Let’s talk about transitioning from being a project-based integrator to focusing more on services and recurring revenue. How is your business approaching it?

Stuart: We jumped into it pretty heavily about six to seven years ago when we made some key changes in our organization to begin building our recurring revenue and assembling offerings for managed services. We’re also a fire alarm company, and so we’re really focused on our service, test and inspection agreements. We have salespeople who focus fulltime on selling these agreements that can also be bundled with other services. We jumped into the remote video monitoring game, combining that with analytics, and we’re doing managed access control as well.

This year we’re way up on the number of quotes for bundled, managed services. That would include monitoring, cleaning, testing, inspections on their systems, recurring trainings, and software as a service with all the key essentials to keep that system up and running with the latest software revisions, latest patches. We’re big in health care, which has turnover in their nursing ranks and so we re
train nurses. We retrain facility staff. They need to be benefiting from the technology. A lot of times we install outstanding technology only to go back three months later and find out they’re not using or leveraging it properly.

We have a heavy emphasis on recurring revenue for a lot of reasons. It creates financial stability and cash flow for launching new initiatives. Right now it is about 20% of the business and we would like to get it to 50%. We’ll continue to invest to make it happen.

Franklin: Everyone has to embrace the fact that things are changing in the integration business. Managed and hosted services, cloud-based services, and all those pieces. The economy has helped to drive that along, because the budgets at companies that have security programs don’t have enough personnel anymore. That’s an opportunity for the integrator to offer these services. If you’re hanging your hat on the margins made on the box sale, you need to stop focusing on that. The box sale, selling the widgets, that is declining in margin. If you’re going to be successful, you have to bring your margins up and that’s going to be in professional services.

To Chris’ point, what you offer to the client is very different based upon the customer’s needs. We have large national customers with hundreds of locations. They’re not going to sign up for managed and hosted services because there’s not that much trust in it yet.

The other thing that’s happening is that I wish the manufacturers would get their act together because there are so many disparate systems, and nobody does video and access together well. You’re forced to sell an access component that’s good and a video product that’s good, and that marriage is not there yet on the managed and hosted side. The manufacturers have to get the products out there that we can sell and put out there. I see every integrator coming up with their own solution, and while it’s good you’re tying a customer in and making them really sticky to you, you better make sure it’s working well because they’ll be running for the hills to get away from you when it’s not.

Everybody says everything’s going to the cloud. That’s a loosely defined term. It’s not going to the cloud; it’s going to the manufacturers that are offering their own hosted solution, or you’re putting your own servers in place and then coming back to the IT side. You better really have your act together. You better have the best of the best in enterprise-class solutions, because if not, it’s going to fall on its heel when you need it to work the most.

Minner: I really commend people who have been doing this for a few years and got it figured out well ahead of the curve. In our market, people aren’t really doing that much yet. With some customers we’ve done a couple of systems in terms of managed services and hosted solutions. We’ve dedicated a resource, just recently, to helping us figure it out. What we do mainly in terms of RMR, historically and more recently, we still don’t do great but it’s service and maintenance contracts type of work, fire test and inspection. But in general, in these new areas we’re a bit uncertain.

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