Introduction

On a cold winter morning in 2006, Jeff Ryan sat in his office steaming over the fax he had just received from his long-time distribution partner. This could easily be the last straw for the company, as what choice did he have since this partner was responsible for the sales and distribution of over 95 percent of their product? The fax had come on the heels of a highly charged discussion with this distributor just two days earlier, which had been tense but ended with the distributor assuring Jeff that they would continue their exclusive arrangement with Versare. At the meeting, Jeff aired his concerns about the distributor’s lack of interest in the business, the cost increases for Versare, and the distributor’s poor receiving and order-taking processes, which cause expensive and unnecessary extra work on wall bed installations. As Jeff walked out of the meeting, though, he was assured by the distributor’s president that they were maintaining the exclusive arrangement. “We give you our word. Everything goes through you,” he assured Jeff.

So, despite the tensions, he felt good about the agreement that had been reached two days earlier. But this fax changed everything. Sent to Versare by mistake, the fax was intended for a competitor, and it included a large order for the same product that the distributor had promised would come only from Versare. Jeff quickly realized that the distributor’s assurances of two days earlier had been a lie. In his head, he could already hear the president saying, “It’s just business you understand.” While he did understand, he also knew that this relationship accounted for nearly all his company’s revenues. In hindsight, this may not have been smart, but in the early days it had been the only way to get the company’s product to the customers. The alternative of direct sales, or a patchwork dealer network, was simply not a viable business model in 1998 when the company was founded. All this begged the question of what to do next. Could they afford to continue the relationship with the distributor? Could they afford not to continue the relationship? What were their alternatives?

Versare’s History

Robert Jantschek and Jeff Ryan founded Versare in 1998. The two had met while working at a manufacturer and distributor of mobile folding and rolling, space-efficient products. They left the company to start their own venture in 1998: “We left on pretty good terms. You know, we look back at it and we kind of joked that it would have been smarter to wait a year and develop everything and start the company on somebody else’s dime. But Robert and I couldn’t do that,” said Jeff.

Their first location was shared with a custom cabinetry company that did very high-end cabinetry work for upscale offices and homes. As Jeff explained, “We bunked with them because I had had a relationship with the owner. He used to do work for me when I was at my previous life. The equipment he had we needed to build our stuff. So, it was a good marriage.”

The first product they developed was a portable room partition that they believed had significant competitive advantages over other product offerings in the market. While in the same general market as their previous employer, the product did not compete directly with any of its offerings. Versare manufactured the entire partition in-house, but distribution was a challenge. They had a manufacturing arm, a marketing arm, and a distribution arm. Unfortunately, the distribution arm could not sign up any dealers. And they did not have the resources to build it, “buy a van and put a guy in a territory.” The company was saved in July 1998 when Jeff secured Hufcore as a distributor. Hufcore had a national dealer network that could sell their initial product. At approximately the same time, Jeff began conversations with their previous employer.

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