D&H Distributing’s Dan Schwab On Cloud Growth, New Services And The Rise In Competition From Private Equity

‘It seems like in a lot of ways we are the last man standing. We know private equity’s model is to dramatically cut costs, and then in five to seven years … sell it, take it public, what have you. We just have a very different philosophy,’ says D&H Co-president Dan Schwab.

No School Like The Old School

D&H Distributing’s century of private ownership and customer focus is facing off against the titans of private equity, which have only consolidated more of the channel under their ownership since the pandemic began.

Co-president Dan Schwab compares it to “The Tortoise and the Hare,” however, as the employee-owned D&H kicks off new and expanded services offerings this year.

“While others maybe zig and zag and shift priorities and focuses, it’s more like ’The Tortoise and the Hare,’” he told CRN. “We are more the steady Eddy who wants to improve our foundation, and we realize our foundation starts with customers and with service.”

The company recently hired Tiffany Ward as director of professional services. She spent six years at rival Synnex and now leads the company’s full slate of services, which includes rolling out a master MSP program later this year.

D&H started a cloud sales practice two years ago under VP of Cloud Jason Bystrak (pictured). How did that unit perform last year?

We’ve experienced explosive growth, over 100 percent growth, on already a very substantial base. Recently we added some new key vendors: Acronis, for security, Zoom for video conferencing, and Nextiva, for UC. The business is big enough that we really broke it into four separate areas, which is cloud services, security and UC.

They all tie into that X-as-a-service, the consumption model that we’re all aware of, we all like to pay bills on a monthly basis, but what D&H has done differently is that we’ve created a configuration tool that is exclusive to D&H that allows our MSPs and VARs to bundly device as a service, cloud, and other services into a very simple, small business solution.

We’ve used this year’s to make tremendous investments in our team. Our tools make it easier for our partners because all of our partners now are hybrid. They all have a cloud offering. I think a year ago you could look back and maybe there was still some resistance, or they were at different points in the paradigm. Today, all of our partners have cloud as some portion of their business. So it’s our job to help accelerate and streamline the process and the billing.

Can you tell me a little about what you anticipate about growth in cloud in 2021 at D&H? Are you anticipating more vendors, higher MSP adoption?

We expect it to double again this year. We doubled it last year. We actually grew it 144 percent. We’ll be up 100 percent again this year, is what we anticipate. It’s twofold. It is breadth and depth. From a breadth standpoint almost all of our partners have a cloud practice and they’re engaging with us. From a depth standpoint, it is adding more of those technologies to those VAR and MSP offerings. Whether it be security as a service, or unified communications. So, as we add more vendors, we are helping partners broaden their portfolio adding more options for their end users.

Different than maybe other distributors, we’re not enterprise focused. We’re SMB. And based on that we’re aligning with vendors that have solutions, specifically built for SMB.

Our goal is not to be everything to everybody and to have hundreds of vendors. Other people have done that and I think it’s very confusing to our reseller and partners. Our goal is to have best in breed. How do we have the best couple vendors by technology, so that we have the knowledge base, and we can hone our service levels to the highest degree for those partners of ours? We will still add another dozen key partners this year, but we’re not looking at dozens and dozens. We’re looking to round out our assortment and not dilute our focus with our key partners.

How do you judge a line card addition for cloud? It seems like you are aiming for more of a curated experience.

It really is a curated experience. We are not the supermarket. Some distributors want to offer everything and that is not us. Our model is to have a couple of vendors in each technology, and then through our consultative style with our partners, really identify what makes the most sense for their business. And that really is where we’ve had the most success. It’s so consultative in nature that it’s not ’Here’s our offering pick and choose from a line card.’ It’s walking them through the pros and cons of different scenarios, different models. What is the best fit for them? What is the best fit for their end users because ultimately that’s what drives our decision making is, it should be from the end user. And then we then can coach our partners on where to lean in. And by doing that, we have incredible internal expertise. We’re basically the extension of our vendor partners sales force. We want to be as knowledgeable as they are to deliver these technologies.

D&H is expanding its pro services this year, under a new hire Tiffany Ward, can you tell me a little about what is behind that?

We hired a new director that has tremendous experience within the distribution industry. When we hired her, we basically said, this is greenfield. We already have some services practices, but we challenged her and the team to say ’If you could build this from scratch how would you build the most custom and ideal service offering for small business resellers?

We are not talking about taking enterprise-level services and a dumbing them down, or taking consumer –level services up into small business. We are going to be increasing the size of our services facility. It is going to be 4x the size of our current facility. We’re introducing new services and automation. We are actually doing it through our cloud marketplace so that we can do more white-glove integration services, add more project services for key areas.

A good example is we can do pre-service for pro AV solutions, or data center. Some of the services include doing assessments, doing migrations, all sorts of additional white-label services we do on behalf of our partners.

We want to be the extension of our reseller partners. As much as they want to do, we are supportive of. As much as they want to lean on us, we want to be able to check the box.

What are some of the services you are looking at?

So some examples are managed devices services. We will do that on their behalf. So we will do the IT management for all their products including asset inventory, remote monitoring, patching, everything. Managed device security services, so the same thing, but as it relates to security. Managed infrastructure services, so the whole back office, not just the device. Then even managed help desk. Its offering that front line support.

Then there are the white glove integration services, where we are loading software, etching notebooks, all sorts of value adds to clients. And there’s a third one which is project services.

That’s where our team, at no cost to our partners, we will help them lay out a project. Whether it is a pro av solution, or an esports solution, a network infrastructure upgrade, we will help them do that, to help them win an opportunity. D&H offers free pre- and post-sale service. Unlike other companies that charge for that, or only offer it to certain levels of partners, D&H offers it to all of our partners.

What is the market opportunity there in terms of these services for D&H?

It’s really unlimited because you’ve got this migration today. No one knows where this is going to finish, five years from now, but clearly COVID has accelerated this migration, and most businesses are now going to live in these hybrid environments, where they’re going to have more remote workers. It is also going to be in a world where, you think about the last year and, all these security risks that have been exposed.

So, today, from an end user standpoint, they may or may not have it budget. However, at the same time, if there’s a security need, no business owner would not invest in that. That’s the thing that keeps them up at night.

And at the same time, they’ve identified that investing in technology really has driven down their cost of operating. If you have the right level of technology, you free up your people up for more valuable tasks. So we can offer services that free up their people. That’s great. And a lot of them are looking to reduce the amount of money they spend on space, and office space, travel, other things in a way that technology actually leverages that, and helps them scale at reduce costs.

How much work have you done on the MSP master agent model?

What we did is we surveyed our partners saying ’Where could you need the most help? Looking into your crystal ball, where you are today, and what the next 12 to 24 months will be, where do you think you need to flex your capabilities? Where can we add value?

We’re not looking to do it, unless we are adding value for our partners. We’re really excited about that. And really, it’s up to each partner. A partner may say, ’I have no challenges with Help Desk. I’ve got no challenging, managing devices. I’ve got a partner. However, I really could use help with, managed infrastructure security services.” Or “How can you help me with my storage and network and firewall infrastructure.?”

Everything from monitoring the virus and malware, to DNS filtering, the whole gamut. What that does is it makes it so simple for them, that they can they can have different options that they can easily select from based on their end users. That’s our goal. Our goal is not to ever compete with partners, our goal is just to complement their efforts.

So if I’m a VAR, but I need help transitioning to that SaaS-based subscription model, or expanding my service offerings, is this a place they can go to get help with that?

Yes. 100 percent. It is 100 percent customized per reseller, per end-user. And not only that, we have beefed up our team dramatically. There are 60 people on the cloud services team and a number of new positions have just been approved.

Those individuals are each assigned a customer and their job is to help that customer for every solution. Its incredible customization that no one else offers.

With new hiring and this build out there is a lot of expense that D&H is taking on to enable partner success, is this a good time to do that?

At the end of the day we care. D&H employees own 36 percent of the company. They understand that our success is predicated on helping our customers become successful. We’re not a public company. We not owned by private equity that is driven by quarterly shareholder profit.

We don’t care about that. We try to make the right decisions for our manufacturers, for our customers and empowering our great employees co-owners and they know from all levels, from the warehouse, to credit, to sales, its about servicing our partners and how to help them win.

What you just said about private equity, you are one of the few players in the solution provider, MSP, IT space that doesn’t have private equity owners. Does that matter to your customers?

It seems like in a lot of ways we are the last man standing. The big three distributors, they’re all public. Two are private equity owned. We know private equity’s model is to dramatically cut costs, and then in five to seven years do something with it. Sell it. Take it public, what have you. That’s historically their model.

We just have a very different philosophy. Its not just that we are privately held, but the fact that we are employee owned is such a strategic differentiator that can’t be replicated.

I think the consistency of D&H stands out in the marketplace. While others maybe zig and zag and shift priorities and focuses, its more like the tortoise and the hare. We are more the steady Eddy who wants to improve our foundation, and we realize our foundation starts with customers and with service.