The Biggest Challenges & Opportunities of 2012

CE Pro 100 dealers discuss how to handle product margin erosion, ramp up staffing to accommodate recent growth and other business challenges.

By Jason Knott
May 01, 2012
For the first time in many years, integrators are dealing with growing pains. Most CE Pro 100 companies are growing in 2012, but are wary of adding too much staff too quickly.

Meanwhile, the ugly head of eroding product margins continues to be a thorn in the side of integrators, particularly those with retail showrooms who are battling the Internet.

On the opportunity side, commercial business and the security industry appear to be the most prevalent growth areas.

Here is a sampling of specific challenges and opportunities cited by the CE Pro 100.

Paul Grayczyk, Abt Electronics, No. 4
“Security is a big opportunity. We created a team dedicated to this segment and have hired experts in the field.”

William Graham, Guardian Protection Services, No. 5
“The impact of economic conditions on homeowners. We continue to face downward pricing pressures on our products and services, coupled with increasing competition. A big opportunity for us continues to be the expansion and adoption of interactive services, allowing us to offer more products and services at increased prices.”

Franklin Karp, Audio Video Systems, No. 9
“The introduction of the specifier and RFPs. This a major challenge to our business model and how we have done business for 35 years. The biggest opportunity is that more and more people recognize that they cannot live without some level of integrations and control.”

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Jon Robbins, Hifi House, No. 11
“Getting the consumer to understand the difference in what an integrator/retailer does and the services provided versus a big-box retailer that uses subcontractors.

"We need to continue educating the consumer via social networking, in-store events, and other initiatives.”

Neil Greenberg, Audio Interiors, No. 13
“Horrific profit margins on flat-panel TVs, miniscule profit on Apple products and loss of revenue due to declining Crestron sales. Our plan is to operate more like an architectural firm. We will charge for our management and engineering skills.”

Robert Cole, World Wide Stereo, No. 17
“Having to compete with my manufacturers, which includes them selling direct online and also selling their products to folks who will do the same at non-profitable prices driving the whole job down. Also, product reliability, which is partly caused by products being released before their time.”

Dennis Jaques, Maverick Integration, No. 20
“Growth categories continue to be lighting control, motorized shades and drapes, content delivery, wireless technologies, up-selling. Categories to watch include digital health products and services as well as ‘smart window’ technology. Challenges include controlling a sustainable growth.”

Chris Pearson, Service Tech AV, No. 21
“Challenges: People’s expectations of what digital sources and HDMI can really do is our biggest obstacle. Every client gets bombarded from all angles on how awesome new devices are and that they can do everything. Not the case … we became a very conservative company and put strict testing procedures in place prior to offering new products from our manufacturers.

"Opportunities: The overall industry was down, which meant that our competition was not in their proper mindset. We used this to grow and expand our services along with adding staff from our competition. Our teams are not only top notch, but we have more depth than anyone in town.”

Todd DeAngelis, Signals Audio/Video, No. 27
“Our biggest challenges are handling ‘cloud-based customers’ and maintaining our own company file management and organization. The biggest opportunity is selling ‘managed Wi-Fi systems.’ We try to educate the client on the importance of having a stable network for the house and A/V systems.”

Jordan Wills, Cloud9 Smarthome, No. 25
“After a big surge in business in 2011, we are anticipating 30 percent growth in 2012. Our biggest challenge and our No. 1 goal is to maintain our high level of customer service and attention to detail through this growth.” Pictured at left is CEO Fernando Zorrilla.

David Welles, Tunnel Vision Technology, No. 30
“We are expanding our business to three other major markets in other states. We have seen an opportunity to grow our business and we already have been awarded nine jobs in four states. The challenge remains to be able to service these clients as if they are local. We’ve partnered with some other companies to help us achieve same-day response times.”

Robert Haecker, Triphase Technologies, No. 31
“One of the largest opportunities is the fact that more people are spending money these days. (The average consumer is now spending money again.) This is a double-edged sword ... more people are spending money, but the systems seem to be lower dollar amounts. The larger systems seem to be drying up ($500K and up).”

Stuart Forchheimer, HS Technology Group, No. 33
“Opportunities are: 1) Working on educating and migrating our existing residential client base to utilize apps and the Internet for home automation and security control through direct mail, our website and design center; 2) increasing our commercial footprint by developing relationships utilizing a business development manager to work our prospect base face to face; and 3) most importantly, continue to develop a better working environment for our staff by increasing benefits, incentives and offering our employees more time to have fun at work. Examples: Wii Olympics, holiday parties, celebrating birthdays, Halloween, more recognition, more charitable giving, more education, 401(k) matching.”

Jorgia McAfee, Crime Prevention Security Systems & Custom Home Entertainment, No. 36
“Our biggest opportunity in 2012 is the integration of residential systems with smart phones, tablets, and other PCs. As more of the population understands remote services, we are seeing a dramatic increase in sales.”

Ryan Heringer, Sound Concepts, No. 38
“The biggest opportunity will be to capture the pent-up demand and upgrades to iPhone/iPad remote access. Our challenge will be adding staff to take care of demand.”

Gary Montagna , Stereo East Home Theater, No. 43
“A big challenge will be the ability to grow without the needed admin and tech manpower.”

Greg Simmons, Eagle Sentry, No. 44
“I think the biggest opportunity we face is the increase in recurring revenue potential. We will encourage more customers to add services to the existing account. We’ll use revenue services to reach our existing customer base.”

Bjorn Dybdahl, Bjorn’s Audio Video, No. 47
“Maintaining value in the customer’s mind. The Internet has provided a wealth of knowledge and shopping opportunities that continue to diminish the perceived value for customer-oriented service in this industry. Electronics continue to be more commoditized, and our survival is contingent on helping customers to see the need for brick-and-mortar showrooms and personal customer contact. We continue to instill in our staff the message that the customer experience is what will keep them coming back as well as being a factor in referring future business to us.”

Greg Nelson, Enhanced Home Systems, No. 57
“Keeping margins up with loss of gross margin on flat-panels TVs and touchscreens.”

Scott Sullivan, SoundVision, No. 60
“It’s still a down market and competitors are desperate and willing to underbid. Opportunity is marketing our services, since most companies are not willing to spend the money.”

John Gilmore, Elite Custom Audio Video, No. 64
“Changing our business model to become more service oriented, and using social media and really focusing on referral jobs. We also have gone back to traveling out of state again for larger projects. We’ve hired others to help us with social media and brought back one of our main technicians who had gone to a different industry a few years back. This allowed us to do more and not have to teach someone the way we do things.”

Daniel Adair, Fusion Systems, LLC dba Fusion Audio + Video, No. 67
“We have a major opportunity with our commercial business in 2012 and have hired a dedicated commercial systems manager to grow that side. The challenge will be in streamlining our processes and procedures to ensure efficiency as we continue to grow.”

Roger Owings, The Phonograph, No. 69
“The first problem is getting people better focused on client satisfaction instead of internal bickering. Our solution is to implement personnel changes and hold team-building activities. A second problem is building and following business processes. Our solution is to use outside help to develop programming functionality standards that can be sold, implementing software, dedicate personnel hours to database update, do a better job of matching employee skills with job duties, and hire a specific person to ‘fill in the gap’ between sales and project management. The final problem is inefficient operations. Our solution is to eliminate low-productivity employees, spread duties to other employees, and attempt to drive up chargeable and billable hours per employee.”

Mark Vyain, Digitech Custom Audio and Video, No. 70
“Continued downward pressure on video margins and retail pricing. We focus on manufacturers with unilateral price protection that manage e-tailers that are out of compliance.”

John Bartle, Wrights Sound Gallery, No. 71
“Competition from online retailers. These stores operate tax-free via the Internet on already razor-thin margins. This is not just affecting our industry, but all of retail. Cities and states already feel the impact of lowered revenues from more online sales.”

Michael Pope, Audio Video Interiors, No. 75
“We want to focus on sales. We bought a new building and built a showroom in 2011. It was a huge distraction and expense. This is starting off as one of our best years.”

John Toscano, AAMI - Affordable Alarm & Monitoring Inc., No. 78
“Growing in a down market is always a big challenge, but we focus on growing our current client base through upgrades and areas being ignored in the industry.”

Eric Knez, Automated Environments, No. 80 (tied)
“1) Continued commoditization of integration products. We must stand out from a customer service standpoint and continue to keep up on the leading edge of technology and offer those technologies. 2) Dwindling margins: We must remain profitable by doing more with fewer people, managing overhead, and focusing harder on recurring revenue opportunities such as security monitoring, commercial audio, etc. 3) Revisit past customer base and sell value of upgrades, new technology, etc.”

Thomas Callahan, Sawyers Control Systems, No. 80 (tied)
“The biggest opportunity is buying a new office to grow the business. We made a recent offer and are gearing up by hiring new staff, training existing technicians and enjoying the ride.”

Dee Straub, Structured Cable of VA, No. 84
“The biggest challenges will be consumer confidence and the residential building industry. The biggest opportunity is the lack of quality competitors right now, which allows us to capture a larger market share.”

Gary and Kathleen Nedelisky, Quadrant Systems, No. 85
“Challenges: smaller jobs, lower margins and retention of good employees. Opportunities: light commercial, such as restaurants, bars, mining existing clients and website/Internet maximization … a great source of new work.”

James Shapiro, Audio Video Intelligence, No. 86
“Decreasing margins on electronic products is a large challenge in our industry. We’re concentrating on a higher-quality product that yields a better margin. We are also implementing proactive service agreements to increase our recurring monthly revenue.”

Eileen Komanecky, simpleHome, No. 94
“Our challenge is to sell the most expensive products. We are going to get a little more aggressive in our client meetings to make it more evident that the high-end products really are worth the extra expense.”

Ralph Campochiaro, Maximum Sound & Security, No. 95
“Getting paid is a big problem. We implemented a stringent pay structure for all customers, including requiring a credit card and in some cases and COD before completion.”

Andy Zimmerman, Saturday Audio Exchange, No. 97
“The shift to computer audio is a challenge and an opportunity. We’re remodeling the front of the store to address and embrace the new technologies.”

Eric Hulstedt, Custom Systems Integration, No. 99 (tied)
“We need to find a recurring revenue stream model that works.”

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