It was all explained to me a decade ago by well-known SBSer and SMB Nation member Bob Hood from Chicago, IL. Loosely translated he indicated many a wise person has gone to their grave trying to “beat the street” in investor parlance. Yet it seems that Harrisburg, PA-based D&H Distributing has done exactly that according to its most recent quarterly report. Because D&H Distributing in privately held, it doesn’t file standard reports like a 10K statement so it’s a bit difficult to confirm its growth; it doesn’t report revenues or earnings. But taken at face value, here is what I know about D&H’s success in beating the street.
Top Growth Categories at D&H, September to November 2017 (year-over-year):
Digital Signage 51%
Connected Home 42%
Server Products 36%
Network Security 26%
Workstations 19%
Wireless/networking 17%
Notebooks/desktop 14%
Printers 13%
Server-side
Gartner reports that server shipments grew 2.4 percent in the second quarter of 2017 after declining 4.2 percent in the first quarter of 2017. IDG reported similar numbers. If you look closely above, D&H is reporting that Server Products are up 36%, clearly a case of beating the street. But hailing from Seattle and the home of Microsoft Servers, forgive me for being a bit skeptical. I dug a bit deeper.
First there are two different measurements. Gartner and IDC are measuring server shipments. D&H is measuring the category of server products. So the growth rates don’t align (not apples to apples). D&H offered the following as sources of server-side growth.
1. Server refreshes – Small businesses tend to lag behind in upgrading technology. There are a number of five to ten year-old servers out in the small business channel running Windows Server 2008/2008 R2, and we are seeing a bit of a refresh cycle for that market.
2. Component and accessory add-ons – Many competitors and peers in the channel focus on selling a lot of inexpensive servers. D&H focuses on selling servers built to last. We sell more memory and hard drives per system than our competitors, on average. We sell upgraded RAID solutions on average far above the channel. We sell remote management modules, encryption modules, premium RAID keys, and other advanced technologies, even on servers for small businesses. All of these items are sold based on the value proposition of each one. The greater market tends to selectively overlook this strategy.
3. More sophisticated server solutions – D&H actively recommends high-availability solutions for our clients, typically two or three servers and an iSCSI or FC SAN. Most of the channel reserves this kind of solution for the mid-market and up, but there are a lot of small businesses who rely heavily on their data and systems being available. Those are the customers we cater to.
4. Focus on new technology – when Intel brings out a new family of technology, we drive that message in the market not only through our Intel customers, but through our HPE and Lenovo DCG customer bases, also. We find that we traditionally get a head-start on selling the latest and greatest by educating our customers on the value proposition and business advantages of moving to a newer technology platform, which tends to bring some server upgrades onto the calendar for D&H and its customers.
Any way you slice it, it’s both bold and impressive that D&H can beat the street. It’s niche focus on small business has resulted in extraordinary returns from expertise.
Forward looking
D&H is headed towards it’s 100-anniversary and it expects to add a 5% increase in its customer base over the next 18-months. “The distributor foresees significant opportunities for resellers who are looking to expand, as the industry faces a potential SMB back-office refresh cycle, spurred by the latest end-of-service dates for Microsoft Windows Server 2012 solutions.” What it’s referring to is the end of mainstream support on January 9, 2018. You read it here first!
