An insider's perspective on the list business
Chris Paradysz is CEO of ParadyszMatera, a New York-based direct marketing company offering services including lists, insert media, research and analytics. He also runs PM Digital, an interactive agency. As a veteran of this business, Mr. Paradysz has seen direct marketing evolve over the years. DM News' Giselle Abramovich interviewed him. Excerpts:
Why is the list industry rapidly consolidating?
On the surface, it appears that the list industry is experiencing rapid consolidation. In reality, however, a single buyer, infoUSA, has seen the opportunity to roll up a multitude of list companies under a single umbrella with the hopes of driving incremental profit. They really are leading the consolidation alone. There have been no other buyers of substance.
That said, I do believe consolidation of the list industry will continue, and there will be other buyers as well given the rapid change in client demand and shift in the economics of the business for standalone list companies. The major variable driving most acquisitions is the availability of low-cost money as well as the demand for deals through private equity, hedge funds and other financial platforms. They've yet to focus on the list industry, but it wouldn't be surprising if we see some activity.
Why is it important for companies to diversify?
First, I think it's important to clarify what you mean by diversification. A successful service business - and, any business, really - evolves naturally into new service offerings. But it can't be forced or built on simply finding new ways to charge clients for services they don't necessarily need. Like in other industries, diversification needs to be driven by need and demand, but within a niche that is large enough to add opportunity, but not so large that it takes you out of your core competencies. Although it's simple to say, clients will tell you and lead you to what's important to them.
At ParadyszMatera, PM Digital or any of our businesses, we've always put our focus on the client challenges, and we're relentless about it. Distractions tie up people, time and money. I hate waste.
How have ParadyszMatera, PM Digital and your other businesses diversified and consolidated?
We've never been a list company. We've always been in the list business, but it's only one of the businesses we've developed and invested in over the years. As I said earlier, with our focus on the client's needs, we've been led into businesses and industries that support these opportunities. In the mid-90s, as the economics of direct mail became more challenging for clients, we realized the need to explore and expand into other channels. So, we developed a print business and years later, added an insert business. In each case, while we work with clients across channels, each of these businesses has clients that are unique to that channel.
Also, in the late '90s to early 2000s, we built in-house statistical modeling capabilities and launched our digital agency. Although we didn't plan for it to happen the way it has, the Internet changed our game. Today, we're multichannel within channels as well as across channels. Without investments and development, we never would have had good fortune happen either. And now the technology investments required to maintain the core business and to develop new digital channels has made the barrier to entry quite daunting.
What are the challenges that list companies are facing today that keeps them from consolidating and diversifying?
The traditional list company model doesn't leave much operating capital after commissions are paid to its sales people. With low margins to begin with and commission dollars paid based on volume, there's not much cash left for investment.
Outside of money, the desire to take risks in related industries and being able to live with that risk is a challenge for any business in any industry. I don't believe a business has a choice. You grow, invest and evolve or you wither away.
The biggest growth potential lies with people. Focusing on developing talent and creating career opportunities, even to run businesses, is right up there for us next to helping clients grow. Having educational programming doesn't matter much if you don't create opportunity.
This is the most exciting time to be in direct marketing. If I were a 21-year-old fresh out of college, this would be an industry I'd want to check out. In every channel, including stalwart industries like direct mail, TV and inserts, there is huge change happening, and it's a time when a young person can be part of something important.