3 Business Models That Will Keep CE Pro Firms Afloat in 2017

Rapid changes in the custom installation industry are a product of DIY, decreasing equipment margins, consumer-branded manufacturers and Millennial preference.

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The custom installation industry is changing so rapidly my head is spinning. New technology has disrupted the traditional business model more quickly than anyone could have anticipated.

The current state of the industry is very reminiscent of what the security industry looked like in the early 1990s. Back then, for those of us who are old enough to recall, if you wanted an alarm system it cost about $10,000 for a decent residential installation and roughly $20/month for monitoring.

Then Brink’s Home Security came along and introduced mass-market residential security. Instead of paying an expensive upfront cost, consumers could get the installation subsidized. The homeowner signed a multiyear monitoring contract for $35/month. Brink’s breakeven point was about 22 months.

The genie was out of the bottle and the security industry was changed forever.

So, back in 1990 security dealers had a choice to make: compete or flee to a safe-haven niche.

Equipment margin continues to shrink … Consumer-branded manufacturers are bypassing the custom installation channel … And the gigantic Millennials generation abhors the face-to-face in-home sales process.

Many migrated to the high-end market, serving ultra-luxury homes with high-end systems that included burg, fire and cameras.

Others fled to become primarily commercial security integration firms, focused commercial/industrial/retail/institutional structures with access control and video surveillance. That market turned out to be very lucrative for those who landed there, especially for those focused on installing commercial fire panels, sprinklers, pull stations, strobes, etc., that require regular maintenance/inspections by code.

Still, some security companies decided to compete. Many were able to successfully establish separate brand identities to serve the entry-level mass market that did not subvert their existing brand name or business model.

Let’s flash forward to 2017 and the state of the custom installation industry.

DIY is changing consumers’ perception of what home automation should cost. Cable companies and phone companies are offering “smart home” controls. Equipment margin continues to shrink in almost every product category. Consumer-branded manufacturers are bypassing the custom installation channel completely and selling directly to consumers. And the gigantic Millennial generation abhors the face-to-face in-home sales process, creating a quandary for CE pros on how to reach the market.

So, just like alarm dealers in 1990, integrators today will be facing several options.

1. Luxury

The high-end, luxury residential market will always exist and will remain a strong niche in which to flee, especially if you have solid relationships with custom builders, architects and interior designers.

It is definitely possible to sustain and grow your business serving affluent clients with six- and seven-figure projects.

2. Light Commercial

Many integrators became familiar with the commercial market during the recession. This safe-haven market is intriguing and unique compared to the resi space.

It requires acquiescing to the competitive bidding process for restaurants, bars, schools, houses of worship and corporate facilities ripe for integrated audio, video, lighting control, climate control and security.

3. On-Demand Service

We are already seeing several “disruptive” business models take hold, whether they are Internet-based to serve the on-demand “Do-It-For-Me” economy preferred by Millennials, or recurring monthly revenue (RMR)-based service plan business models focused on network monitoring.

Another potential business model might involve acting as a local subcontractor for a national player, like HomeAdvisors.com, BuzzTechExpert.com, HelloTech.com or Enjoy.com, in the custom A/V/home automation space.

I know you are busy (the average CE pro grew by 8 percent in 2016), but the money train will be disrupted in one way or another. Now is the time to be thinking three to five years ahead.

What will your business look like in 2020 or even 2025? Keep your options open.