But when Tech Data's new, $29 million state-of-the-art computer system crashed in 1995, it threatened financial catastrophe. Years of planning had gone into the computer upgrade, designed to help the giant Clearwater wholesale computer distributor process tens of thousands of daily transactions more efficiently.
"It was like going from driving a model T to the seat of an F-15 jet," remembers Tech Data Chairman and CEO Steve Raymund. Then it happened - overload leading to total technology collapse. Investor and customer reaction was swift, sharp - and scary.
Wall Street institutions which had ballyhooed Tech Data based on Raymund's savvy moves in growing the business to $2 billion from $2 million in just 14 years, suddenly began dumping the stock. Brokers turned enthusiastic "buy" recommendations into uncertain "neutral." Tech Data customers, accustomed to the super-efficient operation, saw the breakdown as threatening and began abandoning the supplier in droves.
For the up-and-coming company apparently on the brink of the big time, it was a deeply troubling episode that suddenly cast a pall over its seemingly rosy prospects.
Now, fast forward 24 months to this year's annual stockholder meeting. It's a cloudy June day at Tech Data's sprawling four-building campus in suburban Clearwater, yet the mood inside is sunny as 100 or so investors listen attentively to a confident Raymund. He ticks off his company's recent milestones: $4.6 billion in sales, record profits, market share that has doubled in five years. Then Chief Financial Officer Jeff Howells puts the icing on the cake, boasting that Tech Data's stock, now trading at about $32, has outperformed the Standard & Poor's 500 index two to one. Music to stockholders' ears.
Clearly, Tech Data's computer fiasco, a turning point in the company's growth, had faded from memory. Stockholders didn't even question Raymund's hefty $1.5 million pay package as they delighted in their own rising fortunes.
Tech Data and Raymund were back - with the stock soaring to double its price from where it was before the computer crashed. The low-key, bespectacled CEO who built the world's second largest wholesale computer distribution company in sleepy Pinellas County had prevailed.
Raymund's story is one of entrepreneurial vision and skillful management from a man who acknowledges he's far better at foreign languages than computer languages. At a youthful 41, he has amassed a fortune in Tech Data stock of about $119 million. Having recently tapped an heir apparent, Raymund now is turning his attention to finding new avenues of growth for Tech Data - which interestingly will allow him to indulge his real passion, international business.
As customers, vendors and investors will attest, Raymund's role in Tech Data's success can't be overvalued. Steven Fortuna, an analyst with New York's Deutsche Morgan Grenfell, puts it appropriately: "Steve Raymund is the show here."
Humble beginnings
Steve Raymund gets the credit for building the company, but he didn't start it. That distinction goes to Raymund's father, Edward, who incorporated the business in 1974 as a sideline operation to his real job as a manufacturers representative, selling industrial products made by large electronics companies.
Seeing an opportunity to carve a niche in the emerging computer business, Edward Raymund, a gregarious salesman, began retailing Verbatim computer disks to Florida customers such as Harris Corp. and Sperry as well as the first wave of computer buffs. Operating initially out of a 400-square-foot office in mid-Pinellas County, the senior Raymund grew the business over the next decade to a modest $2 million in sales by diversifying into tapes, ribbons and forms.
While Edward Raymund was getting Tech Data off the ground, son Steve was getting an education. After graduating from Pinellas County's Seminole High School, where he played trumpet in the marching band, Raymund attended the University of Oregon. He earned a bachelor's degree in economics in 1978 and went on for a master's in international politics at Georgetown University's School of Foreign Service in Washington, D.C. Along the way, he was an exchange student in Brazil, living in Rio de Janeiro and attaining fluency in Portuguese.
"He had the idea that he was going into international business," says father Ed. With that in mind, young Raymund moved to New York City, working for a short time on the Brazil desk at Manufacturers Hanover. But frustration over Brazil's heavy debt load, combined with Raymund's modest pay, led him back to Pinellas County.
At the urging of his father, Steve joined Tech Data to put together the company's first retail catalog. "I didn't plan on staying here permanently," says Steve. "I thought that I'd just help out for a while until I figured out what I really wanted to do in life."
Retail to wholesale
Once installed at Tech Data in 1981, the junior Raymund faced a revolt by the management his father had hired to run the company. "Looking back, it was a series of fortuitous events, though at the time they didn't seem so," he says. "The management team who were in place at the time and wanted to buy out the company believed they wouldn't be able to do so anymore because of me. So they all left and took a lot of the customers and lines with them, maybe in August of 1981. They took enough business with them that we went pretty deeply in the red."
Without the old management and customers, Raymund took a chance on using telemarketers and catalogs to sell the products, at first targeting both end-users and a few dealers. That led to the fateful decision to switch to wholesaling from retailing. "We noticed, of course, that it was a lot easier to sell a case of diskettes to a dealer for maybe a 10% lower price than to sell diskettes box by box, in some cases disk by disk, to end-users," he recalls. "So even though the margins were a little lower, the volume was very attractive and clearly the way to go for our business at the time. It didn't take long, maybe six months, for us to desist altogether selling to end-users and become strictly a wholesale house."
In the 16 years since, there have been few false moves. Outwardly bookish and serious, Raymund relishes the millions of details that go into running a multibillion dollar company. "I've always said Steve is the smartest guy in the industry," says Chip Lacy, former co-chairman and CEO of distribution industry leader Ingram Micro, which posted $12 billion in sales last year, and now president and CEO of Micro Warehouse.
Raymund solidified his leadership role quickly, becoming COO in 1984, CEO in 1986 and chairman in 1991 when his father retired. The elder Raymund left the company a wealthy man - a legacy of his son's success and generosity. Ed Raymund currently owns stock valued at about $8.4 million and, until 2001, he will continue to collect an annual salary of $176,400, which he splits with ex-wife, and Steve's mother, Annette.
It would be easy to underestimate Steve Raymund's savvy and strength as a business leader. In height, build and dress, he's "Joe Average." His spacious, unadorned office is clearly meant as a place for work, not to display executive ego. In one-on-one conversation, Raymund is subdued, a mannerism some interpret as aloof. Yet it became clear from his performance at Tech Data's stockholder meeting that this is a person in control, a commanding presence both in his company and the industry.
By 1981 when Tech Data became a distributor, there were already a handful of companies in the business. But Raymund quickly made up for lost time, breaking sales growth records set by competitors.
While the name Tech Data suggests it manufactures computers or software, it isn't a manufacturer at all. Tech Data remains purely a middle-man operation, at least for now. (That will soon change - more about which later.)
Wholesale distribution revolves around buying computer products from manufacturers and software publishers such as Compaq, Apple and Microsoft and selling them to retailers, consultants and value-added resellers. For vendors, selling through outside distributors like Tech Data, called the "channel" in industry parlance, is a cheap way to avoid the hassles of storing sizeable inventories, tracking thousands of small customer accounts and employing a huge sales force.
The numbers work like this: Tech Data pays about 93 cents for a product that it will resell for $1. (Ten years ago, distributors paid only about 85 cents on the $1.) Out of the tiny seven-cent gross profit margin, the company must cover its selling, general and administrative expenses, interest and taxes. What's left is a net profit of only 1% or 2% of sales.
It's been Raymund's ability to squeeze profits that's provided an edge over competitors. "He operates an incredibly tight ship in a low-margin business," says Tom Sansone, president of Jabil Circuit, the St. Petersburg electronic circuit-board maker that itself has been a high flyer on Wall Street this year. Jabil elected Raymund to its board in 1996. "He has a real appreciation of the details that add up to tenths of a percent of margin."
For Tech Data, the payoff is volume. The 3,400-worker company distributes more than 45,000 products from over 900 manufacturers and publishers to more than 55,000 customers. From those tens of thousands of sales, the company generated almost $57 million in net income last year.
To boost profitability, Raymund has traditionally sold more higher-margin hardware instead of software. Last year, PCs, modems, monitors and networking equipment made up 83% of Tech Data's sales. Software, which the company added to its product line only a few years ago, contributed 17%.
On the expense side, Raymund has vigorously controlled sales, general and administrative costs. His strategy has been to centralize management at the company's Clearwater headquarters, keeping a close eye on inventory management and emphasizing electronic ordering by customers, which reduces staff needed to complete a transaction. "It's a very lean organization," says Deutsche Morgan's Fortuna, "Execution has been superlative."
Two years after Tech Data's painful computer upgrade, the system pays dividends in the company's foray into electronic commerce. Already 40% of the company's orders are done electronically, much of it through "Tech Data On-Line," a proprietary system that allows customers to dial in, check product availability and pricing, place an order and then track it. Customers worldwide soon will be able to order on the company's password-protected Internet site.
It's Raymund's careful cultivation of customers, though, that has pumped Tech Data's sales growth. From the start, the company's prime focus has been selling to value-added resellers (VARs), who make up 61% of Tech Data's customer base. VARs include a wide range of companies that help corporate clients set up custom computer systems. Some are well known, such as Perot Systems and CompuCom, but most are small, local operators.
Unlike such large retailers as Circuit City and CompUSA, which frequently buy direct from manufacturers and software publishers, 92% of VARs buy from distributors, according to a survey by VAR Business.
At the company's Clearwater sales center, more than 700 in-house sales representatives work in a massive room of cluttered cubicles, each handling 50 to 60 calls a day from VARs and other customers. Unlike many sales operations, most of the calls here are inbound inquiries from customers who want information and prices.
The mostly young, well-dressed cadre of salespeople work in four-person teams and can earn about $35,000 a year in salary and bonuses. It's an appealing environment for employees like Carlos Nisperuza, a native of Colombia and international business graduate of Eckerd College. He turned down a job at Raymond James & Associates for a temporary marketing post at Tech Data in hopes he'll be picked for the company's next sales training program. "I don't want to leave Tech Data," says the 22-year-old. "You can move up easily here, especially in the Latin American area. I'm thinking about my future."
Nisperuza's not alone in his appraisal of Tech Data as a good place to work. Computerworld recently put the company number two on its list of the 100 best workplaces, citing pay, benefits, promotions, training and the percentage of minority and women as criteria used in the ranking.
An important part of Tech Data's customer service is extensive pre-sale and post-sale technical telephone support, 90% of it free. And there are liberal credit and return policies. "They are the number one distributor/supplier simply because of their credit policy, return policy and availability," says Faisal Imtiaz, president of Miami's Computer Office Solutions Inc. "If we buy a piece of equipment from them and it's dead, they take it back, no questions."
What don't customers like about Tech Data? Predictably, they grumble about price. "I pay a little bit more from Tech Data," says Rick Mills, COO of Kentucky-based Pomeroy Computer Resources. "We always butt heads with them on that." Ronald Aronica, president of the Greystone Group, a Tampa consulting and software design company, has similar complaints. "There are other vendors where we can save a couple of bucks," but Aronica does business with Tech Data because he likes the level of support and service. "They are by and large very helpful. Because they have a Miami warehouse, things ordered one day are delivered the next."
No control freak
Raymund made the often difficult transition from entrepreneur to executive by not holding the company's reins too tightly. While he calls himself a "control freak," Raymund isn't a micromanager. "He tries to bring in the best and brightest and promote internally," says former Tech Data President and COO Tim Godwin. "He ends up having more control by bringing in and delegating and not doing everything himself."
Godwin, who once appeared to be Raymund's heir apparent, joined Tech Data from the Tampa office of Price Waterhouse in 1989 after helping with the company's 1986 initial public offering. "We changed it from an entrepreneurial shoot-from-the-hip company," he says. "We added a lot more formality."
Godwin stepped down as president and COO in 1995 and resigned from the board this past January, taking with him stock valued at more than $4 million and a contract that pays him a total of $500,000 in salary over the next four years. As to why he left, Godwin says only, "There wasn't the opportunity for me to be the impact player that I'd been in the past."
To find a potential successor, Raymund turned to white-shoe New York City recruitment firm Spencer Stuart in late 1995. "They produced some candidates which met some of the specs we had, but we just couldn't find the right person," says Raymund, adding that the one potential hire had a severance package in the millions of dollars from a previous employer and didn't want to move from Chicago. "The other candidates they supplied all fell short in some critical way."
Spencer Stuart gave up. A year after starting the search, Raymund turned to industry contacts and found the candidate he was looking for in Anthony Ibarg?en, a 38-year-old Harvard MBA with a bent toward sales and marketing. "Patience is rewarded," quips Raymund.
Ibarg?en, hired in September and promoted to president and COO in March, cut his teeth in the computer industry during seven years at IBM and more recently at Rye Brook, N.Y.-based Entex Information Services, a $2 billion systems integration company he co-founded.
Born in New Jersey to a Puerto Rican mother and Cuban father, Ibarg?en spent his teenage years in Puerto Rico before moving to New England to attend Boston College. Like Raymund, Ibarg?en prefers talking about business matters, not personal ones. In response to a question about his personal challenge at Tech Data, Ibarg?en turns the focus to the company, asserting, "We have enormous opportunity globally as well as within the U.S. and North America to further our market share and profitability."
With Ibarg?en on board, Raymund's role is changing. "Probably for most of the company's history, I've been engaged in a hands-on way, the day-to-day running of the business," says Raymund. "I've already been directing more of my energies toward international activities and strategic opportunities the company might capitalize on rather than delving into supervising our activities around here on a day-to-day basis," says Raymund. "I expect my role to evolve more over the next year."
In any language
Raymund's prime focus now, the globalization of Tech Data, is a natural calling for the man whose early career goal was international business. Raymund and wife Sonia, who is from the Dominican Republic, frequently travel with their two children, who they are raising to be bilingual. The couple met in Washington, when Raymund was at Georgetown and Sonia was a student at Catholic University.
When it comes to the global market, though, Raymund hasn't moved as quickly as competitors Ingram Micro and Miami's CHS Electronics, which have invaded Europe and Latin America. When in 1994 Tech Data acquired Softmart International S.A., the largest computer distributor in France, Raymund moved his family to that country to explore other European opportunities. He retreated to Florida after only three months, saying there weren't as many European opportunities as expected and refocused his attention on North American growth.
Tech Data didn't sit completely still on the international front, though. In addition to growing the French operation, the company focused on bolstering its Canadian subsidiary, acquired in 1989, and also Latin America, which Tech Data services through a Miami distribution center and a Brazilian subsidiary formed this year.
Tech Data may not have the luxury of slow, deliberate growth much longer. Competitors, particularly CHS, are snapping up international distributors right and left. "They've been acquiring every living, breathing company," observes Raymund.
Tech Data took a major leap internationally this summer when it acquired a 77% controlling interest in Macrotron AG, a publicly held German personal computer products distributor expected to post approximately $1.2 billion in sales this year. The acquisition, paid for with cash and stock, is valued at $35 million. Like Tech Data, Macrotron's customer base of 16,000 is heavily weighted toward VARs who serve the corporate market.
"Next year, I believe that close to or maybe even more than a third of our revenues will derive from international sources," predicts Raymund. Last year, by comparison, only 13% of Tech Data's sales came from international distribution. Raymund confirms he's looking for more European and Latin American acquisitions. And with $352 million in working capital and only $8.9 million in long-term debt, the company can pick and choose pretty much at will.
What's ahead closer to home? Tech Data's major domestic challenge is to restructure its business to be able to assemble or configure computers, not just distribute them. "It's probably the number one initiative for at least the next 12 months," declares Raymund.
Computer hardware manufacturers, led by Compaq, are redesigning their business models to give distributors more responsibility for building computers. The idea is for the manufacturer to sell the distributor a stripped-down PC, with minimum memory, no disk drives or add-ons.
What's behind the change? Two PC makers, Dell Computer and Gateway 2000, are shaking up the market by offering customer-designed models direct to Fortune 500 companies and consumers. In its television commercial, Gateway 2000 uses Mr. Potato Head to demonstrate how consumers can order a PC built to their specifications - add a nose here, a pair of glasses there and pretty soon you've got a customized model.
Now Compaq and other PC makers are exploring the build-to-suit concept by partnering with Tech Data and other major distributors that will put the final product together. Ibarg?en, who had experience with computer configuration at Entex, says that Tech Data and others will be able to carry less inventory, which is a major cost savings. "It gives us a great deal of flexibility," he says, "And it significantly improves our turnaround time."
Raymund relishes the challenges ahead. "He has a sixth sense on where to point the business," says board member John Y. Williams.
Now that much of Tech Data's business growth is pointing overseas, Raymund is in his element more than ever. After 16 years, Raymund's goal of an international business career has become a reality - on his own terms. Says former board member Lewis Dunn of Raymund, "He's not done yet."