Eric Crown: The swirling computer business of the roaring '90s

For alumnus Eric Crown, his induction into the W. P. Carey School's Hall of Fame is sweet vindication. While pursuing a degree in computer information systems, Crown, 46, wrote a paper on a potential mail-order business that would sell parts for the burgeoning computer market. He got a C on the assignment because, he recalls, the professor didn't deem the idea viable. However, two years after his 1984 graduation, Crown started just that business. Today Insight Enterprises, Inc. has clients in 170 countries, counts more than 4,000 employees and notched $4.8 billion in revenues in 2007.

For alumnus Eric Crown, his induction into the W. P. Carey School's Hall of Fame is sweet vindication. While pursuing a degree in computer information systems, Crown, 46, wrote a paper on a potential mail-order business that would sell parts for the burgeoning computer market.

He got a C on the assignment because, he recalls, the professor didn't deem the idea viable. However, two years after his 1984 graduation, Crown started just that business. Launched with a $2,000 credit card loan, by 1999 Insight Enterprises, Inc. had grown to a billion dollars in sales.

Today the Fortune 500 company has clients in 170 countries, counts more than 4,000 employees and notched $4.8 billion in revenues in 2007. "I actually had lunch with the professor and sent him a little prospectus and thanked him for all that he'd done," jokes Crown about his company's 1995 public offering.

Forsaking Big Iron for the Big Boom

When Crown graduated he was a very employable prospect — someone with a computer degree from a respected business school — who had lots of job offers that would utilize his mainframe coding skills. Crown passed up those offers to write COBOL, however. Even though no one in his class had ever touched a PC, Crown saw the increased demand for personal computers and noted IBM's interest in the smaller machines.

Much to the consternation of his parents, Crown passed up the security of the existing technology and invested himself in the future. But the shift from "big iron" mainframes to compact desktop computers was only one of many dramatic shifts in which Crown would find himself — and to which he would need to adapt — during his two decades at Tempe-based Insight.

At the time Crown started selling hard drives in 1986, the nascent market was flooded with companies hawking computer parts — after all, many people were still building their own computers and many micro brands existed. It was very competitive. To break in, Crown gambled: he took out a quarter-page in Computer Shopper magazine advertising hard drives at a price lower than he could buy them when he placed the ad.

He was banking on the price falling enough in the next six weeks (the time between placing the ad and when the magazine would hit newsstands), enabling him to turn a small profit on each drive — which is, indeed, what happened. Crown's younger brother Tim, 44, joined him in the business and is now Insight's chairman of the board.

The two won a reputation for low prices, but that alone wasn't enough to survive the cutthroat years of the late '80s and '90s. Insight also relied on top-notch logistics and savvy sales and marketing — a model similar to big technology-enabled retailers like Amazon and Wal-Mart.

Over that time, the company shed its skin over and over, but always retained a high-volume/low-margin model. "Typically we'd sell at 10 percent over our cost that we purchased [goods] for and we'd try to make 5 percent to the bottom line," says Crown who underscores that, "You have to move quickly from millions [of dollars] to billions."

An industry changes a company

Originally called Hard Drives International, the company sold only hard drives, and counted on a consumer market. It later became a huge catalog company, mailing out tens of millions of product booklets a year. That gave way to outbound telesales and eventually the company morphed into a computer manufacturer. At one point, Crown says, the company was among the top 10 providers of computers in the country.

But Crown saw the writing on the wall when competing with giants like Dell, Gateway, Acer and Packard Bell that were coalescing into an oligopoly. Tim Crown recalls that one afternoon they took a hard look at the landscape and decided to get out of the business of manufacturing computers themselves. They told customers they'd honor existing orders, but they'd be out of the business in 60 days.

At the time, the soon-to-be-deleted segment accounted for 40 percent of Insight's revenues and it was still quite healthy. It was not a play-it-safe move. Tim Crown says that decision is emblematic of Eric's decisive, committed "burn the ships behind you" leadership. Suddenly Insight's competitors were its suppliers as the company now set out to buy computers from the dominant manufacturers and then upgrade and customize them to customer specifications.

But that move also proved to be only one step in a continuing path. In 2006, Insight divested its business process outsourcing (BPO) unit which had been an important part of the larger company since its inception in 1993. It's important to be decisive in a dynamic market, Eric Crown says: "I was always a firm believer in the sharp knife: it's easier to cut with a sharp knife than hack it to death with a butter knife."

Today the onetime b2c company is a b2b player focusing on delivering a wide array of value-added products and services including project management, storage, and software licensing management. Tim Crown says that customers now have a great degree of power in the industry and the average margin on sales is a measly six percent.

It requires "tremendous volume" says Tim, who points out that as computer prices have fallen year after year, companies such as Insight have to grow by about the same percent just to maintain consistent sales each year. And Tim notes that as the company was growing by leaps and bounds, he and his brother postponed their own financial gratification, hardly taking any money out of Insight for themselves and instead plowing the profits back into the company.

What often seemed like gambles in the short term were the right moves in the long run. "From a management perspective, Eric has the ability to think things through so clearly so far in advance. He can think five or seven steps ahead so what becomes obvious to you in two years is obvious to him today," says Tim Crown.

The high-growth high

Today, Insight is growing at about 8 percent annually, says Tim Crown. Given the fact that PC sales in the U.S. grew by only 4.5 percent last year, that's a respectable rate, but it's a far cry from the early rip-roaring growth of the 1990s when Americans' spending on personal computers grew 52.1 percent annually while software purchases grew at 43.7 percent each year.

Now that the industry has matured, running a company — and a huge one at that — that provides hardware, software and services is very different from running a similar company a decade ago. And those different companies require different skills and mentality. Crown is "not a cost cutter," not someone who uses incremental improvements to build the bottom line by focusing on back-end processes rather than front-end offerings.

"I'm a believer that you get your success through sales," he says. What might have been a gut-wrenching rollercoaster of a decade and a half was ambrosia to the entrepreneurial Crown. "We used to have a phrase: Ready, fire, aim. We don't have time to try these things until the end of time. We're not a bunch of accountants! Get it going!" explains Crown of his carpe diem-style of management.

Despite the un-business-school-like approach, Crown figures that Insight was one of the few long-term successes from the early days of the computer supply business. Of the 1,000 competitors from the early days of the Computer Shopper magazine ads, Crown estimates that only four or five companies still exist today. The passage of time, the winnowing of the field and the maturation of technology as a whole has made for an industry that is "more evolutionary than revolutionary" he says.

Crown's bias is for the high-risk/high-reward of rapid growth, so after retiring from the board in 2007 he threw himself into investing in companies where he can get his old high-growth high. Building on his history with Insight, he looks for companies that can go big quickly. "I try to get business that I believe can benefit from scale. That's something that I understand," he says.

With 944.com — which targets 21-38 year old trend-setting consumers — Crown saw a replicable quality that would allow the company to scale from its first city to its current eight. Similar insights helped Phoenix-based ArmorWorks go from $10 million in sales to $200 million. Of course, in any business he adds to the portfolio, his entrepreneurial and now venture capitalist mind is not thinking small, nor does he shrink from a challenge.

"Back then you were fighting dynamics beyond just the product; you were fighting acceptance of mail order, you were fighting the acceptance of the Internet," says Crown. "It's a tough business and [that's why I retired from it] because I knew it didn't have a 'forever' future — or not a future I chose to be in. I like the hard-charging, 100-percent growth, hiring as many people as we can and finding new and emerging markets."

Bottom Line:

• Dynamic industries require decisive leadership as there is often very little time to study a decision before having to act on it.
• The computer supply business — be it hardware, software or services — has matured greatly since its inception two decades ago. Growth in computer sales has slowed from more than 50 percent annually to less than five percent.
• A low-margin company that can compete on price is tenable when it is supported by outstanding logistics and marketing.
• With continuously falling prices in the very competitive computer industry, suppliers must make up in volume what they lose in a decreasing sticker price.
• Entrepreneurial leaders must recognize when their creation becomes mature and must face a day when the company needs new leadership.