Commander out of command?
Tuesday, 12 August 2008
By Paul Wallbank
When floated in January 2000, Commander had over 100,000 customers and an unassailable position in the small and medium sized business telecoms market, having inherited Telstra's small business communications arm. Yet last week administrators were appointed to the business.
How could a business with a market position most of us would kill for end up going under after losing over half their customers?
The main reason was because it mistreated its customers; rather than seeing those 100,000 customers as an asset, Commander saw its clients as cash cows. It tried to overcharge for the older systems and failed to compete on supplying newer equipment.
This may have worked back in the days when the PMG or Telecom Australia had a monopoly, but in the modern deregulated telecoms market most small and medium sized business customers simply took their business elsewhere.
Commander's management compounded their failure to understand why its customer base was shrinking with their decision to enter new markets through a bank-funded acquisition spree.
Given they didn’t understand their core business it’s not surprising their purchases were less than well advised. Nothing illustrates this better than Commander’s ASX presentation last January where it blamed the “low margin” hardware business for much of their problems.
You didn't need Inspector Clouseau to tell you margins are awful in the white box computer business, and have been for years. Even those specialising in this market struggle, as we've seen with computer manufacturer Optima appointing administrators in the last fortnight.
In fact, looking at the list of affected subsidiaries, we see ISPs, IT companies and recruitment agencies along a common theme; many of these businesses are in specialist fields that require focused management and very good business models to survive.
It’s questionable whether Commander had a real business plan at all, let alone the specific management skills required to obtain value from these businesses.
The killer acquisition though was their purchase of Volante, an enterprise level IT services company, for $130 million dollars. On the face of it the Volante deal made sense as it extended Commander’s reach from the small business market into big business and government contracts.
But this was a very different sector to its traditional business and it required further borrowing. That debt eventually sank the business as lenders ran out patience with Commander's lack of returns and direction.
As someone who enjoys the process of creating new businesses and exploring the boundaries of existing enterprises, I’d hate to draw the conclusion from Commander’s failure that managers should stick to their knitting.
Thankfully I don’t think the lesson is that; the moral is businesses exist to meet the needs of their customers. Take the customers away and there is no business.
Few of our businesses will ever be gifted the opportunities Commander inherited. The fact Commander failed should remind us all of the importance of respecting our customers.
Paul Wallbank is Australia’s most heard computer commentator with his regular computer advice spots on ABC Radio. He's written five computer books and just finished the latest Australian adaptation of Internet for Dummies. Paul founded and built up a national IT support company, PC Rescue and has a free help website at IT Queries. Today he spends most of his time consulting and advising community and business groups on getting the most from their technology.
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