Twenty-five-year industry veteran, Ron Davis, chairman and founder of Security Associates Internatio
There are no “futurist” schools. You can’t get an advanced degree in “futurism.” And, very few people hang around long enough to determine whether a “futurist” is on target. However, having given you all of the disclaimers, my 25 years of predicting industry trends and helping dealers prepare for them is really the only qualification I have and perhaps need to provide a “futurist’s” view of the security industry.
If you had known the value of recurring monthly revenue (RMR) back in the early ’80s, would you have built your business differently? If you had known about mass marketing of low-priced systems in 1983, would you have planned your business differently? If you had known where the multiples of RMR are today, back in 1987, would you have planned your business differently?
Perhaps you would have. If you believe co-marketing between alarm companies and public utilities will come to pass, “bundling” services will mean offering unrelated services to clients, and good relationships with your clients today will benefit you in the future, then you have an opportunity to align your company’s business plan to jibe with the security firm of the future.
RMR Garnered from Non-Traditional Product Sales
1. My first prediction is that alarm systems will be marketed as part of a package that people want to buy, rather than need to buy. Giving systems away just is not working anymore. Professionals will look at how they can generate more RMR by selling more “packaged” systems.
One of the hottest packages out there will be an outdoor lighting system combined with a residential security system; the focus being on outdoor lighting. The alarm portion can be included, practically “quote-free” with a monthly monitoring contract. This is a variation on the theme of selling a product somebody wants and including a product somebody needs.
Shifting of RMR to Non-Traditional Sources
2. RMR will continue to drive security businesses but in different ways and different amounts. Future products and services sold under today’s alarm dealer umbrella will put greater emphasis on financing, service charges, manufacturer’s rebates, partnering ventures and service contracts for new products installed.
A classic example of how the RMR factor has changed is the entry of many alarm dealers into the satellite dish business. This trend will continue into the future with other products.
Today, the alarm dealer says he is in the RMR business, 100 percent. Tomorrow, he will be able to look at his business and have RMR as a focal point. However, the bulk of the revenue may come from other products and installations that are not typically handled by the independent alarm dealer.
Multiples of Cash Flow Will Gauge Sales Price
3. Multiples will stay the same for large operating companies, but will substantially decrease for smaller bases of accounts and companies. When all of the psychological positioning that takes place in the industry settles down, one thing will emerge very clearly: the price that is paid for RMR will always be a multiple of cash flow.
At some point, buyers of cash flow, even when consolidated, will stop paying for “market share” and will look at the economic justification for making future acquisitions. If it is economic justification that is going to drive the purchase of additional RMR, then smaller dealers (under 5,000 accounts) will lose some of their “seller’s advantage” and will see multiples drop back into somewhere in the upper 20s where, from a financial perspective, they should be.
Larger companies who will be acquired for other than strategic purposes will continue to enjoy strong positioning and be able to demand higher prices than the economics would normally justify.
‘Partnering’ Will Help Dealers Market More Effectively
4. The day of the true strategic alliance will be here shortly, and alarm dealers will start “partnering” with other alarm dealers, utilities, marketers of other products and services and will, in effect, be a part of a larger marketing effort. Traditional business protagonists, such as the cable industry, telephone companies and others, will suddenly emerge as likely partnering candidates.
There will be a number of strategic alliances developed between future entries into the alarm industry and independent alarm dealers. Public utilities who are now looking at the alarm industry will figure out they do not have to buy operating companies to access relationships that alarm dealers have with their customers.
Instead of buying operating companies, like Western Resources and Entergy have done up until now, the dealer will maintain his business and his relationships but will co-market products and services in conjunction with the utilities or telephone companies that may seek to enter the industry.
Ron Davis is chairman and founder of Security Associates Inc. in Arlington Heights, Ill.
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