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This series focuses on thriving or up-and-coming companies in the print industry. Many of the companies featured won’t fit the traditional distributor or manufacturer model. Some are investor darlings, others have created industry buzz with technological innovations or with a new approach to selling print. If you have suggestions for companies that should be profiled in this series, email them to abrown@PSDA.org.

Forgoing the Old Distributor Model

InnerWorkings Inc. unites technology with the “high touch” business of printing

By LaShell Stratton

What is a distributor or print broker? What is a manufacturer or printer? Those questions have become harder to answer as more distributorships purchase equipment to do print jobs in-house and more manufacturers sell direct to end users, offering creative services as well as mailing and fulfillment.

Perhaps it’s a sign that the print industry is evolving when highly competitive companies like InnerWorkings Inc. decide to dispense with those terms entirely, even though in many ways, they fit the distributor model.

“We are not the classic print broker,” insists Steven E. Zuccarini, CEO of the Chicago-based print provider whose client list includes John Deere, Circuit City and Walgreens as well as 18 other Fortune 500 companies. “One reason is that we use technology in a very different way than most distributors. Two, we take 100 percent responsibility for both the quality and delivery of the product. Three, our reporting provides visibility into the company’s print spend. Four, we have more than 100 sales reps and print production specialists with decades of experience. In contrast, most print brokers tend to be a lot smaller and more niche-focused.”

Instead, InnerWorkings says that it is a “provider of print procurement solutions.” It unites its proprietary print procurement technology with a “high touch” business philosophy to help its clients. And so far, the company’s refusal to be pigeonholed in the traditional distributor model seems to work.

Since InnerWorkings began in 2001 under the leadership of several former R.R. Donnelley & Sons executives (including Zuccarini, who was once the president of the global solutions business unit at R.R. Donnelley), InnerWorkings has grown in sales and scale. The company raked in $99.4 million dollars in revenue the first nine months of 2006, an increase of 82 percent over the same period in 2005. This year, InnerWorkings also executed a series of strategic acquisitions: Graphography Limited LLC of New York City, in March; CoreVision Group of Carol Stream, Ill., in September and Applied Graphics of San Rafael, Calif., in October. It also continues its aggressive hiring of high-quality talent.

“Our print production managers have on average over 13 years’ experience in the industry. Our sales reps have on average over 17 years,” Zuccarini says. “There has been a lot of consolidation and movement and we’ve recruited the best and the brightest out there.”

InnerWorkings decided to take another gamble and went public this year. In August, the company debuted on the NASDAQ, planning to offer 10.59 million shares at $8 to $9. “We went public during a very difficult IPO market but we still did well,” Zuccarini says. So well that shares sold better than expected at a high of $10.45 on its debut day. The price of InnerWorkings stock has since ranged between $9.60 and $17.35.

The company continues to grow, operating under the maxim that in order to make money, you sometimes have to spend money. It is using capital raised by its recent initial public offering to fund three areas. “We spend our money on technology, sales reps and print professionals,” Zuccarini says.

The Battery Inside the Machine
“We’ve really put together one of the largest print procurement providers in the United States,” boasts Zuccarini. “Our offerings are across all product categories. We currently offer about 65 unique products and the most important part of our technology, PPM4, is the database.”

PPM4, a database which pulls in bids from thousands of printers, seems to be a large part of InnerWorkings’ success formula. In order to build the database, the company interviewed more than 9,000 unique suppliers and out of that list certified more than 3,000 based on their “superior quality and service,” Zuccarini says. “We’re working with eight out of the top 10 suppliers in each product category.”

PPM4 includes important stats about the certified suppliers from product capabilities to whether they are minority or women-owned. It also operates as a pricing repository “which helps us to figure out the optimal suppliers for the job,” he says. “We believe this proprietary database contains one of the largest independent repositories of equipment profiles and price data for print suppliers in the United States. This data provides us with valuable insight into how excess manufacturing capacity and other industry factors impact the pricing of printed products and enhances our ability to capitalize on those trends to our clients’ advantage,” Zuccarini says. “We are the first to use this type of technology though the real intellectual property is the supplier database and the pricing information. And it continues to grow in scale and capacity.”

Competitive pricing is what draws in larger clients. Prior to signing up any Fortune 1000 company, InnerWorkings analyzes the cost of print jobs the company contracted in the past. InnerWorkings then compares that price to the cost of the job if the client used a supplier recommended by the InnerWorkings database. “We get paid through the savings,” Zuccarini explains. “If it used to cost them $1 per production piece and now they can get the same job done for 70 cents, we share the savings with the client. That’s the incentive to come to us.”

But could PPM4 one day become InnerWorkings’ Achilles heel? According to the company’s prospectus, a “software solution and database similar to PPM4 could be created over time by a competitor with sufficient financial resources and comparable experience in the print industry. If our competitors are able to offer comparable services, we could lose clients, and our market share could decline.”

“Yes, there could be a competitor out there who could come up with similar technology,” Zuccarini admits. “We never say never, but it will take large amounts of money to catch up with us… the size of our database and number of suppliers is growing exponentially.”

Plans for the Future
To stay ahead of the competition, InnerWorkings plans to continue with its growth strategy.

“The first part of the growth strategy is to hire more sales executives and expand the number of transactional clients,” Zuccarini says. “These are clients that buy on a repetitive basis but they are not under contract.” He says as a significant portion of the new transactional business results from the recruitment of sales reps, InnerWorkings will continue to hire experienced individuals, or strategically acquire groups of them with established client relationships. “The next step is moving our transactional clients to contractual clients,” Zuccarini says, to capture a greater portion of their recurring print spend and to become more fully integrated into their business structure. “We then want to further penetrate our existing customer base. We want to cross-sell and upsell. Right now, we’re averaging less than 20 percent of our clients’ print work.”

In 2005, sales to InnerWorkings’ 10 largest clients accounted for less than 25 percent of their total print spend.
The company also wants to complete more selective acquisitions. Zuccarini says InnerWorkings acquired Graphography because of its ability to produce complicated, multi-component direct mail pieces. Applied Graphics was chosen because of its web-to-print and commercial print expertise. The two companies’ locations also helped InnerWorkings gain a stronger foothold nationally, allowing the company to maintain its “high touch” business ethic by making sure a stable of sales reps and production managers were now located on both coasts in addition to the Midwest.

Zuccarini emphasized that this growth model does not include venturing into the manufacturing arena by buying printing presses or depreciable assets, but by bringing in qualified and seasoned people.

“With the purchases of Applied Graphics and Graphography, we’ve aggressively moved to the East and West,” Zuccarini says. “We want to expand geographically, and since we’re not buying brick and mortar we want to bring in sales teams that already have an established client base. We also want to broaden our domain experience into new service offerings.”

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