Many large commercial A/V integrators have tried their hand in the residential space only to be confronted by difficult market realities. Long construction cycles with late daily on-the-job starting times, short product lifecycles, influential interior designers, constant equipment margin pressure, price competition from small integrators with low overhead, and persnickety heads of households are just some of the unique quirks of the residential market.
The differences are so stark that success as a commercial integration company usually does not translate into the residential space.
But Audio Visual Design Group (AVDG), a $21 million commercial player based in San Rafael, Calif., has found a formula to cross over into the residential realm. The company’s approach includes using professional principles such as a strict adherence to installation and design standards, strong technical IT/ network deployment/service techniques, and economies of scale in documentation, equipment and facilities.
Company: Audio Visual Design Group (AVDG)
Location: San Rafael, Calif.
Revenues (for 2015): $21 million ($5 million residential)
Number of Employees: 84 (14 residential)
FYI (one piece of advice to another dealer): “Hire key people for your team, even if you may not have the revenue to justify it.”
AVDG has found it needs to have all those attributes clicking to overcome Bay Area consumers’ general uneasiness and outright negative attitudes toward residential installers following the sudden collapse of VIA, the national roll-up that fell apart just over one year ago leaving many elite clientele in a lurch.
AVDG has stepped into the void to serve the luxury single-family home market, distinguishing itself by touting its strong, business-like commercial street cred that is different from many laid-back residential CE pros.
The company also bolstered its staff by hiring some of the talent who became available following VIA’s demise. So far, results are encouraging — AVDG soared to $5 million in residential revenue in 2015 — and the company is doing it without a dedicated residential salesperson.
Bringing Enterprise-Level Standards to Resi
Founded in 1996 by Robert Scharffer, AVDG originally focusing purely on system design. By 2011, it had evolved into a design-build firm with a “who’s who” list of high-tech commercial clientele in Silicon Valley and San Francisco representing corporations, financial institutions, wineries, hospitality facilities, higher-ed schools, retail stores and restaurants.
Its foray into the residential market wasn’t until 2014, primarily driven by commercial clients demanding AVDG service their personal spaces.
“One thing that we’re really good at on the commercial side is developing standards for enterprise-level accounts and then deploying that worldwide,” says Greg Merriman, general manager.
AVDG has made a name for itself by its ability to create standardized, firewalled IT-based systems for teleconferencing and building management systems in multiple locations around the world that offer an executive an identical, consistent control experience no matter where he or she is located. Indeed, for two years in a row, the company has been named one of the Bay Area’s fastest-growing companies by the San Francisco Business Times.
According to Merriman, the commercial market has moved almost entirely out of the hands of the facilities managers and into the hands of the IT/A/V teams at corporations.
“If we’re pushing video packets over a corporate network there’s a lot of strategic alignment that has to happen prior to implementation of our systems with those IT/A/V professionals. A big part of our success is having a technical services group that knows how to speak that language, can go into a meeting with the IT directors on a corporate campus and be able to speak that language, and work with those people to where we can be successful,” he says. “It’s a big part of what we do now. It’s all moved over to network distribution.”
That commercial IT expertise is now a vital element of residential success; AVDG handles the entire hardwired and wireless home network for its clients, including firewalls.
Merriman joined in 2014 just as AVDG was aiming to take that same level of network expertise into the residential market. The move was driven partly by customer demand, but it was also strategic.
“We recognized the need in the marketplace,” says Melinda Foster, marketing manager at AVDG. “We had clients we were serving on the commercial side that asked if we could take care of their homes. That happened naturally. They had a great experience with us, so of course, we wanted to help them. The team that Greg has put together really can do that for them at a very high level.”
Likewise, AVDG is already crossing over in the opposite direction as residential customers ask AVDG to serve their business IT and A/V needs.
“There’s a lot of crossover,” notes Merriman. “We’re looking to continue our growth and to give balance to our company. As history has shown, we’ve seen the rollercoaster of the market. We’ve seen that as things soften in the commercial market, sometimes they start to grow in the residential market. It was also strategic in that we could use economies of scale in our operational approach to serve both markets.”
Those economies of scale include documentation, purchasing, facilities, vehicles and field operations in general. Wherever AVDG has duplication of resources, the company is bringing those to bear to play in both arenas. However, there are still significant unique aspects to both markets, so much so it justified the company building a team entirely of residential specialists, separate from its commercial operations.
AVDG employees 84 people, 14 of whom are on the resi team.
Roughly 80 percent of revenues come from commercial projects, but the goal is to get to a 50/50 ratio.
Different Sales Cycles, Product Evolution
One hurdle that trips up many commercial integrators looking at the residential market is the different sales process and vetting the client.
“There’s definitely more consultant interaction in the commercial market than there is in the residential market; however, we see that changing,” says Merriman. Since AVDG is a design-build integration firm, it is often developing commercial specs, but the company also has established relationships with consultant-specifiers.
“We look at every project and every client to make sure it’s the right fit for us. If it’s not, it’s a disservice to take on that job, not only to the client but also to us. So it has to be a good fit. In commercial projects, if we sign on to a project that’s less than perfect, it’s only a 90-day relationship. Hopefully it all goes well, and we learn from it. If doesn’t go so well, it’s 90 days. But in residential, we have to look at the fit more closely because it could be a two-to-three-year relationship,” explains Merriman.
Meanwhile, AVDG’s sales approach is unique in that it does not employ a single dedicated residential salesperson, and doesn’t plan to hire one soon.
“It’s not a statement on being anti-sales, because that’s fundamentally where I came from,” says Merriman. “As I’ve really gotten to know the market, I find that there is a built-in resistance to the traditional perception of what a salesperson is. Frankly, there’s some damage control to be done in this market specifically … and that’s not to call anybody out or be disrespectful in any way.”
What he is talking about is the fact that many residential customers end up feeling like they were oversold on technology or their expectations were not met. Merriman says many residential customers are simply looking for CE pros who have a technical expertise without talking in acronyms during consultation sessions.
So, AVDG is not hiring a “traditional salesperson” but instead relying on its commercial design-build roots where the integrator is seen almost as a specifier who is not steering the equipment decisions based on their commission.
“There’s a bit of resistance in the designbuild community in particular to traditional sales tactics. Because we’re a mature market, our clients in the design-build community ask a lot of really specific questions. When they see a person directing a project and their business is based on hitting a metric and getting paid, and then after that there’s not a lot of engagement and attachment, there’s a real resistance.”
He continues, “The model that we’re trying to build here is one where we’re doing great work, we have a staff that’s noted for our expertise and execution, and then we build referrals that way. I’d like to get to a higher level where it’s understood what we deliver. I want higher level conversations that are project-specific about how we can resolve issues and provide solutions … someone who has a clear understanding of construction circumstances and schedules instead of somebody who knows how to upsell a speaker with better tweeters and more bass response. We’re getting there,” he says.
Another big difference between commercial and residential work that took some adjustment was the rapid product evolution cycle in the resi world.
“Our residential build materials stay about as fresh as a cup of yogurt on your car dashboard. They change rapidly. That’s very different than what we deal with in the commercial market,” notes Merriman.
In the commercial space, he says that once a commitment is obtained from the client and AVDG has defined the project scope and specs, “we tend to be able to easily push the button and execute that project.”
But in residential, between the time of signing the initial contract and the end of the project, the technology can potentially change.
“We’re also in a local market filled with innovation. Daily and weekly I get inquiries from clients, builders, and partners who want to know about a new control system. Even though we’re doing very large residences, the items that show up on the end cap at Best Buy or the latest greatest on Amazon are still part of our review of build materials. People want to know now about every new little device, whether it’s a thermostat, voice-activated portal or some type of new wireless product. We have to vet all those things through the process of a residential project. In the commercial market there’s less of that.”
To manage the sales cycle, AVDG uses D-Tools on both sides of its business, along with a custom-built CRM system.
There are multiple factors that have led AVDG to stand out in its market.
Merriman worked in the commercial integration world for many years, including a stint at Crestron. That experience meant established relationships in the commercial design-build/architectural community were transferred into the residential space.
“I had some great relationships with builders, developers, architects and consultants in the market, but I probably assumed some of those relationships would automatically turn into business for us. I’ve had to earn that. When I decided to start this residential division — although we are 84 people strong with two offices in the Bay Area, and we are larger than anybody else in this market — it didn’t mean those partners were all going to start jobs with us tomorrow. There is a vetting process and a lot of work.”
If you are going to thrive in a tech-centric area, you need to have a strong company culture where Millennials want to roost. According to Foster, AVDG has an almost start-up mentality pervasive among the entire team.
“Theirs is a culture of self-assigned accountability. There’s a pursuit of excellence that is not imposed by the company leaders.
“Everybody is engaged in how to make it better,” she adds.
No Showroom; Subdued Vehicles
AVDG does not have a showroom. It’s not surprising given the area’s sky-high real estate costs, not to mention the need to staff it. While admitting that a showroom would be a great addition, Merriman believes his high-end clientele are not necessarily inclined to visit one.
“As we grow this division, I want to be responsible and run a tight ship as a business person, and so right now, we’re not taking that step [to open a showroom]. That may change,” he says.
The commercial-like approach to the market is also apparent in the company’s fleet. If you saw AVDG’s fleet on the road, you might miss them if you blink.
Gallery: Rate These Company Vehicles
“We don’t have billboard wraps on any of our vehicles. We have clean single-color vehicles with a very discreet logo on the door panel. You have to strain to see it, and that’s intentional. That’s throughout both our divisions. Although I see the marketing value of somebody driving down the freeway and seeing our van and calling us for business, that’s not the way we’re approaching the market. A lot of our key partners, particularly in residential, appreciate it,” says Merriman.
Those vehicles help AVDG navigate the traffic-laden freeways and cover clients from Silicon Valley in the south to the Napa wine country in the north. To ease that burden, AVDG has field offices in both locations.
Tight Labor Pool; Competitive Environment
With wealthy, high-tech clientele everywhere, San Francisco/San Jose certainly presents lots of opportunities, but it also means lots of challenges. Finding quality employees is at the top of the list. “Bay Area labor is an extreme challenge.
What we’re working towards is creating a culture where new employees seek us out for opportunity because they heard about our people, the way we work, the way we treat each other, and the way we treat our clients. We will find opportunity for those talented people,” says Merriman.
At the same time, because Northern California a very pleasant place to live, it’s an expensive place to exist. The cost of living and the cost of everything — even a cup of coffee — is higher.
To combat that, efficiency is vital to AVDG’s operation to maintain margins. Merriman admits that is getting harder and harder.
“There’s no moment of rest. If you think you’re doing great, you need to take a step back, look at the big picture, and look at what could be better,” says Merriman.
“We get a great response from clients because we are business people — we are not uptight, but we’re professionals. Sometimes the legacy of the residential market is a bit more casual and more free spirited; certain clients and partners really appreciate our professional approach,” says Merriman. “We like to have fun; we love the technology; we like to laugh in the course of meetings and our daily endeavors. If we’re not having fun we shouldn’t be doing this, but at the same time we’re really trying to raise the bar as far as the expectation in the market of professionalism, and be less casual.”
In the commercial market it’s not uncommon for AVDG to be called into meetings to develop scope of work, and be asked to deliver that project in 60 to 90 days. But in the residential market, in new construction in particular, the company may not physically deploy to the jobsite to prewire for six months after it initially designed the project, then another four months for trim-out, and another five months for final phase. That elongated timeframe can foster a lack of urgency or time compression, which can lead to a more casual pace of work.
“I think our commercial culture lends to a better status of addressing those urgencies, getting things done faster, and being more clear in our communications. All these things lead to a different perception of us,” adds Merriman.
The approach extends to internal analysis. The company conducts weekly P&L evaluations on every project looking at the profit/manhours over/under for every stage (pre-wire, trim-out, finish) of the job. That data is used to hold regular meetings on each project with the entire team. If the job is running behind, the discussion revolves around how to minimize the impact of potential distractions or making key changes to stay on track.
Economies of Scale
One area of expertise that AVDG has been able to exploit is its ability to handle the non-electronic portions of a project. For example, the company employs technicians who are gifted in their ability to build infrastructure to support the electronics.
“The things we have to do from a structural standpoint on the commercial side far exceed what you get from traditional residential structures. For instance, building a super structure to support a giant screen wall in a museum is outside the core competency of A/V. We bring that strength into our residential business because if we have to do something unusual, we’ve got a skill set in our commercial team to help support that in a rough-in and prewire phase,” notes Merriman.
Related: How AVDG Steps Into VIA's Void
At the trim-out and final stages, AVDG has residential-specific technicians who understand the aesthetic demands of a home.
For example, it would be rare to recess a screen or device into a padded fabric wall in a commercial environment, but AVDG understands the higher fit-and-finish needs on the residential side and is able to meet those demands.
Purchasing power is another economy of scale the company is utilizing as it continues to add more residential work. The company is able to use its established relationships with certain vendors, such as wiring suppliers, that are active on both sides of the A/V industry to gain advantageous pricing. Other economies of scale are being achieved in fleet management, and equipment like hard hats, booties and shipping blankets — things it can benefit from being a larger organization and negotiating better deals.
Unlike some integrators, AVDG uses outsourced experts often, even in areas where it has the in-house expertise.
“We play well with others. In the Bay Area, we are fortunate in that we have a great community of specialists. We are not absolutists,” says Merriman. Even though AVDG has the capacity to do the work in every discipline of the custom installation business, its decision to work with other professionals is dependent on the project, while also a strategic tactic.
“If I have a lighting consultant that I have been lucky enough to work with on a project, the last thing I’d want to do is have them hear through the woodwork that all of a sudden we’re doing fixture assignments,” says Merriman. “Those experts can be great business partners.”