George De Marco Lays Bare His Security Industry Perspective for 2021
In a wide-ranging discussion, the esteemed industry subject matter expert elucidates on meeting the challenges of a disrupted marketplace.
How are business operations — such as training, talent, attrition, etc. — being disrupted in the current climate?
Some organizations are keeping their employees working from home indefinitely. This may work for those specific business models. For the security industry, it relies heavily on face-to-face relationships with its clients. Despite Zoom’s recent rise in handling meetings, it’s more difficult to reduce physical proximity for the security industry’s traditional business model and customer interaction for selling, installing and servicing systems.
Focusing on an in-person sales strategy is what security professionals need to follow, which reinforces the need to attract, train and retain qualified people with great soft skills. Teaching them the technical side of the business is paramount for security professionals to mentor new folks entering the industry.
Talent acquisition and customer retention are the two top challenges facing the industry for 2021.
Across the country, attracting qualified employees with the right skills is extremely challenging for security companies and integrators. Growth becomes muted for those companies that can’t attract skilled employees. However, what may be even more difficult is retaining skilled employees.
A good hiring practice is a process that includes creating the right culture, purpose, and training and compensation programs. Coupled with the right leadership team, good hiring and retention practices attract great candidates and keeps them engaged for the long term. Many times, your staff is the best referral source for attracting great employees.
Build a purpose driven culture that energizes your brand, your vision, your values and your promise. Over communicate these principles to your employees, giving them a sense of what the company stands for and believes in, and hire those that believe in your vision.
For customer retention, this is especially challenging if your company doesn’t measure attrition metrics and is unaware of the make-up of its customer base and corresponding recurring revenue stream. For example, if your customer base is primarily focused on a market segment hit hard by the pandemic or other market segment downturn, your attrition rate will trend much higher than normal.
Each company needs to assess its RMR to determine how vulnerable it is to the parts of the economy adversely affected by the pandemic. Doing so is a good exercise in understanding your RMR exposure to possible industries that may be acutely or permanently damaged in the coming months or years. This exercise will also help you focus more clearly on the market segments that remain sustainable and profitable or identify emerging sectors to add to your go-to-market strategy. In other words, diversify your portfolio to minimize your risk.
Regardless of whether it’s the employee or customer base, keeping attrition low and engagement high is critical in growing revenues, achieving profits, and building company value.
What is your overall view of the competitive landscape of the security industry?
The competitive landscape continues to transform and evolve. Competing against the known universe of security and integration companies is much easier than competing against the unknown ones lurking beneath the surface.
One of the biggest competitors affecting security professionals is the Internet. As an influencer, the Internet is an online resource used by consumers to help them make their buying decisions, especially using a mobile first experience. Buyers are younger, using a variety of ways to search what they want and how companies grab their attention before making the final purchasing decision. From consumer ratings and brand promises, to responsive websites, the Internet plays an important role in projecting a brand image that resonates — or not — with the consumer.
A few of the largest companies on the planet are offering security related products and services that directly compete for the consumer’s share of the wallet. However, for them, the real prize is the data generated by the digital breadcrumbs left by consumers. What they have done well is bring game-changing technology and product awareness to consumers, which, to the benefit of the security industry, helped it grow and prosper.
I believe long-term industry manufacturers and service providers need to step up their game when it comes to introducing innovation that drives consumer demand, rather than waiting for demand. It seems that disruptors have led the charge in recent years, setting us back on our heels as the industry catches up.
What are your expectations for consolidation in the New Year?
For 2021, M&As will likely continue to consolidate portions of the industry by active acquirers. Regarding the residential market, the capital market’s appetite for this space waned recently, causing a pause in the ability of highly leveraged companies to access growth capital or pursue an aggressive acquisition strategy.
Multiples did soften, whether for acquisition strategies or internal growth initiatives, and will continue until the capital markets sort through the process. For those companies not highly leveraged and with a disciplined growth strategy, the capital markets have been much more favorable to them. The commercial market seems to have been less of an issue for inflows of capital as this sector of the industry is more highly attractive.
Publicly traded companies, in the industry or on the fringe, will continue to seek acquisitions or may become targets themselves. Do companies like Alarm.com, Resideo, or even Sonos become M&A targets? If so, what companies or private equity firms would be the most likely suitors?
Will this be the year for logical, cyber and physical security to become closer aligned? Will Apple decide to take a meaningful bite out of the industry? What will Amazon focus on for the next 3-5 years in the industry? Does Google continue to invest and build on its relationship with ADT as well as others? Is there another player out there on the horizon that the industry is unaware of or underestimating as a formidable competitor or disruptor?
Another likely reason for consolidation is the need to acquire highly talented technology teams, helping companies to achieve or exceed their growth initiatives.
What type of year in 2021 are you anticipating for such factors as new players, cyber threats and disruptive technologies?
As Einstein said, “In the midst of every crisis, lies great opportunity.” We all know the disruption caused by the pandemic is extensive and widespread. However, the electronic security industry was already in a state of disruption. For the most part, security professionals did an outstanding job of adopting to change and maintaining their relevance with end users in a very difficult 2020. If the resilience of the industry last year is any indication of future performance, then 2021 should be a year of strong growth and performance as things begin to settle into a normality that consumers and businesses feel comfortable with.
As security professionals embrace change, new business models and markets will spring to life in 2021 and beyond. Innovative products and services are changing customer demands and expectations, regardless of the sector or economic climate. Working from home, learning from home, vacationing from home are affecting the way the industry services its residential customers. Security and integration companies are seeking to understand what “normal” is and what it may look like in the coming months and years, especially since we can only control or influence a few things.
One area of the market that I believe will begin to permeate for both commercial and residential security is video monitoring. Whether for validation of an alarm or remote video guarding, technology is finally giving it the ability to become mainstream, and critical in delivering a more robust security solution for deterring or validating an intrusion. As the technology continues to improve and evolve, it will add nice incremental dollars to recurring monitoring revenues.
In addition, autonomous drones will begin to enter the security space with more reliable solutions that allow them to cover distances quickly and efficiently, effectively responding to alarms or a threat, doing periodic patrols of a property, or assessing the status of the property or equipment.
Read on as De Marco explains 2021 performance expectations for dealers and integrators, monitoring providers and manufacturers.
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