Suppliers to Security Forces

Ten days before Sept. 11, Jason Beck, a former hand-to-hand combat instructor for the Marine Corps, invested $100,000 and launched Diamondback Tactical, a direct marketing company selling special operations and tactical law enforcement equipment.

In just four years the company has grown into a $34 million a year business selling tactical gear and supplies to the U.S. military and homeland security forces at the state and federal level.

But even before Sept. 11, Beck was noticing a shift in military procurement. World events were leading many officers to specify more gear and accessories for Special Operations stationed in the United States and abroad. The War on Terror has only heightened the government’s need for those product lines, Beck says.

Today, Peoria, Ariz.-based Diamondback Tactical sells primarily to government agencies, armed forces, police and military personnel. While no company wants to benefit from terrorist acts, Diamondback Tactical, having foreseen a sea change in military appropriations pre-Sept. 11, was able to provide the military and homeland security forces the products they needed post-Sept. 11 to help secure the peace in a changing world.

“Many of our proprietary products save lives in the field,” says Jeff Huitt, chief operations officer and chief financial officer at Diamondback. “We know that for a fact, and that’s a key motivating factor to us.”

Beck, president and CEO, agrees, adding: “There is nothing like getting a call from a parent thanking us for saving his son’s or daughter’s life because of our products. It honestly makes us know we are doing the right thing every day.”

And that motivation is a driving force behind Diamond-back Tactical’s phenomenal growth. But make no mistake: Growing a company by 340 percent in just four years results in more than a few challenges. The pace is exhausting; 16-hour days are common. Individual vendors and employees become crucial partners in company strategy.

For this company, its supply chain, technology choices, cash flow and personnel are key components to its continued growth. Following are the steps — and missteps — this merchant took during its rapid ramp up.

Supply Chain

Diamondback sells its gear, which includes night-vision goggles, weapons accessories, ballistic armor and flashlights, primarily via three channels: catalog, online and through nine field sales representatives. Its direct channels (catalog and online) have experienced rapid growth and today make up about 50 percent of the company’s sales, Huitt says.

The Diamondback catalog went from 68 pages in 2001 to 360 pages this year. The company will mail two catalog editions to 100,000 names this year, and its housefile has grown to about 35,000, Huitt says.

Its customer list is comprised mostly of personnel in government agencies, such as Special Operations forces, homeland security (local police and the FBI), the U.S. Drug Enforcement Administration, Army Special Forces, U.S. State Department, Air Force Para-Rescue, as well as a handful of corporations and security firms hired by media outlets to protect their reporters stationed overseas. (It also sells a few products direct to consumers.) Its primary selling season is July through December, coinciding with the end and beginning of government fiscal year budgets, Huitt says.

It’s a difficult market to serve, he continues, because it tends to be reactionary. Its demand, especially in recent years, is growing faster than supply. Moreover, suppliers historically have tended toward small, mom-and-pop shops offering highly specialized gear and supplies. Diamondback’s answer to this dilemma: proprietary products. Today, 55 percent of its merchandise offerings are proprietary or self-manufactured.

Says Beck, “Because of [our] tremendous growth, some of our previous vendors were either unable or unwilling to respond to our niche needs in a timely manner.” Developing proprietary merchandise “has been a big move for us that has both advanced and stressed the company in ways I can’t even explain. But the results have been the doubling of our business over the last year, and our brand awareness has shot toward the top of our industry.”

Huitt says the process of self-manufacturing merchandise gives Diamondback more control over its product line, a higher margin, and helps mitigate the demand upswing fueled by supplemental government appropriations.

Government budgets for basic military equipment haven’t changed much in recent years, says Huitt, even given recent world events. Rather, what’s changing are military supply mechanisms, such as equipment and personnel rotation and training, which are funded by supplemental budgets.

Vendors who understand that and can help the government swiftly supply its troops and security personnel with high-quality equipment at the right price by the right time get rewarded, he notes. Diamondback’s proprietary items, which include ballistic armor and tactical nylon products (e.g., pouches, backpacks), are manufactured in multiple factories throughout the southern United States. Huitt says the “Made in the USA” factor often helps Diamondback secure contracts with the government, which has statutes and laws that either require or favor domestically made content. What’s more, the innovation that Diamondback brings to its proprietary product line “adds value beyond what you normally see in a pure catalog play,” Huitt says. “So we’re able to compete better.”

The remaining 45 percent of Diamondback’s product line includes merchandise from vendors such as Safariland, GG&G, Camelbak and Oakley.

Today, Diamondback’s inventory, housed in a 10,000-square-foot distribution center, runs to about $8 million, up from $3.5 million just two years ago. Keeping an accurate and up-to-the minute account of so much inventory was one of the reasons this growing company went looking for a better technology solution.

Technology Choices

When Diamondback started operations in 2001, it was using QuickBooks as its back-office IT solution. “But by the time we got to $20 million in sales, we started to have trouble,” Huitt says. “We had no viable inventory control system. Because inventory growth had muddied stock levels, the staff visually pre-checked many orders for availability. So we often erred on the side of buying plenty rather than being stingy, just to be sure of filling orders. But unmanaged inventory is unwatched cash.”

Also, only 10 users could be on the QuickBooks system simultaneously, so each new person who logged onto the system meant someone had to go on break or interrupt work, Huitt says.

Moreover, Diamondback’s sales reps needed instant product data in order to complete an order and/or make appropriate upsell or cross-sell offers. “The equipment we sell varies by climate, topography, activity and enemy firepower. We have multipart body armor kits [that sell] for $2,300 up to nearly $10,000. Most customers rely on our experience and specifications to help them choose correctly,” Huitt says.

Finally, Diamondback’s marketing managers wanted tools to help them assess customer histories, target most likely market segments and see the results of their campaigns.

In short, Diamondback had outgrown its legacy system in only two years. “We started looking around for another IT option. We needed a platform that could grow with us. And we wanted it integrated from soup to nuts so we could grow vertically.”

In 2004, Beck, Huitt and their team examined about a dozen mid-market solutions. In May 2004, the team had made its selection, Axapta Enterprise Resource Planning from Junction Solutions, and on Aug. 1, 2004, the system went live. “We went from a quick, remote demo of the system, to Junction Solutions coming in to talk with us one weekend, to a proposal to our board, to sign on by the board — all in 10 days,” Huitt recalls.

The early August deadline was immovable, he notes, because Diamondback wanted the system operational in time for the next government budgetary period when customers would be placing orders.

Today, the Axapta solution is assisting Diamondback in several ways. “It helps us manage our inventory more effectively,” Huitt says. “We can capture data holistically and roll it up in various ways to help us see the results of our marketing approach.”

In addition, the system manages all of Diamondback’s sales channels with a unified look and feel. It allows managers to see a complete circle of data, from when a customer calls in to when he or she gets the order. “We know who is ordering, what they’re buying and much more,” says Huitt. “These data help us refine and maintain our margins. We can query to see what’s in stock to fulfill a sale, even predict future inventory needs. And it’s all actionable and useful data.”

Customer service and staff training also have been enhanced. For example, Beck designed a plan for each customer service rep (CSR) to have three monitors: one for viewing customer data, one to display product descriptions and specifications; and the third to view Microsoft Outlook and Diamondback’s Internet protocol phone system activity. This helps the CSRs have all pertinent information when they’re communicating with customers, says Beck. “It also facilitates quicker and more reliable training of new hires by providing current and accurate product information,” he notes.

While the benefits to the new system are apparent, transitioning off the legacy system wasn’t easy, says Huitt. The cultural shift within the company — going from an entry-level, but easily understood solution to a more sophisticated commerce management program in only a few short months — may have been “too much too fast for some employees,” Huitt admits. His lesson: “Spend an adequate amount of time to get a platform in place.”

Recapitalization

Beck and Huitt want to transition the company from a direct marketer to a full-scale government contractor. To help that process, Diamondback recently underwent a market recapitalization.

“We brought this company to a level where we’ve been able to provide a great return for our initial investors and recapitalize the company with new investors,” Beck says. “[The recap] was not an easy road because of my pickiness of who the next investors would be. It was very important to me that they be focused and passionate about the business … and not just the financial side of the business.”

Beck was looking for specific qualities, such as ethical business practices, a passion for the industry, as well as experience in banking, intellectual property and political relationship-building.

He declined to reveal his new investors’ names, but he says he ended up with “a perfect hybrid of both management buyout and private equity.”

Challenges

Beck and Huitt are preparing themselves for what they foresee as the inevitable reduction in military appropriations as world events change and as traditional suppliers and contractors get up-to-speed on the military’s new procurement demands.

How will they tackle this challenge? “We’ll shift our emphasis from our inbound sales force to our outside sales reps,” says Huitt. “So, rather than selling 50 backpacks or pieces of body armor to one customer who is paying with a government-issued Visa or MasterCard credit card, we’ll sell 500 backpacks to a government customer who writes contracts for such products.”

Says Beck, “Another reason we’re building the outside sales force is to enhance the catalog presence.”

Another challenge has been channeling Beck’s passion for the business. “I move faster than everyone else: employees, vendors, even our former investors. It has been hard for people to keep up with me. I’ve been told my passion and drive overwhelm a lot of people,” he admits. “Because of this I’ve had to take steps to become a leader who adapts to team members differently.”

However, Beck says, “Growth is driven by passion and responsiveness to customers — all while maintaining your credibility. Belief in yourself is not enough; you have to make others believe, too.”

A 340-percent growth rate in just four years? That’s enough to make anyone believe.

Diamondback Tactical’s Takeaway Tips

Growing a company to $34 million in sales in just four years has taught Diamondback Tactical’s principals a few lessons that might prove useful to other executives at fast-growing companies:

1. Process is important. Whatever processes you specify, whether they’re related to workflow or systems, should be replicable and scalable, says Jeff Huitt, chief operations officer and chief financial officer at Peoria, Ariz.-based Diamondback Tactical.

President and CEO Jason Beck agrees, and adds, “Make sure your software doesn’t limit your ability to manage your business from every angle.”

2. Try to avoid growing faster than your working capital and physical plant will allow. “If you don’t have enough cash or space to store inventory, you risk disappointing customers, which is deadly for a start-up company,” Huitt says.

3. Go for broke. Beck and his wife had just had twin sons when they decided to quit their jobs, cash out their 401K accounts, and move to Arizona to follow their dream of owning a direct marketing company. They started the company in their garage in 2001.

Beck says, “When I started Diamondback, it was not easy raising capital. Pre-Sept. 11, most people thought I was crazy talking about this niche market. It was not an easy road. Of course, we thought at the time this would be a $2 million to $4 million a year company.”

4. Understand that passion and drive are not enough. You also need the ability to execute your plan. Says Beck, “The statistics for businesses failing are not in your favor when you’re starting a company, whether you’re experienced or not.”

That said, owners of start-up catalogs have to be willing to do things and “give of yourself to your customers and employees, and completely forget about yourself. You have to focus like a beam of light on what your customers truly want and how you’re going to get it to them,” he says.

5. Delegate wisely. Hire qualified mangers and employees. As his company was growing in leaps and bounds, Beck had to make a choice: Be a salesperson in the field or a responsive leader who gives his team the tools it needs to execute his growth strategy.

Today, Beck focuses more on business tasks such as increasing inventory turns, building relationships with bankers and investors, and providing tools and solutions for his team. If he had to start over again, Beck says, “I’d focus more on those areas and do it sooner rather than later. They are vital keys to the success of a company.”

6. Communicate with employees on everything from what their perspectives on the business are, to how to solve problems, Beck says. And communicate with your customers about how they see your business.

7. “Spend far more time than you think you should on banking, cash flow management and tools for your business. Get to know your bankers,” Beck says. “They have advice and, in most cases, a network that can assist you with a lot of your problems. You don’t want to achieve and then fail.”

About Diamondback Tactical

Headquarters: Peoria, Ariz.
Founded: 2001
First year’s revenues: $250,000
Projected revenues for 2005: $34 million
Four-year sales growth: 340 percent
Products sold: body armor, tactical equipment, and other military and law enforcement gear
Market demographic: military special forces; homeland security agencies at the local and federal level
Sales channels: catalog and online account for 50 percent of sales; outside sales reps account for the rest
Annual catalog circ: 100,000
# of SKUs: 7,000
# of employees: 42
Printer: Trend Offset Printing
Commerce management solution: Axapta ERP by Junction Solutions