Don't Let the 80/20 Rule Justify Stagnation
The Pareto Principle (or 80/20 rule as it’s commonly known) is an interesting thought exercise. Generally speaking, I fully believe that focusing on where the most value is being produced is usually the right approach. But I think that 80/20 also provides an easy way to justify stagnation through confirmation bias—something that’s clearly an issue in the imaging channel.
In a recent meeting with a dealer, they expressed hesitancy to focus resources on trying to capture transactional supply orders. They're historically a managed contracts shop, and are having trouble wrapping their head around the opportunity on the transactional side.
Their statement was something to the effect of, "if we look at things through an 80/20 lens, there’s not enough upside here relative to our core business to justify the time. We should keep focusing on the 20% of offerings that are driving most of our revenue." And I get and empathize with that. At face value, it's a reasonable argument. But it's shortsighted.
Applied in this way, the 80/20 rule focuses on the situation today. Where are sales coming from today? Where are we allocating resources today? What investments are getting the most bang for our buck today?
But in focusing mainly on today you’re potentially ignoring where things will be tomorrow.
I don’t need to go into detail on the shrinking pie that is the managed print market, but the fact is, it’s shrinking. And it still remains to be seen just how drastic an effect the remote work shift, kicked into high gear thanks to COVID-19, will have on managed print industry outlooks and outcomes.
Try projecting 5 years out. How much opportunity will exist for growth in managed print? Remember, even if you can manage to grow your piece of the pie, the pie as a whole is shrinking. M&A aside, I’m betting it will be tough to be in a significantly stronger revenue position in managed print specifically 5 years from now.
So assuming growth is the goal (because stagnation is arguably the first sign of impending business death), where the heck is that growth going to come from? Maybe you should 80/20 your growth opportunities instead of using a Pareto Crutch to justify current inaction. What 20% of new activities can your business engage in to drive 80% of your growth opportunity?
Recognizing the Opportunity
We have insight into a lot of dealers’ remote monitoring accounts. On average, 60-80% of devices that are being monitored are unmanaged. And the vast majority of dealers at <60% of monitored devices being unmanaged are only at that level due to actively turning off monitoring on unmanaged devices, so as to save the marginal amount of money being spent on collecting data on unmonetized machines.
The question is, why are those devices unmonetized? It’s lunacy! If you’re a dealer who’s managing 4,000 devices, you probably have the ability to access insights on another 7,000 unmanaged devices. Sure, some may be competitors’ contracted machines, but many are simply just unmanaged devices. Who’s capturing the supply orders on those 7,000 unmanaged devices? Probably Amazon or the big box stores. Either way, not you.
As soon as monetization doesn’t have to be synonymous with managed, all kinds of opportunities present themselves. Forget the hypothetical future, how is capturing supply orders on 7,000 machines right now not worth investing in?
But that being said, what do you think your remote monitoring account will look like in your 5-year projection? I bet the current 60-80% of devices available for monitoring being unmanaged will look more like 80-90%. And if it doesn’t, it will more than likely be because remote work will be so ubiquitous that a substantial number of devices simply won’t be monitored. Either way, the result is more unmanaged devices, and if dealers don’t adjust course, more lost revenue to the Amazons, Staples, and CDWs of the world.
Don't Put Blinders on to the Future
In my blog Imaging Channel: Be Apple, I talked about how Apple switched focus from their iPod, which represented roughly 40% of their revenue in 2006 and generated $4 billion in revenue in a single quarter in 2008, to the iPhone, because they recognized where the market was going and where the opportunity was.
If they’d solely focused on how to increase that 40% of total revenue that the iPod represented, they would have completely missed the mark. What good would increasing that 40% to 50% be, if the total revenue number shrunk?
Don't "optimize" offerings within a shrinking market—look at your opportunity set and where the market is going, and then focus your attention and efforts.
Optimize for the Opportunity
If you think, as we do, that print will become increasingly commoditized and move evermore towards transactional models, then adjust course. You’ve recognized the changing market and the opportunity—now you need to focus on how best to capitalize.
For some dealers that may mean focusing on making A4s and print supplies unbelievably easy to buy. Or maybe figuring out a way to go the subscription route, and offering a desktop device, unlimited supplies and service, for a small monthly fee. A great feature of both of those ideas? Ongoing annuities, which we know our channel loves.
For other dealers, it may mean expanding out into other products and services, such as IT, Cloud services, etc...
Regardless of how you choose to react to a changing market, I would urge you not to pretend it’s not changing and doubling down on old business models under the guise of 80/20 optimization—it’s just not sustainable.