Value-Added Resellers : Tailor-Made Software Is Their Forte

Growing up in Pomona, Larry Cornwell watched his cabinetmaker father come home from a hard day’s work only to spend hours more preparing drawings and bids for the next day’s job. The image of his father toiling into the night stayed with Cornwell long after he left home, went to college and became a computer engineer.

A year and a half ago, the 32-year-old Cornwell finally was able to ease his father’s burden. He gave him a custom-designed computer program that in 20 minutes produced the same plans and paper work that took his father six to eight hours to grind out manually. The software program took Cornwell four years to write in his spare time.

But the story doesn’t end with Cornwell’s gesture of filial gratitude. Word of Cornwell’s computer program soon spread to other cabinetmakers in the San Gabriel Valley and throughout the state. Other shops began clamoring for the system, and Cornwell obliged--selling the software and a Zenith Data Systems personal computer for a total price of $8,000.

No Bank Debt

Business grew so quickly that Cornwell quit his computer engineering job at M/A-COM Linkabit in San Diego in late 1985 to open Cornwell Automation in Encinitas.

In his first fiscal year ended Dec. 31, Cornwell grossed $1 million selling systems to customers in 42 states and five foreign countries. He predicts that sales of his systems will double in 1987.

Cornwell has yet to borrow a dime from a bank and his only marketing expense last year for his system, called Cabinet Vision, was the cost of two visits to woodworking trade shows.

Cornwell’s success exemplifies a growing class of computer entrepreneurs called value-added resellers (VARs), the term for software publishers who sell proprietary computer programs “bundled” with computer hardware into tightly focused markets in which they have first-hand experience. Cornwell worked at his father’s cabinet shop to pay his way through college and knows the cabinetry business inside and out.

As a licensed Zenith Data Systems dealer, Cornwell is technically a retailer but sells only machines packaged with his software. Because he buys his computers at wholesale prices, Cornwell is able to offer customers the Zenith hardware at prices lower than those available from many storefront retailers.

As computers and software become commodity products requiring huge capital investments, value-added reselling has become a thriving frontier of computer entrepreneurship, said San Diego computer consultant Ted Crooks. “The fundamental problem of computers is applying them well to the job that needs to be done. That’s what VARs do,” Crooks said.

That service is helping Cornwell and other VARs grab a larger slice of the personal computer retail market, according to Dataquest, a San Jose-based market research firm. As many as 15% of the 7.1 million personal computers sold last year in the United States were sold through VAR channels, compared to just a 10% market share two years ago.

“When you buy a VAR’s product, you are getting more than software; you are getting expertise and knowledge of an industry,” said Hal Tilbury, president of Bluebird Systems, a Carlsbad-based VAR that posted $12.5 million in sales last year and specializes in software that allows a number of people to use the same IBM PC-AT simultaneously.

“You’re getting someone who’s like your attorney or CPA. You will probably be calling him on an ongoing basis.”

Personal computer manufacturers, including Solana Beach-based Kaypro Corp., recognize VARs’ importance to their bottom line.

Kaypro is about to introduce a program designed to triple its sales through VARs over the next couple of years, the company’s national sales manager Michael Reynolds said. To “entice” more VARs into becoming Kaypro dealers, the program will offer VARs a free telemarketing service and a more attractive pricing structure, Reynolds said.

VARs market themselves as purveyors of “turn-key” computer systems from which all the wrinkles have been ironed out. Cornwell said that’s a big selling point with customers who know as little about computers as most cabinetmakers. He spends a lot of time on the telephone “hand-holding” customers getting used to their computers, he said.

“These are craftsmen, not businessmen. The typical cabinetmaker doesn’t have a computer in the office yet. The last thing they want is to walk into a computer store and have some computer salesman crawl all over them,” Cornwell said. Attesting to the program’s value was Geoffrey Sanders, owner of Total Living Cabinet Co. of San Marcos, one of Cornwell’s early customers. He said Cabinet Vision helped TLC shave 9% off its materials costs last year with a feature that shows workers how to cut cabinet parts from sheet lumber with minimal waste.

Until recent years, VARs sold mainly larger computers. VARs, in fact, now account for 70% of all business computer sales, or those machines designed for two or more users, said Gwen Peterson, Dataquest’s vice president for computer products.

But over the last several years, VARs have become increasingly identified with personal computers as the PCs have become more powerful and as computer owners have become more focused on buying machines that offer a specific business “solution.”

“In the early days of PCs, you were seeing buyers with enough technical ability on their own to operate them. But to reach the next wave of less sophisticated buyers, retailers need to offer the value that VARs provide. Buyers want machines with solutions already built around them,” Dataquest’s Peterson said.

Computer consultant Crooks said that the growth of VARs is also a result of the “cross-fertilization of computer users with technical people.”

“Most of the start-up VARs spring from the industries they serve. As people in those industries have become more capable in applying computers, they have seen opportunities for further automation and have specialized in providing the tools needed,” Crooks said.

Indicative of the “vertical” or niche approach most VARs take to marketing is the fact that most advertise not in general-interest computer magazines but in “trade publications specific to their industry,” Crooks said.

Sensing that part of their business is slipping away, increasing numbers of storefront computer retailers are taking on characteristics of VARs, said Alice Brown, president of Dallas-based StoreBoard, a market research firm specializing in computer retail sales. Stores are trying to “differentiate” their products from other retailers’ by saying they are “selling solutions, not boxes,” Brown said.

“The big retailers have not moved into the proprietary software areas. But they are offering the hand-holding that has been traditionally done by VARs,” Brown said.