State of Commercial Security 2020: Execs on RMR, Challenges & Competition

Good times
These are the good times
Our new state of mind
These are the good times

The dance line celebrating the robust security business that emerged following the Great Recession shows no signs of petering out, as systems providers are confidently strutting their stuff into the new year, and decade.

For most, revenues are strong, pipelines are full and growth is healthy. That according to participants of Security Sales & Integration’s annual Commercial Dealer Roundtable, held at the recent Honeywell Building for the Future conference that gathered business leaders from around the globe.

However, the steady beat of security systems demand is not without its rimshots. There are plenty of challenges to contend with, including effectively managing growth; finding, training and retaining talent; shifting from a project- to recurring revenue-based business model; staying on top of rapidly advancing technology; and delivering at a level superseding that of an ever-more competitive landscape.

Companies must be surefooted to avoid trip-ups in those critical areas. Your dance partners in this discussion are Brian Brandt, principal of Electronic Systems Group in Cranberry Township, Pa.; Operations Manager Jerry Camarillo and President/CEO Troy Dillard of Fredricksburg, Va.-based Dillard Alarm; Bob Ricucci, CEO of Advanced Security Technology in Riverside, Calif.; and Dave Sweeney, CEO of Dover, Del.-headquartered Advantech.

They share insights to help you make the most of these good times, and avoid maneuvering like you have two left feet.

Let’s talk about the year just ended, 2019. What went well or maybe not according to plan?

Bob Ricucci: It was a good year, fairly strong. The biggest challenge we had was continuing to replenish our salesforce. We have some people that are transitioning out to retirement or present some opportunities that we’re trying to fill. It was a good, strong RMR growth year, predominantly because of strategic solutions like the cellular conversions necessary with voice over IP, and video verification, remote video, hosted services on the access side and integration. It’s just really coming at the whole client in a comprehensive way so that we can get more out of each sale and have a better, stickier relationship. It’s worked so far. We’re in double digits growth.

Was that according to projections for you?

Ricucci: Yes, it’s interesting. The projections were based on smaller incremental takeover sales, which we’ve done OK but you need bodies out on the streets to do that and we are still trying to wrap that up. About a third of the way through the year, we said, “We’ve got to find some way to plan this.” We’d identified the cellular strategic move and we looked at our key accounts. We were able to make additional sales to the key accounts. About 85% of our customers are repeat business or multiple-site. We go back to them, we have new technology, new solutions. As long as I can make a value proposition for you, we are able to get chunk business while we’re trying to get the incremental stuff ramped up with new bodies.

Brian Brandt

Brian Brandt: The year was really exciting for us. We exceeded our projections for the top line. We increased the profitability of the company. We brought on more key accounts than I expected and we maintained all of our core focuses and disciplines. We measure those performances in the four categories that we focus on and we exceeded expectations on all of those. I hope at the same time we can keep the pipeline full this year.

Dave Sweeney: It was a wonderful year for us as well. We exceeded our relatively aggressive projections as we are continuing to grow. We attribute a lot of that to being a very strong economy in a very strong market. We are very partner-oriented with our customers and all of our customers are growing. We’ve been fortunate enough to be able to grow along with them. Not just our existing customers but we’ve also picked up a few large key accounts this year that have helped us facilitate the growth we’re experiencing.

Jerry Camarillo: Last year absolutely beat every year we’ve ever had. We picked up a lot of new customers, including a big apartment complex, which was neat. Each building has access control, each building has 16 cameras. Everything’s all integrated. That’s part of phase one. Then they came out with another three phases they were going to be doing. On top of that, for all of our existing customers we started taking our average RMR rate and increasing that. That actually went up $5 to $10. Our access control, as far the managed access control, grew $6,000 to $7,000 a year on RMR. Our attrition rate is still under 10%.

Ricucci: Do you offset your attrition numbers on the residential side with resigns?

Jerry Camarillo

Camarillo: Yes. Between the ones that we resigned and also the upgrades. Everything’s automatically getting an attach rate as far as residential when it comes down to the interactive features. So that way everybody, no matter what, gets it for the first three months. If you throw in a camera and you put in a doorbell and they won’t leave you. We’ve noticed it is just a stickier customer. We’re trying to push some of that more toward the commercial side to make them stickier too. With their access control, with their cameras, they’re generally sticky but getting them to do more automation side on it is the leading part now.

All of you saw strong business in 2019. What are you anticipating for 2020?

Brandt: My thoughts on 2020 are very optimistic. We focus all of our time resources on the commercial space, but within that, we have very strong representation in most of the major vertical markets. That helps spread the volume of projects out throughout the course of the year. A lot of what we do is compliance-driven and I don’t see organizations being able to not to do this type of work, they’re compelled. Every one of the vertical markets, you can point to a different motivating compliance factor that’s forcing people to continue to expand the platforms they currently use.

For us, our reputation precedes this and it seems to be gaining momentum more and more every year. We will continue to grow. We make more of a conscious decision every year to choose not to bid projects and only work with end users that want to negotiate business and continue long-term partnerships. That model for us works very well.

Camarillo: The goal is to always beat the year that you had before. In some years it works and some years it does not, but the average goal is at least 10% growth. We’ve done pretty well doing that for the last three or four, and 2020 is shaping up to be just as big if not bigger. That’s from the difference of a couple big commercial customers we have, but at the same time understanding you can’t base everything off just one customer. Instead of doing all the work for company A, I’d rather do it for company A, B and C. It’s about lining that up so if one does fall you have two others to back it up. That way your numbers don’t drop that much, if at all.

Troy Dillard

Troy Dillard: I agree with Brian 100%. Your reputation precedes you and our customers are really finding out the difference with our competitors. Our motto is, “Do what you say you’re going to do when you say you’re going to do it.” They’re not used to that. It’s so refreshing and I think that’s really an old-school philosophy. I hope we can really stand firm in 2020 as only doing commercial accounts with an RMR attached to it.

In the past, you put in a camera, you’d get paid, you’d walk away. Now, with the I-View Now or something like that, it’s going to benefit the customer. You need to show the value proposition. We’re not going to be the cheapest, but we’re going to show them the value and what they’re going to get for that money. You have to be responsive and give the customer what they deserve and more.

Probably the biggest thing standing in the way of that is getting new employees. It’s not about growing the business, it’s getting the people. They have to buy in. They have to be the right person. We have plenty of warm bodies apply, but as Disney has said, one out of 60 applicants get in. You want the right person in your organization because they are the face.

Sweeney: For 2020, we’re cautiously optimistic. Our opportunities continue to remain strong and our projections continue to look good. We believe part of that is because we’re continuing to add value. The cautious component comes into play as it relates to technology and the economy.We commit to long-term fixed prices for our customer base and what’s happened the last 12 to 18 months with the different economic sanctions and tariffs and all the pricing changes really causes concern because ultimately our revenue will grow.

Depending what economic turmoil exists, our profit may or may not. Our goal is attempting to try to manage that. In our large capital improvement projects with hundreds of thousands of dollars in material spend, a couple percent here or there is a big swing. That’s the cautious part.

Bob Ricucci

Ricucci: You made a very good point. It’s important to be honest about our industry. This is not a clean industry. It is not necessarily governed by strong business practices. Low barriers to entry and so forth, and so as a result the industry, in general, isn’t what it could be as compared to some other industries. However, that means you can stand out. Troy mentioned differentiating, making yourself special to your client or prospect. That’s where organizational psychology matters. That’s an important piece of what will influence 2020. It’s also important that you know what your finances are, what your metrics are and what your funding resources are. Because if you want to add bodies, you’re going to have to have a runway. You need that funding to carry that.

One can make an argument that if you can grow $25,000 RMR in a year and break even, or even lose a little bit of money with the proper funding in place, that’s gold because you’re building a value times 30 or 40 and you’re not paying out a lot of cash because it’s going back into the company. Traditionally in an integrator world, we’re not an RMR function.

We’ve come from the integrator and the dealer and give you, what I would call, hybrid, which is you still want to get that margin business in minimizing a path for creation cost on your business. But you also want to drive an RMR. Our RMR is over $100 per signup on average. That’s by design.

It will be interesting to see what the multiples are because you’re going to get fights about that but I’m getting in shape for that. You’ll look at those business metrics, and that’s what tells you what you want to do. We can tell a story better than most of our competitors with the same resources and the same price points for things like video verification, and Cloud-hosted and interactive services.

In our push, we just say, we want to bring more people and sell more, maybe it works and maybe it doesn’t. If you can be more specific and flow that through that organizational psychology, then you can renew or refresh what your look is to the customer. That gives momentum to your business, motivation to your people and makes you more attractive to a client.

What would you identify as the top challenges confronting your business?

Camarillo: Needing more technicians, and stepping up correctly to grow. The hardest part is when you take that big step, if you don’t have those fundamentals in place, you get stretched real thin. Luckily enough, all of our guys like to work, they don’t mind working late and they get paid for it. We’re a small company, there’s only five of us total. We’re trying to compete with some of the big boys and we’re doing a real good job at it, but trying to stay on top of it where nothing else gets left behind or nothing else gets missed or forgotten. That’s our hardest thing right now.

Dave Sweeny

Sweeney: People for us is always the hardest thing, especially when the economy’s strong. It’s really hard to find qualified, capable resources. So we’ve focused over the last 18 months to instead of trying to find them and steal them is to grow them. We’ve implemented a few plans from the sales and operational perspectives and also our field technical teams to bring in younger, less knowledgeable folks and give them the tools and training to help them grow. We’re starting to see the fruits of that labor.

Another challenge is managing customer expectations, especially for delivery. When you’re busy and short on resources, the challenge is that if the sales team does their job correctly their continuing to grow the business. Making sure that those customers understand they’re still going to get taken care of and they are important, we just have a very hefty backlog to manage. That’s very delicate and challenging, especially when you’re acquiring new business. When you’re growing with existing customers, you have a track record, you’ve proven to honor your word and so they may be a little more understanding.

Brandt: To bring in a new topic, since I was young and new in the business one of the things that has substantially changed is the partnerships when it comes to the parts and pieces. When I started in the industry, you gained a lot of leverage and sold on value propositions and a lot of that was based on the partnerships you had with manufacturers.

It seems these days many products that used to be exclusive, where you had to really invest in training and certifications, are more and more available through distribution channels. There’s a lot more products that compete and oftentimes it seems like a race to the bottom and who can do it the cheapest instead of who’s the true value proposition.

Retaining that value and those partnerships is more of a challenge every year. Finding that value proposition and having it bleed through to the perception of the customer again seems to be more difficult. The customers used to fight to retain their integrator, whereas now they are being compelled to try and get it done the cheapest way possible. I think that’s a reflection of the industry as a whole and that shift toward the distribution model.

Ricucci: One of the biggest challenges is identifying what you do well and how to do that better to make a value proposition to build businesses sustainable based on that. The organizational psychology of taking that from the strategic people all the way down to the ones that back out into that and they know exactly how they contribute to that. That’s important and with the changing vendor landscape it’s difficult to know who’s what. The key part of that discussion is not just knowing and taking in every piece of technology that comes down the pike, it’s knowing which ones work for you and your clients and how you can monetize that.

Keep Reading: The execs tackle talent recruitment, RMR, DIY and more…

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