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Business Observer Friday, Nov. 7, 2014 6 years ago

Get a Dell, dude

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A Gulf Coast technology hardware firm is on a five-year growth surge. It's a long way from selling computer servers out of a backyard shed.
by: Mark Gordon Managing Editor

When an xByte Technologies customer called the firm to complain about an order one day in late 2006, Tom Santilli jumped all over it.

The CEO of the Bradenton-based firm, one of the largest resellers of refurbished Dell servers and equipment in the country, Santilli says he set up xByte like he was a customer. “I'm ridiculously impatient,” he says. “I hate calling somewhere and not getting a human.”

That's why Santilli preaches a business by the Golden Rule philosophy at xByte. In this case the client was a dealer who planned to resell the equipment, eight severs, to defense and aerospace contractor General Dynamics. That manufacturer was then going to use the servers in tanks it builds for the U.S. Army.

The servers weren't exactly what the client thought he was getting, recalls Santilli. So Santilli personally, and quickly, made the changes. It turned an $8,000 profit into a $2,000 loss. But it also won over the client. xByte, says Santilli, ultimately sold the client more than 2,000 Dell servers, for around $10 million in revenues over several years. Says Santilli: “It's never a bad thing to do the right thing.”

The scale of that belief could be tested in the near future: xByte is amid what it hopes will be a long growth spurt, combined with some shifts in strategy where it will enter new markets, sell new services and target more and bigger clients. New markets for the firm include selling refurbished equipment from sources other than Dell, such as HP and IBM. It also includes getting into software, by either selling hardware/software bundles or installing software packages, in addition to doing more IT consulting and offering an expanded warranty program.

“We are looking to add more services for our customers,” says Ryan Brown, xByte vice president of sales and marketing. “We want to be a premium services company. Not a commodity company like something on eBay.”

On the growth spurt side, annual sales at the firm are up 20% in 2014 over 2013, to around a projected $20.5 million. Sales are also up more than 200% since 2010, when the figure was $6.8 million. The firm has 45 employees, including a dozen or so brought on in the past year.

The growth was recently recognized by GrowFl, a statewide economic development program that named xByte one of 50 leading second-stage companies in the state. GrowFl's Florida Companies to Watch list honors businesses with six to 99 employees and $750,000 to $50 million in annual sales or working capital.

xByte has also grown its physical space. In late 2012, the firm bought a 27,000-square-foot former commercial plastering facility and warehouse in Bradenton that's now its headquarters. The firm spent $1.15 million on the building, according to Manatee County property records, and Santilli says the company spent an additional $250,000 on renovations. That includes $75,000 on a new air-conditioning system.

The building is a major space upgrade on the previous facility, where employees literally bumped into each other during shifts. “When it got busy, we had to set up tables and work in an aisle,” says Santilli. “It was a nightmare.”

Growth chomp
Santilli founded the business in Gainesville in 2001, when his day job was director of IT for the division of Continuing Education and Distance Learning at the University of Florida. Back then the company was This Old Store — a reference to a side business Santilli ran with his wife, Lee Santilli, that restored historic houses in and around Gainesville. Santilli, with a degree in industrial engineering and business administration from UF, had a domain name and an eBay ID to sell antiques under This Old Store, so he kept the name.

He soon shifted to Web hosting for some extra income. Santilli bought four or five Dell servers and built a super-server with components from each to host the sites. When Santilli sold the surplus parts on eBay, he made a $2,000 profit. “I quickly determined reselling servers might be more profitable than Web hosting,” says Santilli.

Santilli, who has bought and sold things since he was 12, started with five servers. That quickly became 10, then 20. The more he sold, the more profits he used to buy more servers. “Next thing you knew there were 50 servers all over my house,” says Santilli. “Then my wife said I better get these things out of here.”

He moved the business to a 1,200-square-foot shed in his backyard. After the firm outgrew the shed, Santilli leased a 5,000-square-foot building. Santilli, who grew up in St. Petersburg, says the business did $5 million a year in sales by 2006, when he moved the company to the Sarasota-Bradenton market. The firm changed its name to xByte in 2010. The website xbyte.com was available, says Santilli, and the new name provided a way to a better tagline than This Old Store. Now xByte says it “takes the byte out of buying IT.”

A competitive advantage the firm has is a chunk of its current and prospective clients aren't necessarily in dire need of the latest and greatest in servers, for multiple reasons. The high cost of new is a factor for some clients, but others, like schools and health care facilities, are hesitant to switch for regulatory and compliance concerns. That's where xByte focuses its energy.

The firm isn't a manufacturer, but some days it looks like one. xByte receives daily shipments of old Dell servers from a variety of sources, sometimes in large pallets. Crews then build refurbished models in another room a few feet away. “One of our niches is that we still work with older stuff,” Santilli says. “We can build it and then ship it overnight.”

The firm's growth over the last five years, executives say, stems mostly from business-to-business word-of-mouth referrals about xByte's processes and capabilities. The firm has historically done little external marketing. “We survived for a long time only on our Web presence,” says Brown. “Now we have an army of people who promote us.”

Sizable shift
While not pooh-poohing the current growth rate, Santilli, Brown and other xByte officials are also heavily focused on what the firm will look like in the future, both short and long term. That's particularly important in the fast-changing technology industry, says Santilli, where new revenue streams arrive quickly. The shift to cloud servers is one telling example.

“Twenty years from now it might not be hugely profitable to be in the refurbished server industry,” says Santilli. “So we want to be involved in more than hardware. It's something we are pushing toward.”

The current makeup of xByte is about 90% hardware sales compared with around 10% in hardware/software bundles, software installation and related services. Santilli would like to see the percentage get to 50-50 within three to five years.

The firm has several options to get there. Most of those, says Brown, involve installing licensed software, from Microsoft windows to cloud and virtualization products. The firm also recently added another layer of warranty protection for clients, an option that provides quicker response time on issues.

Santilli is excited and optimistic about the pending shift at xByte. He's also a little anxious about lurking what-ifs, from the economy to hiring and retaining top people. “There are always unknowns and disruptors out there,” Santilli says. “Anytime you are doing something new, there's a learning curve.”

Executive Summary
Company. xByte Technologies Industry. Technology Key. Firm balances current growth with long-term focus.

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