The iconic song “New York, New York” says, “If I can make it here, I’ll make it anywhere.”

Kim Michels, president of Electronic Environments (EE) in Manhattan, has definitely “made it.” He has led his company to more than $10 million in annual revenues by nurturing his team’s passion for technology, maintaining high internal standards, constant education, and dependable customer service. On average, Electronic Environments’ project size ranges between $800,000 and $1.2 million.

At the same time, Michels has instituted some ingenious internal policies that not only breed efficiency, but save money. Serious money.

For example, the integration firm is aligned with several top brands in the industry that each has New York City area showrooms. So instead of spending money on Manhattan real estate for an over-the-top showroom to suit his high-end clientele, Electronic Environments can use as those vendor-run, integrator-welcoming spaces as its own to showcase technology and demo equipment (usually between 30 and 60 minutes) for impressing prospective customers.

The company does have a “black box” demo space configured for demonstrations in its own offices, where sales staff can show specific products or features. Also, the company conference room is well suited for certain demos, including speaker types.

Then there is the company’s fleet policy … it doesn’t have any. That’s right: this company of 68 employees does not own any company trucks, vans or sedans.

Michels admits that Electronic Environments has “flown under the radar” for 20 years relying on word of mouth referrals only. The company’s typical project size, as seen in these images, ranges between $800,000 and $1.2 million.

“We don’t own any vehicles,” says Michels flatly. “One of the unique aspects of this company is that we own no vehicles. If I want to own vehicles I would be Avis or Hertz, not Electronic Environments.”

Michels explains: “I never want my technicians to worry about parking, tickets and driving; I want them to concentrate on technology. So we get around the difficulties of working in the city by having all of our equipment delivered beforehand. We engage a number of well-trained messenger companies that know how we work and they deliver the products for us. We also use a moving company to move our equipment racks, which are quite large and cumbersome and need to be handled very carefully. So that is one of the ways we completely eliminate one of the difficulties encountered by other companies working in New York City.”

The policy is apparent when you walk through the Electronic Environments shop, where at any given time you can see five or six cocoon-like structures waiting to be delivered. When completed, those racks are wrapped tightly in plastic and loaded in crates for shipping. An EE staff member is almost always on the job site to receive and inventory the delivery.

“When we need vehicles, we will rent a car. Some of my employees own their own cars so we will pay them to take their own car around the city. The fastest way around the city is actually on the subway. Some of the technicians will grab a tool bag and hop on the subway or take a taxi. The other fortunate thing is that our work is fairly concentrated. It is not unusual for us to receive a service call on 77th Street and we have a technician on a job on 85th Street who can get there in less than 30 minutes,” adds Michels.

Technicians often go straight to a job if it’s a multiday project. They come into the office on milestone dates in a project, like the first day of final prep, first day of trim, etc.

Having No Vehicles = $400,000 in Savings?

Besides eliminating the hassles and headaches of managing a fleet, how much cold hard cash is Electronic Environments really saving by not having its own vehicles? It’s hard to determine but using some known industry metrics, there are two ways to examine the situation, both of which result in a potential $400,000 savings for the company.

First, according to the most recent CEDIA Benchmarking Study, the typical custom installation company with six employees spends 3.2 percent of its operating budget on vehicles, and another 1 percent on vehicle insurance for a total of 4.2 percent. For the typical custom integration company that earns just under $902,000 and has an operating income of about $873,000, that equals approximately $37,000 per year spent on vehicle expenses. Since Electronic Environments (with 68 employees) is 11 times the size of the typical CEDIA survey respondent, you can multiply that $37,000 figure by 11 to get $407,000.

In the second method using CE Pro’s Fleet Survey data, the savings comes out remarkably similar at about $400,000. According to the study, the typical ratio for employees-to-vehicles in a custom installation company is 2:1 — two employees for every one vehicle. That means with 68 employees, Electronic Environments would require 34 vehicles.

Since the average lifespan of a custom integration company vehicle is five years, it means Electronic Environments has eliminated the cost for purchasing 34 vehicles on a rotating basis every five years, or about seven vehicles per year. At a minimum price tag of $26,000 for a new van or truck plus another $2,000 to install necessary racks and shelves, it’s a savings of $196,000 per year.

Next, there is vehicle insurance. The typical custom integration company pays $1,200 per year per vehicle for liability, collision, comprehensive and property damage insurance. With potentially 34 vehicles not on the streets of Manhattan, that is a savings of $40,800 per year in insurance costs.

Then there are gasoline costs. The typical custom A/V vehicle uses 1,070 gallons of gas annually. At $4 per gallon prices that’s $4,280 per year per truck. Again, multiplied by 34 vehicles, it’s an annual savings of $149,600.{pagebreak}

Parking costs an arm and a leg in New York City. The cost of parking the company fleet on the streets of Manhattan is incalculable, but it’s got to be high. Just using a cheap estimate of $20 per day per vehicle, that’s more than $270,000 in parking fees. And that doesn’t count if the vehicle has to move to multiple jobsites during the day, or if they get a parking ticket or moving violation. Not to be forgotten, NYC has hefty tolls for bridges and tunnels.

In total, all these costs add up to more than $656,000 per year to operate vehicles.

Of course, there are many vehiclerelated costs that cannot be eliminated. Michels says the company pays technicians and staff for using their own vehicles when necessary, not to mention the cost of taxis and subway fares to get to and from jobs. Plus, the company periodically rents vans to make its own deliveries. And, the shipping costs that Electronic Environments pays to moving companies to deliver their equipment crates and tools is not cheap.

If we estimate that the company has $250,000 per year in delivery costs and employee reimbursement, it is still saving potentially a $400,000 dollars annually.

Handling Service Together

All of EE’s systems have remote diagnostic capabilities. Michels has a unique approach to remote service — he is not afraid to help the client fix it on their own.

“We work closely with clients to inform them that the fastest way to fix something is for someone who is already in the home to fix it. So what we found is that most of our clients are very willing to do this. It is empowering for them to say, ‘I fixed it.’ The way we facilitate that is by having very easy and intuitive ways for clients to reboot the system either from their own iPad or manually.”

The other common way EE services systems is remotely using email as the primary mode of communication. After stepping through the fix, an EE staff person asks the client if the system is working properly.

“Very often there is no email response … which is good. That means it is working and we don’t need to bother them anymore,” comments Michels.

The company has been very successful selling regular maintenance contracts to its clients through which EE staff come in on a pre-determined interval to check on a system. But Michels admits that selling service contracts to cover an installation when it malfunctions is more difficult to sell, mainly due to the pricing for large projects.

“The majority of our service is going to be for outside systems not working, such as the cable or telephone. Those are beyond our control. So we have to fashion a service contract that excludes those systems that are out of our control. That is fair, but it also takes a lot of the meat out of having a service contract. We have been experimenting with this,” he admits.

For example, EE recently had a client insist on a service contract. When Michels presented him with the cost, the client balked and countered with a lower price.

“We are using their price for three months and then we are going to get together and see if it is working out for both of us,” he says. “It is evolving. There really isn’t anything in this industry to support specific service contracts on equipment. Warrantech and others have tried to enter our market. It’s either a huge number or it’s unfeasible.

“When my client needs service, I need to service it. I don’t want to be put in a position where I have to call to get some sort of authorization to do some work. We are looking at metrics like frequency of service and trying to come up a model.”

Impact of Organizational Structure, Sharing

Michels’ background before starting EE in 1986 was in theatrical staging. He studied theater design and theater lighting design and segued into A/V design for conference rooms and ballrooms.

“That experience helped me tremendously in terms of being able to think out of the box,” he says. “It also made me very organized. It also bred a positive ‘we-can-make-this-happen’ type of attitude in me because you have that type of fluidity and opportunity in staging particularly because so much of it is temporary. The trick is taking something that is more easily done for a temporary condition and translating it to something that is very permanent and lasts a long time, and is going to be used by multiple people.”

To stay relevant, Michels says it is important to attend tradeshows. As one of the chief technologists at the company, Michels goes to CEDIA, CES and InfoComm every year.

“A lot of people ask me why I go to all the shows, noting that they can be redundant. At this point in our development, I am not going to shows look to discover some ‘awesome reckoning,’ I am looking to fine tune. I’m looking for small things, such as new technology that is just blossoming and in five years will be big. I always find things at CES and InfoComm that are not present at CEDIA,” says Michels, who describes himself as a very hands-on owner.

He brings those ideas back to the company and conducts company-wide and department-wide brainstorming meetings. The offices are configured in an open style that breeds idea-sharing. He credits his staff for much of the company’s success.

“For over 20 years we have ‘flown under the radar’ … it was difficult for people to find us and this led to very qualified and highend clients who found us through word of mouth only. Electronic Environments would be nothing if not for my terrific team of dedicated, enthusiastic super-professional colleagues,” he says proudly. “We have a group a people that are super interested in technology. So they are very stimulated and it’s a natural outgrowth that they tend to stay updated on technology in whatever manner possible.”

EE has six project managers, most of whom have been promoted from within. Every project manager has his own dedicated lead technician. Beneath that lead tech, there are a number of technicians whose resources are shared. There is a centralized design department that works with all the installation teams.

Michels says there are big advantages to being a big company in the big city, noting it allows him to be very flexible and extremely responsive. As an example, the day of our CE Pro interview, Michels received a call from a client who needed a small project done that day.

“Despite the fact that we are very busy and our schedule is booked up, we put our heads together here and figured out a way to do it. Being a larger company with tremendous resources gives us the opportunity of almost never having to say no to a client. We are in a position where we can usually meet or surpass the expectations of the client,” says Michels. Indeed, the company maintains a separate department dedicated to handling small, fast-track projects.

On the flip side, having 68 employees means there are more administrative and human resources tasks. Michels admits he has to be careful not to create so much protocol in the company that it makes everyone less efficient.

At the end of the day, he says maintaining high standards is the key. “Buy good products and produce good results,” is his advice to other integrators. 

This article originally appeared in the July 2014 issue of CE Pro.

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