Private Equity backed entities are still on shopping sprees in the Imaging Channel. These buy-up groups don't appear to be slowing down as they continue gathering up independent dealers along with their declining print volumes. We are also seeing some disastrous turnouts in the aftermarket supplies business, the latest collapse LMI, just a year ago for some seemed a well thought out investment.
A lesson for the Imaging Channel and its investors is being taught and let's hope not ignored as we watch the recent outcome involving LMI. A tragedy we could say concludes that Managed Print Services is not the promise many still believe it to be. Something I have been preaching for the last five years.
So, what happened between August 2018 - August 2019?
This recent conclusion to LMI's hopes was indeed not what they or their investors were hoping. What can the industry learn from this failure? To help answer that question here's a few questions, I would ask of investors
What was of interest in an organization which was losing massive amounts of revenue? LMI was said to have had revenues of nearly 120 million at its height just three to four years ago. According to court documents, regarding their receivership, LMI's 2019 revenues were expected to be around 20 million.
What caused this massive 100-million-dollar decline? Surely, the loss of one account Xerox could not have been the only reason for the decrease in revenue. If so, why invest in an organization which was unable to collect a more extensive customer base over the last decade?
LMI was described as an expert in the infrastructure of Managed Print Services, and in 2018 the investors sited the growth potential of Managed Print Services and LMI being the leading provider in the Managed Print Services, infrastructure (tools, resources, and solutions) as factors for their investment.
Here's a link to the press release issued in 2018.
These questions may sound harsh. However, I believe their answers should alarm the channel and its investors to the realities of investing in the myths of Managed Print Services. We must have more scrutiny on what appears to be questionable, especially in declining markets.
Managed Print Services is not additional revenue for the industry. It is reclassified existing revenue. I hear a lot of folks describing the glory of Managed Print Services as a reason they invest in this industry. Some are waking up to the Managed Print Service fantasy, and I predict more will wake up soon.
HERE'S MY LOUD WARNING "IT IS TIME FOR ALL OF THE IMAGING CHANNEL'S ACTORS TO BALANCE HOPE WITH THE MARKET'S REALITY"
The facts are print equipment, its supplies, and its service needs are reducing in demand everyday. This decline has repercussions for all with aspirations of growth through acquisitions without a strategy to change the game. Sooner than later, the end buyers of the roll-ups are going to disappear. The question I continue asking is this. Who is the buyer after Private Equity? What's the end game? I have added a new question, will the collapse of LMI, and the struggles of others cause future Private Equity to just say no? I imagine in the remanufacturing sector it might be hard finding Private Equity investment interest now.
The investments in the Imaging Channel should be an investment in change. This doubling down on yesterday is getting very disasters. I don't think the industry's investors want to watch their investments become assets sales.
Let's invest in changing the game.
The investments in the industry must be a strategy to capitalize on the decline, causing a shift to selling based on market realities. Invest in customer-centric deliverables, and challenge the status quo, invest in changing leasing models to subscription models, invest in the 85% of the market which is oversold by outdated sales models, invest in e-commerce platforms, invest in new leadership from outside the channel with different mindsets to help existing leaders navigate through the intersection between the digital and physical worlds.
Dealers must consider what we see in the supply industry as a warning and take the notice seriously. Nothing will challenge the industry's leaders more than competing with an innovator who decided to deliver a customer-centric model built around the realities of the market, not its fantasies. The best people to create that model are the current actors but only with an open mind to new ideas and must include new human capital from the digital world. I hope the industry doesn't allow these lessons to go un-noticed.
In Closing: The Imaging Channel needs more people willing to discuss the realities of our market openly and candidly. The channel's obsession with whitewashing anything negative is adding to their troubles and keeping them from exploring what could be based on what should be.
"Status Quo is the killer of all that will be invented."
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