When Dollar General was shopping for a single vendor for its phone systems, Norm Worthington figured they would do the same thing as most big companies. They would call up Verizon or AT&T. He also knew that those companies didn’t have the answer.
“They found us instead and realized that we really are the only ones that could do it,” says Worthington, the founder and CEO of Star2Star Communications LLC, a technology company that delivers Internet telephone systems and services for business communications.
Today Star2Star provides phones at all of Dollar General’s 10,000 stores in North America. One of the key differentiators from competitors is that the company — which generated revenue of $10.8 million in 2010 — leverages a diversified, international network of distributors to sell its solutions.
Smart Business spoke with Worthington about how companies can improve costs and reach more customers by leveraging established distribution channels for sales.
What kinds of companies benefit from using established distributors rather than a direct sales force?
If you’re only going to serve one city, well maybe it makes sense to have your own sales force; but if you’re saying I have technology that lets me cover around the world or North America, then for logistical reasons, I need to have a distribution that lets me rapidly be there, be across that whole geography. You can only do that effectively by connecting with established distribution channels.
It’s a lot less expensive to use established channels than to build your own. This is another built-in advantage if you’re looking at it as a financial decision. Unless you have a very, very low cost of operations, and this again is driven by your technology, you really can’t put the product or service out at a competitive price while paying your distribution channels a share of the revenue that they expect, and then have enough left over to operate your own organization. I think we’re very unique in that the special technology that we have allows us to operate at such a low cost that we’re able to do that. So we could in fact leverage the distribution channel without having to raise the price to an uncompetitive level.
What are keys to operating this kind of distribution network effectively?
I think the most important thing on that is that you have to be culturally committed to it. Here’s the reality of dealing with the channel: Your partners are sometimes going to be challenging to deal with. There’s less margin in it than if you do it direct. So there’s a continuing tension, continuing incentive to kind of carve out special exceptions. The classic case is start off this way and you end up creating a direct sales team or a government-direct sales force. You have these special exceptions instead of involving and engaging your partners. That sometimes has some kind of advantage in the very short term to revenue or margins, but in the long term you just destroy the trust in the channel because every one of your customers, your dealers, wonders whether they’ll find the lead, make the introduction, do the footwork on the sale and then have it stolen away from them by the parent company.
What can business leaders do to reinforce the cultural commitment?
It’s being as considerate and as sensitive as you can be in providing information to your distribution partners. It’s easy in the rush of business, especially when you’re doubling every year as we have for the last five years, to make the improper assumption that because you and everyone that you see on a daily basis knows something, that of course, everyone else knows it too. It’s a common error. So you have to really keep at the forefront of your mind what has changed, what has to be disseminated to your partners and how best do that.
Trust and confidence in the channel goes a long way. So if you fumble or stumble on something you’ll get a second and a third chance. And if you introduce something new, it will be reached for, taken and adopted much more readily than if that trust and confidence doesn’t exist.
How to reach: Star2Star Communications LLC, (941) 234-0001 or www.star2star.com
