The August Bright Ideas Issue of SSI includes a CEO roundtable featuring company Presidents Dan Budinoff (Security Specialists, Stamford, Conn.); Jeff Nunberg (Integrated Security Systems, Miami); Ron Oetjen (Intelligent Access Systems, Garner, N.C.); and Vice President/CEO Andrew Lanning (Integrated Security Technologies, Honolulu). The conversation I had with them was much more expansive than could be conveyed in the mere printed page. So here is the second of my two blogs giving you more great insight from these astute gentlemen. In the installment, they discuss lessons learned from the recession.
Let’s talk about the effects of the recession. What good as well as bad came out of that? A lot of companies have had to get leaner and leaner and run things more effectively. But also, what are the ramifications in terms of how you sort of position your businesses for the future in terms of how much of it is going to be recurring-revenue driven versus installation-driven, and the mix that you envision now for your business? The good and the bad out of the recession and also any lingering effects you see.
Jeff Nunberg: I’ll tell you one thing the recession taught me was to stockpile cash. One of my largest customers is a bank and I do a lot of business with them, but from a lending standpoint I’ve had a relationship with a banker for 17 years that’s moved from bank to bank. He moved to this bank where we are today and in 2008 when the bottom fell out of the market they said—he took me to lunch and I lost 75% of my business overnight, a substantial amount of business. He said, “I’m here to tell you we’re raising your interest rate on your line of credit,” which I had maxed out at that point because there was no business. It’s going to go up 2%.” I took the keys out of my pocket and said, “Here.” I gave him the keys, of course it was only my car keys but he didn’t know that. The significance was take my business if you want to raise it 2%. We negotiated over lunch and I got him down to 1%, but because I had a relationship with him they didn’t call my loan. I think any other bank, if I was with a Citibank, they would have called the loan because when you take a Citibank loan there are a hundred covenants in it and all kinds of issues. One of the things I learned was stockpile cash and work on your personal relationships.
The other thing I learned from it was to pay attention to your financials, close attention. When things were going well I knew where I was from a profit and loss but the actual amount of cash surprised me because I’d never seen that kind of number before. I paid a lot of attention to my financial statements, a lot of attention to my expenses. We learned to cut, and a lot of the stuff we cut out in 2008 and 2009 I haven’t added back and my business is three-times the size it was then. I was buying stuff then I didn’t need, clearly.
One of the things is it’s really easy to get fat. In good times anybody can make money. It’s in bad times when you survive. But you really learn what you can live with and what you can live without. I’m hypersensitive to headcount. Whenever they want to add somebody I require a lot of justification and I had a decent amount of recurring revenue for them to speak to but my goal right now is just to build recurring revenue. Every day it’s a mantra and one of the things I’m looking at is managed services and the VideoIQ product is really going to help us once I hire the sales and training sales to specifically work with it. But manage your expenses. I think people forget about it. When you’re making money, it doesn’t matter if you spend an extra $50 a month on the phone bill, but when things change those things are important. If you didn’t spend all the time you’d have a lot more cash. And manage head count. I didn’t manage head count.
Andrew, what was your recessionary experience and how has it affected your operation today and moving forward?
Andrew Lanning: We were fortunate to have a couple of good projects that were long-term so I recall our growth was just flat, which was the first time that it had been flat. It was sort of down because we’d been going like 20% or 30% a year. That’s what I recall. I’m not sure if maybe we had a little growth or not, but comparatively flat year. We had recently moved to a much larger office because we were growing so expenses had gone up. I think it was a win to have had a flat year with greater costs and things like that, so I think a lot of our expenses were properly controlled. I think it’s based on that budgeting strategy, we have them make multiple budgets and then sticking to them. Since then we just continue to grow. I just continue to penetrate other verticals so our experience has been that the markets, at least the market in Hawaii is underserviced. It’s underserved and there’s a lot of old systems out there that need work in the top 250 space, so large projects that require integration, that require input from a lot of stakeholders, from the Cs and IT team and the facility management; understanding and helping them understand the value of having a fully-blown security-management system in place.
Those opportunities are there. We’re courting a whole lot of those opportunities now and I think that since the money has come back to them and they’re back operating normally or better than normal, the opportunities for us are actually growing. We ended up being in a better position afterwards. Some of our competitors went out of business so they’re gone. There aren’t that many competitors to pick from in Hawaii so we have a lot of opportunities; that’s been the outcome of what we experienced. I think being DoD and commercial helped a lot too. But my guys, they’re security cleared, they have TSA, they’re drug tested, have all the regulations of contractors and electrical—I have all that stuff. It’s terrible. Hawaii is not a good place to be in business. I can tell you that.
Ron, what did you learn, the good, the bad, the ugly?
Ron Oetjen: I think I’m in an interesting situation with this. Starting in 2003 we’re still at stage one here, we’re still a stage-one business trying to build for viability and manage survival. You look back in 2007 people ask me all the time, “Would you have thrown the dice the way you’ve thrown them in 2007 if you knew we were going into recession like that?” Hindsight being 20/20 I say absolutely right, no way I wouldn’t have done the same thing. In reality I don’t know. For me it wasn’t about—Jeff talked about really managing headcount and expenses. We were really a stage-one business at that point so we were managing everything really well. You were watching, “Hey your gas bill is up $20 this month. Have you been taking the car somewhere?” It was one of those kinds of deals for us, being that young at the time when the recession started.
Really, that didn’t affect us much. It’s just normal business for us. I will say what came out of it that was good is I think we recognized early on that this is where this thing was going. My partner was pretty astute on it and we started increasing our marketing budget, increasing our spend in different marketing opportunities. That turned out to be a great decision, and increasing our sales personnel turned out to be a great decision. Those are kind of the lessons. I didn’t really have a lot of lessons on cutting and watching expenses because that’s what we were doing pretty much every day anyway.
Probably the win for the industry, I think from the recession, is just the thinning out of all the bad businesses, the businesses that were stealing from the good businesses. And that’s just the market we’re in here. It’s a capitalist society. But the truth is what the recession did for me is thinned out all those guys that really weren’t executing well in business and really causing the rest of us to lose. Probably the worst thing, and I hate to be rhetorical on this, but probably the worst thing to me that came out of the recession was just the regulation side of it. In one way we benefited because the government is opening up the critical infrastructure space, it is heavily regulating these guys. Jeff and I are making a lot of money on those companies. You look at the insurance and banking and it’s just different.
We all have to learn to play the game differently now. Be prepared for what’s in front of us. I’m not sure any of us have a crystal ball and know what that is. That’s probably the worst part, the regulation and health-care legislation and banking legislation that’s coming out. I think we’re all taking a wait-and-see approach, unless somebody knows more than I know. That’s probably the scariest part of it, is there’s still uncertainty on what’s going to happen and where this is going to go.
Dan Budinoff: I think there was a lot of good out of the recession. It was painful. As I said, we’re a legacy business. We were still growing pretty well before the recession and doing well and doing the things I wanted to do with the company. My vision was really chugging right along and then along comes the recession and our fire alarm business which was a pretty good-sized component of our business, went to absolute zero. There was no new construction going on so there wasn’t a lot of new systems going in. Of course we controlled the headcount and watched the money real closely and did some culling of the herd as it were. But I think you’re right that some of the bad competitors are gone.
I think the one thing that we did well and I think it’s because we did it early, even before the recession, is we managed our good-sized clients well. Because of the relationship building that we had done prior, they were very concerned that okay; we want to make sure there’s some work for you because we don’t want you to go away. We deal with some Fortune 100s that we do a lot of work for. Did they contract some? Yes. But did they stop? No. I think even today I still see some trepidation in the marketplace where people are just really afraid; they’ve got the money in their budget and they’re still afraid to pull the trigger and make projects go forward. We saw the beginning of this year start to pick up and all of a sudden it sputtered.
Nunberg: There’s a November-centric effect here too. People are very concerned about what can happen in November.