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 do you see as the greatest threats to dealers and integrators right now?
Loud: I think there are two vital areas: False alarm reduction or alarm ordinance development, and margin erosion. With margin erosion, the lesson is I don’t need to get all of the customers, I just need the right ones. That’s a tough lesson to learn sometimes, how to be able to say no.
False alarm reduction. Within Georgia we do a lot of work with SIAC [Security Industry Alarm Coalition], a tremendous organization. They came up with a model ordinance and we have been quite successful to make sure that is replicated around the state. We just had a horrible ordinance pass in DeKalb County, Georgia, and it says the alarm dealer has to pay a $5 registration fee and the subscriber has to pay a $5 registration fee. If the dealer does not pay the registration fee, you can go to jail. Your fine can be up to $499 and you can go to jail. If the subscriber does not pay the registration fee, nothing happens. If the subscriber has repeat false alarms, and they can receive $50 and $100 fines, nothing happens. Dispatch still happens. The county commissioners passed the ordinance and not even the police chief likes it. It was supposed to be enacted in September 2012, but they have yet to move forward with it yet so we’ll see where it goes.
The fastest way to erode any of the values of our businesses is to go to non-response or non-dispatch. How many people are going to go pay for that extra guard service? Some companies are set up for that, but most alarm companies are not. I know my numbers are going to plummet fast [if my marketplace ever goes to non-response]. My involvement for the past eight years with the Georgia Association Chiefs of Police on their false alarm reeducation committee is selfish, but yet it is industry preservation to me because if we don’t work together with them to find that right model, then I could see a quick erosion.
Morris: I agree with everything John said, just on a little bit different scale. I feel like margin erosion is our biggest threat as well as false alarms. Within the last 60 days we had a small city of about 14,000 people, in a county of probably 50,000 people … it was a front page story, police and city officials discussed false alarms and the economy. They are looking at where they are spending their money. One of my main objectives in taking this trip [
to the 2012 FAP convention] was to try to get some information about being proactive with effective alarm ordinances.
Lindberg: Health care costs. It is a giant problem. My healthcare plan, we are paying $14,000 per year for a family plan. It is up 15% from 2011. I fear we are just at the beginning of the cost of the new healthcare system.
Hood: These guys all covered my big concerns. I would add, going from the macro view to a smaller concern, would be on the technical side. I love technology. I have all the cool stuff in my house — [home control and interactive services capability], cameras and all. But I have to tell you, I am a little skeptical about the staying power. The stickiness in the short term I think is good. Dealers do not have a choice right now. If you are not doing apps and these new services, you are quickly going to be marginalized and viewed as the old school alarm guy who doesn’t know how to make the iphone beep and buzz with the customer’s alarm.
Dealers have to use this stuff. Comcast, ADT and others are doing a very good job of saying, “Here is your alarm, it’s on a smartphone.” But I worry about the long-term stickiness and actual utility of all this stuff. I’m a little bit of a skeptic. I almost worry that the success of getting everybody thinking that their alarm is on a smartphone might be also starting to call into question, in a bigger way, the value of the emergency aspect of monitoring over the DIY component because we are going to give these people a lot more information. I’m not a Luddite, but I think it is a logical question for consumers to ask, “If you are giving me all this data and I trust this signal with my life, then why am I paying …” We charge $7.50 on top of a base monitoring of $30 for what we call First Connect, that is our branded version of Total Connect. It touches them a lot, which I like. They interact with it more, which I like. It keeps them attached. But I can see the beginnings of, “I’ll just take that … that’s good enough.” And we say, “No, we don’t do that.” It’s not an illogical thing for a customer to ask.
Are you feeling pressure from telecoms and cable companies that have entered your markets?
Lindberg: Our big concern is their ability to bundle. In Cincinnati we just had our telecom leave the security business after causing chaos in our market for 11 years. They sold and are out of the business, which is a wonderful thing. For somebody to come back in it will probably cause a lot of disruption to our industry. Our we concerned? Yes, but I’m not overly worried about it.
With the home automation there are so many pieces that are so much simpler now than they ever were. But still, when you are out there switching out thermostats or switching out door locks, this is service and there are a lot of things getting goofed here. I don’t think their model of servicing clients is the same as what our models are as far as handling this type of thing. They are going to have a hard time, I believe.
Morris: I absolutely feel the pressure. Maybe not today but I know it’s coming. It is probably going to come at a faster pace than it has in the past. I consider all competition worthy until they prove themselves otherwise. I treat it as such. The telecoms of the world do not have to play by the same set of rules that we do. As John [Lindberg] said, they can come into market and call it a pilot program and decimate that market. I am concerned about it. With the new Total Connect services, with the ZWave lighting control, and thermostats and the door locks, I think that is a tremendous opportunity for companies like ours. We do much higher-end stuff with some other manufacturers’ higher-end automation, but that gives us an opportunity to compete. That’s how they are going to come after us is through the automation and energy management. We are trying to be proactive because we know it’s coming. We want to have a foothold.
What I have realized is customers are willing to pay a much higher monthly then I ever gave them credit for — basic automation, like lighting, door locks, thermostats.
Loud: We are in a unique market in Atlanta because that’s where AT&T has one of its central stations. They also have one in Dallas. Comcast has been in Atlanta for the better part of 2012. My phone has been ringing a whole lot more from people looking for these connected services because of all the inundation that Comcast has done.
AT&T is going to open up sometime January. They are going to have 65 branch locations, 2,000 of their markets where they are going to have the people who are selling cell phones who are going to be working on selling alarm systems. I certainly welcome the advertising and marketing. People are going to look and say, “What has my experience been with Comcast or with AT&T and do I really want to have them be my life safety-security provider?” They certainly have that [negative] perception with a lot of their customers. So from a market awareness, I welcome it. From an interactive perspective, I welcome it. But how much mangling [will they do to the market]? My feeling is I don’t think the mangling of what they’ll do to our market, compared to what a Vivint with the door knocking and some of those negative perceptions, I don’t think they will come in that way. I think they come in better, cleaner.
Whether or not they have the longevity remains to be seen. At our state alarm association meetings we’ve had dealers say they’ve picked up a few Comcast customers. Comcast has done their initial offering. The customers had a bad experience and they’ve now called one of our members to say, “OK, now I want to have a real security solution, can you do that?” We’ve picked up those opportunities because the phones rang.
Hood: As far as cancellations or what we call “attempts to cancel” happen, we are able to convert a lot of them or what we call “saves.” In a short period of time we have had several attempts to cancel. I was down in my customer service department recently. The customers are saying, “We love you guys but you just don’t have the cool stuff.” Of course, my face is red and I want to grab the phone — “We have the cool stuff! — but it just tells you how poor of job we’re doing of actually communicating to our customers.
Loud: So they just helped you, right? Because I learned the hard way too. We printed out 10,000 postcards and we said anyone who has been with us three years or longer, let them know about cellular. Let them know about Total Connect. Here is the risk factor, though, and this is my real concern: I am going to lose a customer or two of five, here and there, but I go mail all those postcards and now the customers say, “I do want that. Aren’t you just going to give me that since I’ve been your customer for six years?” So what is going to cost me more?
Hood: In some cases, I’ve run the numbers, and it is cheaper to let go of the customer. You are looking at a $500 or $600 reinvestment in the customer if they have a panel that’s not compatible. We all know the technical barriers. It’s not just send a guy out with a little module and plug it in and everything is OK.
Loud: So it comes down to creation multiple. It becomes a $300 or $500 reinvestment. If they have been their six years and you reinvest and they are go
ing to stay another three or six years?
Hood: Long story short, I feel like my account base is a sitting duck because it is well installed, credit worthy. My decals are my liability because I definitely have competitors soliciting strong offers with high RMR. I’ve lost customers for $60 to $70 a month and they were paying me $36. But they wanted the touchscreen, which converted everything to wireless that we did a beautiful job home-running hardwire. We lost the account for much more money. It’s my worst nightmare. They think that we’re the old school alarm company. And that’s not an unreasonable thing. If we haven’t communicated with you and you have some faded old keypad that’s been on your wall forever, over seven different versions of painting you’ve done, and we have never told you anything — we do send people stuff but only 10% read it — it’s a marketing and a communication problem. It’s a wakeup call for all of us.
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