CEOs Roll With the Punches, Plot Higher Profitability
In an exclusive roundtable, executives from four installing security contractors shed light on how their firms successfully navigated the recession to emerge primed for future growth. Find out how they adapted to changing market conditions, among other strategic moves.
What technologies are piquing your interest?
Loud: At the 2010 ESX show in Charlotte, N.C., I came out of there and went back to my management team and I said there was a key word I heard at most of the booths and that word was thermostat. Instead of having that $1,200 alarm board to get started, now I have my $100 alarm package or $200 package that I can start to get into some light automation. When you start to talk about an industry change or transformation, that system is not just about life safety and security protection, it becomes about home management or home controls. Hopefully our penetration factor increases as well as the interactivity of that subscriber using the system, which affects attrition.
When you get into the thermostats, the locks and the lighting control on a far more entry level financial package, I certainly think that is a technology that for us is exciting. Our highest three quarters [in 2012], we had an 84% increase in our RMR [compared to 2011] with same system sales. So same number of sales, same number of units, the average RMR for those three months was an 84% increase. But it was about added services.
Morris: We have been a full-service integrator for residential/commercial for a number of years. We do some pretty high-end home theater, man caves, whole house automation, lighting, entrance gates. What has intrigued me more in the last year than anything is just IP-based camera systems. Camera systems have been reinvented. In 2012, about 30% of our camera systems were IP-based vs. less than 5% in 2011. We live in a high def world. Anybody can generate a good picture on a cell phone, but it is hard on a large screen monitor. People are finding it unacceptable to have a big, bad analog picture. One of the things we’ve actively targeted as a result of doing IP systems is doing wireless IP — storage facilities where it’s not always easy to run cable.
For example, we did a small refinery in 2012, a large CCTV job. The majority of it was wireless. Wireless video has become a pleasure now using IP-based systems vs. analog. Trying to send an analog signal wirelessly is like trying to make a boat go faster. It has always been problematic and it’s always been very expensive. We are building a mesh. In the center of the refinery they have one main operations building and we have an omni directional antenna, and they have all these satellite buildings. You have an IP camera here and an IP camera here and you have the transmitters all aimed at that. We are going up on their fiber backbone, it’s just easy to do. Very few of our competitors are doing IP-based systems.
We have also done a lot of hybrid systems in 2012. The only reason we are going in and doing hybrids is to take advantage of existing analog cameras. For example, a waterpark had 64 analog cameras. We put in a hybrid unit that has 64 analog inputs, but the intention is as budget allows we think we can do with 24 IP cameras what they are doing with 64. They want to transition out of analog into digital.
There is still a place for analog. We do a lot of analog residential systems. A lot of four-camera systems. There is always going to be a place for that. But we are demo’ing and quoting purely IP commercially now. We didn’t understand IP up until 2012 until we made an effort to understand it. This camera didn’t work with this system. This system didn’t work with that camera. We figured it out. It was worth the investment we made. Just recently, with every analog system, we started putting in Cat-5. We are using the inexpensive baluns, which are less than $10 per camera, on either end. So we are trying to future proof that analog.
Lindberg: We have done IP cameras for many years. We were fairly early in the game of doing IP cameras and doing some large IP camera systems. The part that intrigues me today is that the IP cameras have really started to come down in price and continue to increase in features. After installing analog cameras for 30 years, there wasn’t anything like what’s happened in the last year or two years with IP cameras. IP cameras are getting much less expensive and becoming very feature rich. The big thing is the resolution. People see the comparison vs. analog video and it is just such a difference. We didn’t get those complaints 20 years ago, but they didn’t have anything to compare it against. Now their cell phone has a 7-megapixal camera. It’s a high def movie camera. That’s what people are comparing us against and analog cameras just don’t cut it.
Hood: Definitely I would lead with the video and the remote video; video verification. We are proponents. We are in an area where there are a growing number of verified response agencies, one of them being in San Jose. Another city close by, Fremont, has gone verified or non-response. Our thought is as these cities and counties, at least in California where most of the news is bad all the time about funding for law enforcement, that ultimately prioritization is going to occur. Calls for service are coming into 911 centers and it just stands to reason that video verified intrusion is going to be prioritized over some box sending a signal somewhere. Rather than wait for that to be rammed down our throats, we want to try and stay ahead so we are promoting verified responses or video alarm verification as we call it.
It puts a little more pressure on the design than a typical surveillance system. If you are combining with an alarm system, you actually have to think about what you are doing. From a competitor perspective, you are actually having more of a custom tailored solution and you can compete against someone else who is selling a standalone passive video system and a standalone alarm system. Whereas we try to, whenever we can, sell them as a one living and breathing security machine.
Then, something I am interested in and have been watching, although we don’t really do it, is PERS. Probably everybody who does alarms does some level of medical pendants and things like that but we would never call ourselves a PERS dealer. I’m hopeful the market will settle down to where there will be a mid to higher-end market. Since we are in the San Francisco Bay Area, a high income area, we could possibly be a high-end PERS o
r tele-medicine provider … some twist on it other than a $99 box, plug it into the wall and when you fall down the stairs push this button. We could possibly do something more innovative, more of a concierge. I’m excited about the idea and I keep my eye on it. It could be something we could be very good at. I am passionate about health and health related issues.
I just don’t think the return on the marketing and the efforts it would take to get it going … I can’t make it pencil out. I think we could do it. We are good at putting stuff in, we are good at monitoring stuff, we are good at responding to stuff. A lot of people are good at that. But I’ve seen other companies create like a separate [PERS] company because it’s cutthroat. You are mailing the box and the senior citizen is supposed to plug it in. That’s just the opposite of how we operate.
Recession and competition aside, explain a challenge you have faced recently and how you reacted to it.
Loud: The challenge is you have to change. I have heard through the years if you are not a changing organization, you are a dying organization. If you just keep doing what you are doing — and everything else is changing around you and you don’t find a way to adapt — you could be in for real trouble. For Loud Security, for example, when you go from working with 40 to 50 home builders, then very quickly down to only one, how are you going to adapt? You have to then go look and read and learn and listen to others, and then seek some of that guidance, but also be willing to modify or make those changes. Some companies either laid people off or sold [during the recession] because they didn’t find a way to change.
Morris: The hardest thing I’ve had to do recently is turn away business. Because we do service the rural markets and try to become much better managers, part of that was understanding what the true cost of doing business is. Just recently we were presented with an all or nothing proposal from a customer — 49 stores — in the fast food industry. I made a difficult decision to turn them down. Now, what compounded that decision was 10 of the stores were already our customers. The reason I made the decision — five years ago I would have jumped all over it — but a few of them were in Virginia, a few were in Illinois. We just could not service them. I did keep the 10 at the end of the day and picked up seven more. But it’s understanding the costs and not trying to be all things to all people like we did for so many years.
We have been able to grow the business in a lot of ways as a result of the First Alert dealer network. Very seldom have I ever called on a First Alert dealer that hasn’t helped me out. It’s not uncommon for us to service out of all three of our offices, which is maybe a 100-mile radius. It’s just very difficult. The biggest challenge was turning away business in a soft economy.
Lindberg: I once heard the quote, “You know you have a strategy when you answer no.” At some point I learned that and it really was a big lesson. We all get started looking for business anywhere we can and we take on jobs we should have never taken on and at some point in your career you learn, no, you need to have a strategic plan. This needs to fit in here and if it doesn’t, don’t do it. We made lots of mistakes years ago in taking on jobs we should have never been involved in. That was a big turning point.
Hood: Acquisitions for us, we probably did more than we should have in a short period of time. We were courting many [potential sellers] knowing that not all of them were going to come to fruition, not even maybe half of them. But we had several happen in a short period of time of about a year and a half, one of which involved a new business location in a much more competitive environment and a different pricing model, a different way of doing business that they were successful at.
We had made so many mistakes … I had made so many mistakes; I like to use “we” sometimes because it feels a little bit better [laughter]. In that process, part of it was compressing too much, stretching the management team so thin that we diluted ourselves. A lot of management’s energy was trying to fold these acquisitions in and the clock is ticking. Here we are sitting a year later [at the time], still not able to because of technical reasons, software reasons, things happening internally that were a result of not good planning. We learned a lot.
Secondly, because of the growth of our security guard and patrol business, we’ve had to separate it. There was a lot of blending and a lot of shared services and a lot shared resources. Anytime at any scale that you have that going on, you try to separate things; whether two business units are sharing one receptionist, we had a million decisions like that. We completely separated our accounting systems, accounting leadership and then they got their own call center because we couldn’t support it at our call center with all the radio traffic, all the stuff that goes on with a 600-person guard business. The unwinding of that created quite a bit of upheaval.
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