internet services as a means of promoting itself in the commercial market. In part through its status as an official NetScape reseller to the federal government, the firm has gained expertise in Internet-related services. BTG now has its own home page on the World Wide Web and has designed home pages for firms such as Don Beyer Volvo, Spencer Gifts and the World Bank.

In addition, BTG manufactures its own brand of personal computer, the BTG AXP275, with Digital Equipment Corp.'s 64-bit Alpha microprocessor chip and promotes it to the corporate market. Tech Data Corp., Clearwater, Fla., the world's No. 3 computer distributor, carries the product at a time when the leading distributors have announced plans to pare down the number of vendors that they stock. This shows that BTG's computer has good potential. Mack said BTG has received more than 2,600 orders for its Windows Alpha model, and that approximately 1,100 have been shipped to date.

The Imaging Division of BTG offers full-text document imaging services and support through TeraSEARCH. Mack said this BTG product offers "superb full-litigation support." Because the Washington, D.C., metro area has one of the highest concentration of lawyers in the world, it should give BTG a fertile market for TeraSEARCH.

In Manassas, Va., Government Micro Resources Inc. has grown to become a $84 million manufacturer, reseller and systems integrator by selling complex solutions to government agencies, including the Army, Department of Justice, FEMA and NASA.

Currently, the 160-employee privately held 8(a) firm derives 70 percent of its revenues from government customers and 30 percent from commercial ones. Since it will graduate from the 8(a) program in October 1997, GMR needs to grow its commercial business in order to continue its impressive growth; the company's income has increased four-fold since 1991.

GMR needs to grow to help pay for its new 99,000-square-foot headquarters, spread out over three buildings on 13 acres. It also needs to keep its research and development plant in Mannington, W.Va., occupied.

Humberto "Tico" Pujals, GMR's founder and CEO, reports that the firm has expanded its commercial business, and he likes what he sees. "Our margins have increased since we've gone into the commercial market." Pujals expressed enthusiasm about the Internet as a catalyst for commercial business, and his firm will roll out an Internet services unit soon.

"We'd like to help large organizations get their message out to the world.... [pAges GMR would assist in developing would be similar to] L.L. Bean catalogs on the Internet." GMR also has a World Wide Web page under development.

Pujals said his company's success in fulfilling digital imaging and networking contracts with the government, as well as successfully delivering its house brand computer, the Rembrandt Master Series 2000, to fulfill customer needs will translate into success in the commercial market. Pujals said if GMR can fulfill customer network demands in large-scale operations, then small-to-midsize companies with less extensive requirements should represent a good market for the company, since their requirements are less extensive.

GMR's Rembrandt Series 2000 personal computer has CD-ROM speakers built into the hard drive that can play music while the PC performs multitasking functions, and a keyboard with an ergonomic design. Pujals hopes his company can translate this desire for quality into long-term success in the commercial market, instead of just a flash in the pan.

Sylvest Management Systems, a Lanham, Md.-based systems integrator that specializes in UNIX applications, has seen its commercial customer revenue grow to 10- to 15 percent of the firm's total revenues, since it started pursuing that market a few years ago. "It's our fastest-growing market," said company CEO and President Gary Murray. For a privately held company with a 60 percent growth rate that reported $60 million in revenues for 1994 and anticipates sales of $90 to $100 million this year, that's significant news.

Murray, a former CFO of reseller Falcon Microsystems (now part of GTSI, Chantilly, Va.), has an attitude that fits in well with mainstream corporate America, where open competition and past performance records are valued. He began his firm in 1987 with former Sun Microsystems Federal Sales Manager Bill Strang, who is executive vice president of Sylvest. Murray waited until his firm had $50 million in revenues before Sylvest applied for 8(a) status, and the firm's 8(a) business has never accounted for more than 30 percent of its total revenues.

A firm's "8(a) [status] can have a negative impression in people's mind. I don't like that," says Murray. "We shun relationships with companies that are teaming with us primarily because of [our] minority status. We need partnerships with people who have similar values. 8(a) has to be a means to an end for us."

The astute Murray has used 8(a) primarily to win contracts in cutting-edge areas where his firm does not have a foothold. Sylvest now has a specialty in geographical information systems because it used its 8(a) status to win GIS contracts, and those successes allowed it to hire GIS specialists.

When asked for characteristics of the commercial market and trends, Murray said, "Consultants are performing systems integration work in many instances.... There also has been a major move to open systems." When Sylvest started in 1987, "there wasn't a lot of emphasis on UNIX" in the corporate market, Murray reports, and government agencies led the way in jumping on the UNIX bandwagon. The growth in the market mandated that Sylvest open branch offices in Philadelphia and San Diego to deal exclusively with corporate clients.

Murray notes that during the past three years, companies have shown more desire to network and integrate disparate functions. "Engineering, executives, sales -- they want to work together in a synthesized, seamless fashion." Commercial clients do not usually have the highest level of technical knowledge of computers, Murray reports, but they know what they want.

Sylvest wants to give them what they want, so that by 1996, the firm will make commercial customers account for a quarter of revenue and a third of profit.

Meanwhile, Murray envisions the Products Division, which deals with reselling, to account for half of Sylvest's revenue and a third of profit while the Government/Complex systems integration division will give the firm one quarter of its revenue and a third of its profit.

Meanwhile, a growing number of commercial clients have asked Sylvest to help them with Internet-related services, so the company can increase its commercial revenues through that avenue. Sylvest has a Web page.

Murray has observed PC manufacturers and resellers move into the UNIX market. "We step away from contracts where PC people are bidding on low prices. UNIX isn't 'plug and play.' You just can't take it out of the box and install it." He predicts that workstation prices and profit margins will fall, as market pressures come to bear. "You have to provide a solution in order to survive," Murray said. He has a great deal of confidence that his firm will provide UNIX solutions for a growing number of commercial customers. In the meantime, his biggest problem is finding enough office space to house the headquarters of his rapidly expanding company.

Cautious business owners would probably grow their businesses more slowly than the men who guide BTG, Government Micro Resources and Sylvest Management Systems. Many successful contractors would not divert from serving the government market exclusively.

Because BTG, GMR and Sylvest have chosen to pursue growth and enter the corporate market in recent years, it makes them exciting companies which bear certain risks in diversifying. At the same time, though, they have more opportunities to grow and achieve even more success.

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