This isn’t another article about AV/IT convergence, how IT might eat A/V for lunch, or how service and recurring revenue are important to the modern integrator. It’s safe to say we all agree on these points even if we execute the concepts differently. But as the custom electronics industry matures integrators are being forced to evaluate and reinvent their day-to-day business practices to keep up and stay relevant.
Indeed, the custom electronics industry is becoming more complex at an exponential rate … and it’s not just in terms of technology. Granted, the first 30 years through the 2000s brought about lots of change focused on technology: in the ‘90s HDTV revolutionized TV; in the 2000s it was all about music portability (with the advent of iPod/iTunes and Sonos); then came a wave of control systems as Crestron and AMX were joined by Control4, Savant, and the recent plethora of newcomers (like Clare Controls, Home Depot Wink and Lowe’s Iris).
Along the way HDMI and networked systems caused many of us to pull our hair out. Most recently the Internet of Things (IoT) burst onto the scene and we’ve found ourselves on a technology roller coaster that never seems to end. To some extent it's what keeps us in business … not the specific technologies mind you, but the fact that it's ever-changing and far from consolidating in a meaningful manner.
With that in mind, over the past 10 years our industry has become much less about the product and more about operations:
- How to become more efficient as hardware margins have disappeared;
- Maintain relevancy as DIY has taken hold;
- Provide excellent, responsive service as technology falters or fails more frequently and consumers now expect a more immediate response;
- Find an exit strategy as many owner-operator integration companies near their 20- to 30-year mark (according to David Stang of Stang Capital Advisory speaking at the CE Pro Summit, this requires building recurring revenue).
It’s not just the custom electronics industry grappling with these issues, either. For example, massive industrial company GE just announced that it’s focusing heavily on software development and moving its headquarters to Boston in order to maintain relevancy in our modern economy. The founder of GoPro (maker of point-of-view video cameras for capturing action sports) announced at CES 2016 that GoPro will become a software company to focus on the sharing of content. Other well-known stalwarts have gone out of business or declined significantly in the face of change because they didn’t adapt: Kodak, Digital Equipment Corp., HP, and even the traditional taxi business.
Digital’s founder, Ken Olsen, is famous for saying “the personal computer will fall flat on its face in business.He was replaced as CEO in 1992 by the company’s board, but it was unfortunately too late. Digital, a $13 billion per year business focused on big room-sized computers of the '70s and '80s, famously plummeted throughout the '90s because it hadn’t appropriately adapted to the personal computer revolution.
At a high level, these same problems are affecting the custom electronics industry and forcing everyone — from manufacturers to consultants to integrators — to evolve. For integrators to successfully scale and weather the upheaval that is sure to face the industry in coming years, change is necessary. Fortunately, industry providers old and new are here to help and offer support.
Focus on One Aspect of Service
Focus “means saying no to the hundred other good ideas that there are,” as Steve Jobs has stated. In the face of technology commoditization and changing client demands, integrators have been pressured to spread their focus thin in an attempt to meet client expectations, but it’s come at a cost.
Are you a design consultant? Or an integrator? Or a service provider with a service operations center?
Fifteen years ago you probably would have identified more with “integrator,” but these days the average integrator is expected to be at least two of those things, and many are trying to be (or forced to be) all three.
Consider focusing on one aspect. For many, that will continue to be integration – which is a good thing, because that’s where a bulk of the work is going to be as existing homes are converted into smart environments. That doesn’t mean you can’t provide an all-in-one solution to your client or that you won’t build recurring revenue with service, but concentrating your focus on one of these three will help improve your revenue, margins, and brand.
At my integration company — OneVision Resources — our focus has always been on service – we built a business on recurring revenue and service agreements and relied on others to build smart homes. Along the way we got distracted trying to also build smart homes, but found that the service structure we built our company upon wasn’t well-suited for these long, drawn-out projects. So six months ago we pivoted our business model, making sure to place our focus on design and service once again. This allowed us to accomplish our goal of growing recurring revenue more efficiently.
How can you maintain your company’s primary focus for continued growth and success? If your primary business function is integration, you could consider partnering with a design-only consultant, such as Marchand Wright in California or (if you’ll allow the shameless plug) OneVision Resources in Boston. Design-only consultancies work one-on-one with the client to design a system for a small fee and then hand the project back to you when it’s ready for implementation. This is a common practice in the commercial space.
You could also consider focusing on project management and outsourcing the day-to-day installation tasks to a local integrator – you design the system, sell the hardware, and project manage the implementation, but hire other local integrators to do the install work. This business model requires honest collaboration to succeed … you wouldn’t want your work to be deprioritized for other work the integrator lines up. With fair play, everyone profits. You would focus on selling systems while the integrator would focus on maintaining a competent labor force.
Something I learned when I began focusing on growing my business is that it was sometimes easier to find a way to save $100/month in recurring costs than it was to sell a $100/month agreement. When you’re in hiring mode (and especially when hiring in our industry is as difficult as it is), time can be just as valuable of a resource and the same thinking applies. Save time, save money. It’s an old formula, and it works.
How efficient is your operation? When was the last time you evaluated your systems, workflows, and processes? Compared to just a few years ago there are much more efficient ways to create scopes/designs, engineer schematics, procure product, and monitor/support technology. I recently outlined numerous apps and services that are easy to implement, but the general trend beyond the software recommendations is that these are Software-as-a-Service (SaaS) applications with a focus on user experience that are a) easy to trial, b) easy to pay for, and c) easy to use. For example:
- Improve communications with Slack to minimize inefficient email inside the company
- Focus on time-tracking accuracy to ensure nothing is left on the table
- Speed up the proposal/deposit process and have a positive exchange of ideas using Slateplan
- Streamline procurement with SupplyStream
- Minimize installation errors and decrease your labor cost with D-Tools
- Increase engagement with the client and reduce labor cost with Ihiji
Do you know just how much are you leaving on the table with inefficient systems and processes? There are many professionals in the industry who dedicate their professional careers to helping integrators evaluate their businesses, suss out the problems, and implement new processes. One such consultant, A/V Industry veteran Paul Starkey, founded Vital Management to provide consulting services designed to identify and implement these strategies. Others in the field provide these services as well but I don’t have personal experiences to relate. If you do, please share your thoughts and experiences in the comments section below to keep the conversation going.
If you’re interested in learning more about the concepts I noted above, head on over to the OneVision Idea Factory where we take a deeper dive into each one.
Change Your Cost Structure, Optimize Your Resources
In every business there are two types of costs: “cost of goods” (above the line) and “operating” (below the line). “Cost of goods” is defined as the costs directly associated with your revenue and, subsequently, scale with your sales, while “operating” costs are overhead expenses you have to incur in order to run your business and don't scale up/down in lockstep with your revenue. For example, the cost of hardware and technicians are considered “cost of goods” (above the line); you can scale them based on how much business you have. But your office space and utility costs are considered “operating” because you have to pay for that no matter how much business you bring in.
One way a business stays lean and flexible is to keep its expenses above the line so that as business ebbs and flows the company can scale up/down with it. Flexibility is key – in both good times and bad. In bad times you want the ability to cut costs quickly, while in good times you want to be able to keep up with demand and maintain a high quality level.
A related concept is resource optimization – spending your resources in the most efficient way to achieve the best results. You might hire a website designer to design/develop/implement/maintain your website so that you don’t have to figure it out – it’s less expensive and more productive to hire an expert than it is to invest the time/money into becoming an expert yourself and then maintaining that knowledge over time.
A great example of both resource optimization and improved cost structure is Access Networks. Rather than invest in the training/hiring of network management skills, Access Networks will configure and manage the networks in an expert fashion (less expensively and with better quality than what your single full-time engineer could do) and will do so on demand with each system you sell (making it a cost of goods that scales with your revenue).
Another example is Dave Tkachuk of Symbol Logic, who has been providing outsourced engineering services for many years. Provide him with the scope and design and he will return a full set of drawings that you can use to guide your install. For any integrator, especially a growing one, Dave’s services can lower your cost of goods by saving you from hiring a dedicated engineer until you know you need one full time.
BRAVAS Group (founded by executive directors Starkey and Steve Firszt) is another way of optimizing your resources. Rather than building an experienced operations team with expensive full-time staff, or spending your own time as an owner-operator, you can leverage Paul’s group at a much lower, shared cost with other integrators and likely benefit from their dedicated experience in streamlining your operations.
There are other areas of an integrator’s business that can benefit from this kind of resource optimization. Service, for example, is a major problem area for most integrators and is currently missing a solution. I know some integrators use an answering service to help answer calls (especially after hours), but everyone I’ve spoken with agrees it’s inadequate given the rising expectations of their clients and the technical nature of the support. Don’t worry, I’ve got some ideas for that, too – stay tuned!
I believe 2016 is the beginning of a transition for our industry. One where we no longer prioritize our focus on the latest technology, but rather focus on optimizing our businesses and staying relevant in this changing economy. Change is afoot, and with change comes opportunity. After all, it’s not necessarily the strongest or the most intelligent who survive massive change (think dinosaurs before the last Ice Age), but the ones who can best manage the change.