Guardian Home Technologies: Opportunity Knocks

For Guardian Home Technologies, optimism abounds — even amidst the downtrodden state of the current housing market.

The Warrendale, Pa.-based company, which is the current No. 1 integrator in the 2007 CE Pro 100, is using the residential construction slowdown to ink deals with more than 600 builders and buy certain particular competitors in key markets.

The company is showing off an operational business model that just might be the future of custom installation companies wishing to work with large production builders.

The $37 million division of Guardian Protection is aggressively courting long-term relationships with builders to the tune of a dozen new proposals every week, with more than 200 new builder-clients added by its 20 branch locations this year alone.

A centralized process and large installation force enables the company to churn out the proposals and meet builders' demands to install structured wiring, security, multiroom audio, central vacuum and home theater at a low cost and in a timely manner.

To support its commitment to the home-tech channel, it has also bought some key integrators, including Ranger American's Florida and Texas operations.

A Builder & RMR Focus

Guardian Protection Services started in 1950 as Guardian Alarm Systems, a company specializing in jewelry store alarm systems. Entrepreneur and current CEO Russell Cersosimo purchased the company in 1975, renamed it Guardian Protection Services and quickly expanded the company's focus to include residential security.

The company has a UL-listed central station located in the corporate headquarters, and it has achieved the Central Station Alarm Association's new Five Diamond certification, which demonstrates 100-percent operator certification and an ongoing service commitment.

The company expanded into the home technology industry and officially established a new division, Guardian Home Technologies in 2000, after executives realized there was a significant opportunity in the structured wiring market.

"In general, the homebuilding industry has not been well served by alarm dealers trying to do these installations," says Bill Graham, senior vice president of sales and marketing.

"There are a lot of good alarm dealers who may want to enter the market but do not have the infrastructure or capital to work with large production builders. They get in over their heads."

For example, he mentions that most small alarm companies are not in a position to hire more technicians and add vehicles when they bring on a new builder contract, nor do they typically have the working capital to support the construction cycles in the builder market.

Guardian's financial resources have enabled the company to gain a foothold in the new-home construction market. Additionally, the RMR from alarm contracts gives it the ability to thrive during the housing downturn, using its cash flow and sheer size to gain the advantage over other integrators seeking to forge deals with builders.

"One of the reasons we have been able to maintain our business even with the homebuilding business down in 2006 and 2007 is that we are constantly capitalizing on opportunities to gain more marketshare," says Graham.

The company is garnering the market-share by offering certain services at below-market prices to builders. Its "foot in the door" offering to builders is a free security system for customers in exchange for signing a long-term monitoring agreement.

Keys to Working with Builders

Indeed, RMR is "king," and the security monitoring contract is the primary sales focus, even when presenting other upgrades. Guardian has also taken the scalable, repeatable product package concept so prevalent in security and applied it to home technology, marketing it as a "lifestyle experience."

The company shies away from builders that do a large number of spec homes or townhomes, but Graham says the market is ripe to meet builders.

"Unlike 2005, builders now want to talk to you. Unless their barn was on fire back in 2005, and they were having trouble with their existing provider, they did not want to talk with you."

He adds, "Historically, a builder may be happy with his integrator because the installer is not disturbing the construction cycle, but it an integrator is not offering anything beyond a basic product array, he is not helping the builder to maximize its overall profit margin per home. Now, we have a different story to tell builders.

"We can not only drive new revenue to them, but we can help them sell homes faster, lower the base price of their homes and not disturb the construction cycle."

The company reaches out to builders by attending local homebuilding association trade shows and advertising in local building publications.

It also uses its membership in the GE Home Technologies Authorized Integrator Network (AIN) to great advantage, participating in one-of-a-kind local events, called "Brand Builder Nights."

At the minimum, Guardian contracts with all of its builders to run wire for cable TV and phone as well as offering security. About 90 percent of the builders are also contracted to offer structured wiring as a standard, while about 70 percent of the homeowners purchase the security option.

"If the builder is not including security as a standard in the home, we offer a no-cost security system to every customer that we meet through the builder," Graham says. "Without that revenue, we wouldn't be in business, particularly in tough times."

He also points out that the margins earned by integrators in the production market are razor-thin, thus placing a premium on the efficient use of labor and materials.

About 25 percent of homebuyers (primarily spec homes, condos or first-time buyers) purchase no upgrades of any kind. Another group of buyers will only opt for security systems and structured wiring. Also, Guardian works with some builders who offer their buyers structured wiring solely as an option.

All of these reasons make it important that Guardian partner only with builders if the company is allowed to meet with every customer upfront.

"That is critical because we are making an out-of-pocket investment of $200 to $300 in every rooftop [to run phone and cable TV wiring in all the homes and structured wiring in most cases]. Even if the customer doesn't buy anything, we have to roll a truck for the rough-in and for the trim-out," Graham explains. "So, we have to make sure we sit down with every customer and go through all the possibilities."

The meetings take place in one of three locations:

In a builder's design center — "That's the best venue because the customers are already coming to the design center, and it's easiest for us to just be part of their selection process," Graham says.

In a builder's model home — "We'll invest heavily in model homes to appropriately display the products and services we offer. Ideally, we are meeting with the customer in the same model they have selected for their own home," he says.

In a Guardian design center — "We have a demonstration room in each of our locations so people can see, touch and hear the systems," he says. With the product consistency we have throughout the company's footprint, it can assist a client who, for example, is moving from Philadelphia to Charlotte. The client can visit the demo room in Philadelphia and make his selections with the assurance those same products will be installed in Charlotte.

The bulk of the company's customers are move-up buyers, with homes in the $250,000 to $500,000 range, with the average upgrade client spending only $5,000 on technology. About half its clients spend less than $1,000. Flat panels are the biggest drivers on Guardian's home tech business — the company is LG's largest custom installer of flat panels in the nation, according to Graham.

"Along with that, we sell a lot of 5.1 surround-sound systems," he adds. "Distributed audio is the second largest product line we offer. Our third best product line is intercom."

The company used to sell structured wiring on a per-drop basis, but it is changing to a good/better/best package that takes the customer from his basic phone/Internet/cable TV hookup to upgrade packages. Also, lighting control and IP cameras are two new categories Guardian has entered.

Administering Builder Contracts

Guardian Home Technologies has its entire builder administration department centralized in its Warrendale, Pa. headquarters. From there, Kevin McCauley, director of builder administration, and his staff manage the builder contracts, accounting, scheduling, options selections and other administrative tasks that come from the company's 18 branches.

First, prospective builders are asked to complete a Builder Profile Form, which provides an extensive summary of the builder, including the number of homes it has built, average selling prices and more. A Dun & Bradstreet financial background report is also run on the builder.

"The time to find out if they are a good builder is not after you are already working with them," says McCauley.

If the builder checks out OK, he is asked to sign a Master Agreement created by Guardian. The agreement covers lots of things, including establishing the extent of Guardian's service, payment schedules, job site cleanup responsibilities, errors & omissions insurance, etc.

Builders often require Guardian to sign their own subcontractor agreements, which some integrators don't like to do. Guardian does not shy away from doing that. "You cannot interrupt their culture. You must be ingrained in their processes," says Graham.

McCauley says it can take between one week and six months to get a new builder live in the Guardian computer system, depending on how fast the builder wants to move.

Each builder is loaded into the Guardian computer system, which includes accounting, scheduling and a list of all available options the builder wishes to sell and the prices for each option.

The available options and the prices vary greatly based upon the builder's mark-up requirements. On that note, McCauley says some builders won't let Guardian sell flat-panel TVs because they can't get the mark-up they want on the product.

From Guardian's headquarters, a customer service rep contacts the homebuyer and sets up the consultation. During the appointment, a member of the home tech sales staff assists the buyer with the selection process. Customers can select from an array of options, ranging from basic "cookie-cutter" systems to highly customized product configurations.

The company has a dedicated sales and installation force for its home-tech business. Unlike Guardian's security sales and installation force which specializes in retrofit security systems, the home technologies team is trained to sell and install:

• Security
• Multiroom audio
• Home theater
• Home/office networks for new-home construction only

Guardian maintains one sales representative per 20 new rooftops and one technician per 10 new rooftops per month.

12-Step Sales & Installation Process

Prior to setting a sales appointment with the homebuyer, Guardian sends a package that includes an introductory welcome letter and a brochure, which details the home technology options available to them.

From there, the company uses its 12-step sales and installation process:

1. Builder communicates client information to Guardian's call center professionals, who set an appointment for Guardian's sales consultant
2. Guardian's sales consultant meets with the clients and assists them with their options selection process, usually about a one-hour meeting
3. The salesperson transmits those selections electronically to Guardian's Centralized Processing Department (CPD), using an on-site laptop
4. CPD submits the information to the builder for mortgage roll-in approval
5. Upon approval, the CPD transmits the selections electronically to Guardian's local operations team, which sets up a pre-wire date
6. Before pre-wire, the salesperson meets the client at home site to determine the location of products
7. The sales consultant submits final mark-out to Guardian's local installers
8. The pre-wire takes place
9. Guardian sends in a quality-control specialist (QCS) to inspect the pre-wire
10. Trim-out occurs
11. The QCS inspects the trim-out
12. Guardian sends out a Level III technician (after the homeowner has occupied the house) to install any final items, such as flat panels, that are susceptible to being stolen during construction. Guardian then powers up the system and conducts consumer training

Graham says the company is exploring future revenue-generating opportunities such as creating a business channel for retrofitting home technology products in existing homes, formulating a strategy to re-contact its existing customers for upgrades, and cross selling and installing more labor-intensive home-tech products to security-only clients.