Services Drive Growth for Valin®

 

MDM: How are things going for you this year?

 

Joseph Nettemeyer:: We were up 19 percent in the fi rst quarter. I’m trying to get my hands around where we’re going to end up this quarter. I expect us to be up double-digit year-overyear.

 

MDM: What’s driving growth?

 

Nettemeyer:There are two things. One is we design and build custody transfer measurement systems for the oil and gas industry, and that business is going very strong this year. It’s doubling in size. They are one of our pleasant problems because we’re running hard to keep up with the growth in that group. And the other thing that’s contributing to the growth was at the end of last year we made an acquisition in the Northwest and those revenues on a yearover- year basis are contributing to the growth.

MDM: You have worked to build a more inte- 2012 MDM Market Leader Profile grated relationship with your customers, with a primary focus on services. How did that strategy originally develop?

 

Nettemeyer: We decided about 2007 that we were going to focus on acquiring businesses that would give us design-and-build capability on a selective basis. We’re not trying to produce the products that our suppliers supply to us, but we’re designing and integrating them into systems or subsystems that can be used by our customers and add more value. There isn’t a whole lot of value in product feature and benefit selling now; it’s about engineering and integration and software support, and those are the things that we’ve been investing in. We’ve bought a couple of small services businesses where we’re providing field service to customers on a contractual basis. That’s up to about 35 percent of our revenue now. And five years ago, it was less than 5 percent.

 

MDM: Were you surprised how quickly that grew?

 

Nettemeyer: No, we did it by design, and we had businesses we were targeting. We felt there was an opportunity there. We built that into our five-year plan, and then we made our first small acquisition at the end of 2007. We made five acquisitions in 2009, including a major acquisition of an automation business in 2009. In 2010, we got into the oil and gas industry. Then last year we bought a fluid power distributor with about 25 percent of their business in value-added in either on-site service or assembly of subsystems. They have a program that they have had success with at Boeing, in the Northwest, and we were pretty confident that we could grow that business in the other geographic areas we’re in because it’s a niche thing.

 

MDM: Do you have any more plans for acquisitions going forward?

 

Nettemeyer: We try to target acquisitions of about $15 million in sales a year. Some years we do a little more, some years we do a little less.

 

MDM: Definitely a critical piece of your growth strategy right now.

 

Nettemeyer: Absolutely. The industry has to consolidate, and we’re a consolidator. Since I came here in 2001, we’ve made 26 acquisitions.

 

MDM: Another service you offer is inventory management. What are you doing in this area? How does inventory management play into your services strategy?

 

Nettemeyer: Well, we’re doing a couple of different things. With some of our large customers, we will maintain on-site inventory. For example, with one of our customers, we have an embedded employee who actually works in the building and reviews their demands every day and triggers to us that we have to bring product in. It’s a cost reduction for them because they don’t have to have somebody to do it, and for us it’s a competitive advantage because we’re providing a service. They’re essentially outsourcing managing our portfolio of products to us. For some of our customers that are significant users, we have service trucks that go out and inventory the products, and we do it with wireless devices and transmit replenishment orders. We call that bid management. In a couple of cases, we’ve pushed our inventory to our customer’s facility and will manage it onsite for them, which they like. We do different things. We’ve been tinkering with the vending machines, but it doesn’t lend itself to a product that’s a little more diverse. Not all of it fits into a vending machine very well. We haven’t had much success there yet, but we’re testing a few with key customers, and we’d have to figure out how to make it work for us.

 

MDM: Another service you offer is fee-based educational programs. Could you outline what that is and how successful that has been?

 

Nettemeyer: We originally started that with a fee-based program on how to program PLCs and caliper sensors. It was a two-day school. We do pretty well with that because the engineers require that training. We just published a book on control valve theory written by one of our employees, and we’re starting to flesh out a number of programs. We hired a director of education two years ago with a Ph.D. in education, who spent most of her career in private sector education. She’s developing online programs, and we’ll be rolling those out here in the next 12 months. They are certificate programs. We plan in the next few years to have a series in our key product portfolios where for a fee, somebody can come on, take the course, and get certified. I think training provides us with a couple of things: It gives us access to customers, and it gives us the opportunity to be thought leaders.

 

MDM: How long have you been doing that?

 

Nettemeyer: We started experimenting with it about four years ago, and that’s what led us to make the decision to hire someone who knows how to put these programs together. She is also charged with developing internal training programs. The real challenge that we have when we make acquisitions is getting the new employees oriented with our business approach and culture, and she’s been putting a lot of time into that because by acquisition, we’re probably adding anywhere from 25 to 40 employees a year.

 

MDM: A lot of people say “we provide solutions,” but it sounds like you have actually taken a very strategic approach to making sure that’s what you’re actually providing.

 

Nettemeyer: That is a key part of our strategy. It’s one thing to talk about it, but you have to execute on it, and the good news is, as we continue to advance and the more engaged we get in each of these initiatives, our understanding of the opportunity expands. We just have to contain ourselves and say, “Okay, let’s stay on our schedule. Get this thing done, and then we’ll move to the next opportunity.” The biggest challenge for me is to make sure that the organization stays focused and we don’t start chasing things – that we just keep addressing the opportunities in a orderly fashion.

 

MDM: You have succeeded in being able to charge for services and grow that part of your business. This can be a challenge. What kind of advice or lessons learned can you offer other distributors? Why is it so difficult, and what are some thoughts for distributors who want to move toward a more strategic approach to services?

 

Nettemeyer: Don’t confuse market management with market communication. Spend the time to break the market down into targeted niches. We’ve made a big shift in that approach. Now there has got to be justification, and we have to understand what the opportunity is before we will put capital into it. So we’re becoming more market management-focused, and we’re trying to take macro-market segments and break them down into niches. And then work at ascertaining which niches we can create a competitive advantage in. You’re migrating a culture from a proverbial shotgun approach to one of marksmen and snipers. We need to really understand what we want to go after. And then build a portfolio of products and services around that that gives us a highly defendable position. Many companies pride themselves on customer relationships, but if your relationship is based on your products, your differentiation, at some point, becomes price. You’ve got to bring other values into that, such as engineering or manufacturing assistance. Or it could be inventory management assistance or educational. You have to bring people into your organization that are good at identifying opportunity and carving out those niches. I don’t want to chase a billion dollar market. I want to find the most profitable opportunities within that and see if I can build a business model that gives us an opportunity to have a dominant position. I think people confuse marketing with advertising and literature. You have to do the analysis. You have to become more data-oriented. That’s the biggest challenge.

 

MDM: Do you struggle to find the right people to fit into that culture or do you have a strategy to ensure that you get the right people in place? It seems that would be a huge part of making sure that this approach works.

 

Nettemeyer: Three years ago we were really struggling with that. We were struggling because we needed a larger company approach to identifying and recruiting talent, and we were still kind of mom-and-popping it. We went out, and we benchmarked best practices. And we put a whole new hiring process in place. It’s taking us longer to fill jobs, but I think we’re doing a better job of getting the right people. In the past, we were hiring quickly, and we just weren’t rigorous enough in our hiring process.

 

MDM: What role does e-commerce play for Valin® given your approach to the market?

 

Nettemeyer: We view our website as an important communication tool for us. We’re loading it with a lot of technical content that’s important to engineers, but at the same time, we are putting all the transactional capability in that. As one of our services, we’ve been providing customers with a personalized page, and all they have to do is go on and populate the quantities they want to buy. If they want it right now, it’s in the warehouse to be picked up in 10 minutes. We think service is going to be a big part of going forward. We’re finding as the newer college graduates are coming in, more of them want to get their information via the Internet. So we have to be content-rich. We’re up to about 17 percent of our transactions coming through now electronically. We’d like to get it to 35 percent in the next five years. You have to keep making people want to use your site, so we will continue to spend money in that area.

 

MDM: In addition to current customers, you also get exposure to new customers through your website?

 

Nettemeyer: Yes. We’re spending a lot of time on search engine optimization and search engine marketing. We have a customer newsletter that goes out that talks about our products and services that we’re featuring, and we put links in to drive them back to our website. What’s happening is customers want you to be able to communicate with them in some other way than having a salesperson visit. Investing in more salespeople isn’t going to give us the same results. My children are all in their 20s and early 30s now, and they don’t want a salesman coming over. They want to get online and find out what they need and get it done. That’s a big change, and I think we’ve been fortunate to recognize that. It’s paying dividends for us. I think we’re on the right path, but we’ve got a lot to learn yet.