Do Industry Analysts See Eye-to-Eye With Vivint’s Vision?
SSI‘s annual February Business Issue features an exclusive cover story in which I interview Vivint CEO Todd Pedersen, who has led the business to astonishing growth and is aiming to grow the company even more with funding obtained by its recent $2 billion sale. In the interest of balancing the persuasive perspectives of the charismatic and innovative Pedersen, I sought feedback from four respected security industry financial and business consultants. Following is how Mike Barnes (founding partner, Barnes Associates Inc.), Ron Davis (principal, Davis Marketing Group), George De Marco (managing partner, DECO Ventures LLC) and Bob Harris (president, The Attrition Busters) evaluate Pedersen and Vivint.
What is the first thing that comes to mind when the name Vivint is mentioned? Same question regarding Todd Pedersen.
Mike Barnes: For Vivint, it’s the summer sales variant of the door-to-door sales model for originating customers. Vivint was one of the pioneers of this approach and has been the most successful at perfecting and scaling its use. For Todd Pedersen, it’s innovator. In hindsight, meshing the ease, capability and real value of the industry’s new technologies with the energy of motivated college students and focusing the effort on the hugely underpenetrated residential market clearly makes sense. He had the foresight to see the potential, and the skill to perfect a model that can work.
Ron Davis: When Vivint is mentioned it brings the same thing to mind as almost 50 years ago when Amway first began. A company had climbed through the “traditional” way of doing things in the alarm industry, reached a new strata, and was spreading its wings in every direction. It is almost the same impact that Brinks’ had on the industry 25 years ago when it came on the scene. No one had ever heard of giving an alarm product away in order to capture the recurring monthly revenue. They made that happen and created a new niche in the industry. Vivint has done the same thing. With regard to Todd Pedersen, the first thing that comes to mind is the image I had when I first visited APX and took a tour of their new campus. There were several hundred reporters, traditional alarm people in the group, Mitt Romney was the guest speaker. Watching Pedersen operate within the various strata of that meeting, I was amazed at the kind of control that he had and the awe in which employees, investors and staff held him. I’m not sure I would have ever seen him intimidated, and that day proved it.
George De Marco: The first thing that comes to mind when I think of Vivint is “disruptor,” an organization where people have the ability and encouragement to challenge the industry’s status quo. They built a solid company foundation, based on a diverse and vibrant culture that attracted highly motivated individuals who strongly believe in the company’s purpose-driven vision and mission statements. Having a disruptive ecosystem allowed Vivint’s leaders to challenge every aspect of the business, asking “why not?” instead of just “why?” For Todd Pedersen, that would be Todd “Maverick” Pedersen, head disruptor and driver of the movement -– need I say more?
What are some of the impacts, positive or negative, both have had on the installing and monitoring sides of the electronic security industry?
Barnes: The largest impact, I believe, is favorable. Vivint is supporting the notion that the potential take rate for professionally monitored alarm systems and its ancillary services is much higher than previously thought. That is, the potential penetration rate for the residential market can be well above its current 18%-20% range, a level we have been stuck at for quite some time. While their sales efforts are not completely random, to a degree they effectively represent a nationwide door-to-door marketing survey, which at this point appears to be suggesting a very large opportunity.
Davis: In my thinking there are no negative impacts. When you have the level of volume that Vivint and Pedersen have created, there is always room for a few “incidents” and I believe they’ve demonstrated more than most how well they deal with problems. They literally just make them go away, doing whatever they have to do. The positive impact, on the other hand, is the fact it is absolute proof that an entrepreneur with a vision and a plan can still execute within this industry.
De Marco: Competition drives change. Disruptive change can overwhelm an industry. In the case of Vivint, they ruffled traditional industry feathers as its unique business model unfolded, but this usually happens when conventional go-to-market strategies are challenged and the results are extraordinarily effective. In addition to bringing a disruptive sales model, literally to the streets, Vivint backed a significant technology play, called 2GIG Technologies. This gave Vivint more control over the brand and a strategic technology platform that delivers cutting-edge products and services to the masses. Subsequently, complementary nonsecurity products and services are being rolled out strategically to homeowners, allowing Vivint to gain a larger share of customers’ wallets. Another huge benefit for the industry is Vivint’s laser focus on driving a much higher RMR per household, increasing bottom-line profits and enterprise values as well.
Bob Harris: The positive is that the business has grown to a large company in record time, developed an aggressive sales strategy that grows numbers for this model, employed many young people in need of work, and helped increase awareness and market penetration. The negative has been a reputation for poor service after the sale and with the product. This has contributed to further devalue the perception of alarm industry professionalism via inexperienced salespeople who lack information and communication skills, and who seem incapable of designing truly effective security systems.
Have Vivint and Pedersen sometimes gotten a bum rap regarding the summer sales model or other tactics and practices?
Barnes: Yes and no. Some of the criticism has been earned. The very nature of their model, with the highly compressed training and sales cycles and high-tempo activity presents a management challenge with respect to quality control. But from what we have seen this can be and is being managed. When I think of Vivint’s evolution I am mindful of an adage my father used to say, “You get conservative when you have something to conserve.” Vivint is no longer the brash, young start-up. It is now one of the largest alarm companies in the industry, and one that is, by virtue of keeping its originated accounts, “eating its own cooking.” This is a strong motivator to get the recipe right.
Davis: There are some people in the industry who practice giving “bum raps” to everything that is new. To the best of my knowledge, as a casual observer with no other interest than seeing them operate, I have not seen a deserved bum rap other than they have just been too successful. If you look at their training and education and how the people they hire operate, you understand why, for the most part, they have built the ship and they know how to operate it.
De Marco: As mentioned, industry disruptors usually are blamed when the status quo is challenged. Did they do everything well? The short answer is no. The game is still young; missteps will happen, as they have in the past and will likely continue in the future. However, if the competitive and disruptive c
ulture remains intact at Vivint, I believe their focus on the customer experience and process improvement initiatives will remain extremely important in achieving their financial and operational goals.
Harris: I don’t consider it a bum rap. I believe they earned the reputation of “inexperienced door-knockers,” which may have contributed to certain deceptive sales tactics, perhaps some still stemming from the APX model, while poor service and after-the-sale complaints are still steadily flowing in to the BBB. Also, like many others, Vivint failed to sell value; it is my understanding they typically offer a one-size-fits-all incomplete security solution.
Did the $2 billion deal for Vivint surprise you; why or why not?
Barnes: We knew the company was for sale and that the interest level was high. We worked for one of the potential buyers, who put in a relatively aggressive offer and didn’t even make the final cut, so we knew the valuation was going to be high. Even so, I was pleasantly surprised that it cracked $2 billion. A strong vote in favor of the management team, the business model and the market opportunity.
Davis: It shouldn’t have, but it did. I’m sure it surprised many people in the industry. Not so much that the transaction would be done, but that the valuation of the transaction was almost off the charts. I think it’s a testimonial to Pedersen and the management group at Vivint as to the success of the company and the fact the financial community was willing to pony up that kind of money.
De Marco: Absolutely not. Vivint is a great success story. Their canvas just happens to be bigger than most. Buoyed by an incredible sales engine and an equally impressive operational performance, this company became a valuable and sought-after acquisition. Instead of just focusing on doing things right, Vivint did the right things along the way, allowing them to reap the fruits of their labor.
Harris: Yes, it’s a huge amount of money to pay for a company that stands to face a staggering percentage of customer attrition as contracts expire.
Do you see Vivint continuing its pace of growth?
Barnes: I definitely see them continuing at a high pace. The combination of their model and the market opportunity is clearly a powerful engine for growth. Ultimately, however, their year-on-year rate will slow. Their percentage increase in the number of systems originated each year, while high, is lower than their overall growth rate, I believe. This is a most likely a byproduct of their sales capability already being so large when they started keeping their accounts. It is tougher to grow a $30 million RMR base by 60% than a $3 million RMR base.
Davis: I see it continuing and even at an accelerated pace by virtue of the fact that I expect Vivint to try alternate channels of distribution. I am talking about not just security products but energy management products and eventually leading their way into the digital world, where I suspect they will be more than just a blip on Bill Gates’ radar screen.
De Marco: The game is in the early innings, and Vivint has the potential to hit another home run. Having a purpose-driven culture and an effective change management focus are essential ingredients in helping any organization reach its full potential. If the Vivint team continues to have the capabilities, desire, and appetite to reach for the next level, then their players will remain in the game and achieve more great things together.
Harris: Time will tell but I personally do not see the same level of continued growth. The Vivint reputation of slap it in, get out and worry about service later leaves much to be desired in terms of customers placing value in their security provider. I believe as contract terms come up for renewal, Vivint will experience big numbers of cancellations. New sales may have to keep up with cancellations to stay right where they are. Of course, they can change this if they want too.
Do you see Vivint successful expanding into commercial business?
Barnes: There is no doubt in my mind that they will move into the commercial market, and have some level of success. It would seem that the geographic clustering of businesses in many areas could support a door-to-door sales approach. But there will clearly be differences, such as the time and difficulty associated with identifying a decision maker, getting in front of them and making the sale. Additionally, differences in margin potential and attrition rates, particularly for small businesses, will ultimately define their level of “success.” But trial and error is a powerful method for figuring things out, particularly when done on a meaningful scale. If it can be done, they are likely to get to the answer first.
Davis: The way our industry has grown, the commercial sector is different than the residential sector. The reality is that much of the technology and many of the products can be sold equally well to both residential and commercial users. I think the natural growth of the business would take into account commercial activities, but not as a specific goal, but rather as a byproduct of some of the larger things that they will be doing, for example the Internet, digital world, etc.
De Marco: Years ago, I believed Vivint’s summer sales model would be a no-brainer in offering security services for small businesses. There is actually not much difference between canvasing homes versus businesses. My opinion has not changed, but I do think the small business segment will be a proving ground to properly access this strategy. As they develop the knowledge and skills necessary to meet the demands of this market segment, the opportunity will grow strong legs and have a huge impact on their top-line revenues and bottom-line profits, not to mention their overall enterprise value.
Which competitors ought to be most concerned about Vivint and why?
Barnes: I think every player in the industry, particularly those with a current residential market focus, views Vivint as a strong competitor. Companies that have years of hard effort establishing their bona fides in their local community, and generally experiencing a nice flow of business, now have a high potential of interruption during the summer months by Vivint salespeople who short-circuit the sales cycle. That is, sneak inside the decision-making loop of the consumer.
Davis: I don’t know if the word “concern” is the right one here, but if you take the top 100 companies in the industry, all of them ought to be aware of and attempting to emulate some, if not all, of what Vivint is doing. The reason being that whatever they have done, they seem to do well and are successful at it. That’s worthy of emulation.
De Marco: The obvious answer would be any company that offers similar products and services in the same market. As Richard Branson says, “Take the competition seriously, but not yourself.” This quote affects everyone, whether you are Vivint or not. This being said, Vivint should not be their main concern. In today’s marketplace, any company should be concerned with effectively changing its go-to-market strategies and operational expertise to meet the demands and new trends affecting the electronic security industry. If not, your competitive edge will be diminished greatly.
Harris: All alarm companies should be concerned about every competitor if they are doing little to embrace change. Companies need to adopt a sense of urgency to get back in the game and stimulate their entire team in terms of sales and value proposition to garner reasonable profi
t margins, differentiation in terms of customer relationships/service/retention, selling value not only low price, and making a strategic effort to bundle more core security industry offerings. A lack of sales and customer service training is prevalent in our industry and until this changes every single security provider has threats much bigger than Vivint to be concerned about.
What do you see as the top challenges for Vivint’s leadership?
Barnes: In the near term, I think their challenges will be all about balance. For instance, balancing the energy and “can-do” culture that helped make them with the buttoned-down, by-the-book bureaucracy required of any large enterprise and the capital markets that support it. This balancing act will also apply to their ability to preserve, and maximize the overall market opportunity. It’s about finding something akin to the “sustainable growth” concept typically discussed in the context of the overall environment where the aggressive pursuit of near-term success enhances future prospects, rather than harms them.
Davis: All one has to do is look at the role that Steve Jobs had at Apple and recognize how important he was. But part of the vision that Steve Jobs had was the careful consideration of replacing his role within the hierarchy of Apple. I don’t believe Pedersen thinks he’s invincible, and I’m sure there’s some mechanisms in place if something did happen to him but it will be difficult and challenging for whoever follows him. Not impossible, just, as you put it, challenging.
De Marco: Giving advice to Vivint seems counterintuitive to me. But if I did, I would advise them to remain true to their purpose, deliver exceptional customer service, choose teammates carefully and stay disruptive. And one last thing, be vigilant of the other coming disruptors, such as Google or Apple. One never knows what is lurking in the mind of a disruptor.
Harris: I see four challenges. First is customer retention. Unhappy customers will switch providers. Second is collections. I believe Vivint either will or already does experience significant collections challenges. I have found this business model to be among the most prone to these kinds of challenges. This is especially true if subsidized systems are being offered to those with barely acceptable credit. Thirdly is reliable service. Many Vivint customers have told me they experience frequent problems with their systems and it is very difficult to get service or any meaningful empathy. Lastly, investment in education and training. I am unaware of any meaningful sales or customer service/retention training being done by Vivint at this time.
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