*Originally published on SecuritySales.com
Leaders from four successful security companies discuss the commercial market in this industry roundtable, including what’s working and what needs work.
These are the good times
Our new state of mind
These are the good times
The dance line celebrating the robust security business that emerged following the Great Recession shows no signs of petering out, as systems providers are confidently strutting their stuff into the new year, and decade.
For most, revenues are strong, pipelines are full and growth is healthy. That according to participants of Security Sales & Integration’s annual Commercial Dealer Roundtable, held at the recent Honeywell Building for the Future conference that gathered business leaders from around the globe.
However, the steady beat of security systems demand is not without its rimshots. There are plenty of challenges to contend with, including effectively managing growth; finding, training and retaining talent; shifting from a project- to recurring revenue-based business model; staying on top of rapidly advancing technology; and delivering at a level superseding that of an ever-more competitive landscape.
Companies must be surefooted to avoid trip-ups in those critical areas. Your dance partners in this discussion are Brian Brandt, principal of Electronic Systems Group in Cranberry Township, Pa.; Operations Manager Jerry Camarillo and President/CEO Troy Dillard of Fredricksburg, Va.-based Dillard Alarm; Bob Ricucci, CEO of Advanced Security Technology in Riverside, Calif.; and Dave Sweeney, CEO of Dover, Del.-headquartered Advantech.
They share insights to help you make the most of these good times, and avoid maneuvering like you have two left feet.
Let’s talk about the year just ended, 2019. What went well or maybe not according to plan?
Bob Ricucci: It was a good year, fairly strong. The biggest challenge we had was continuing to replenish our salesforce. We have some people that are transitioning out to retirement or present some opportunities that we’re trying to fill. It was a good, strong RMR growth year, predominantly because of strategic solutions like the cellular conversions necessary with voice over IP, and video verification, remote video, hosted services on the access side and integration. It’s just really coming at the whole client in a comprehensive way so that we can get more out of each sale and have a better, stickier relationship. It’s worked so far. We’re in double digits growth.
Was that according to projections for you?
Ricucci: Yes, it’s interesting. The projections were based on smaller incremental takeover sales, which we’ve done OK but you need bodies out on the streets to do that and we are still trying to wrap that up. About a third of the way through the year, we said, “We’ve got to find some way to plan this.” We’d identified the cellular strategic move and we looked at our key accounts. We were able to make additional sales to the key accounts. About 85% of our customers are repeat business or multiple-site. We go back to them, we have new technology, new solutions. As long as I can make a value proposition for you, we are able to get chunk business while we’re trying to get the incremental stuff ramped up with new bodies.
Brian Brandt: The year was really exciting for us. We exceeded our projections for the top line. We increased the profitability of the company. We brought on more key accounts than I expected and we maintained all of our core focuses and disciplines. We measure those performances in the four categories that we focus on and we exceeded expectations on all of those. I hope at the same time we can keep the pipeline full this year.
Dave Sweeney: It was a wonderful year for us as well. We exceeded our relatively aggressive projections as we are continuing to grow. We attribute a lot of that to being a very strong economy in a very strong market. We are very partner-oriented with our customers and all of our customers are growing. We’ve been fortunate enough to be able to grow along with them. Not just our existing customers but we’ve also picked up a few large key accounts this year that have helped us facilitate the growth we’re experiencing.
Jerry Camarillo: Last year absolutely beat every year we’ve ever had. We picked up a lot of new customers, including a big apartment complex, which was neat. Each building has access control, each building has 16 cameras. Everything’s all integrated. That’s part of phase one. Then they came out with another three phases they were going to be doing. On top of that, for all of our existing customers we started taking our average RMR rate and increasing that. That actually went up $5 to $10. Our access control, as far the managed access control, grew $6,000 to $7,000 a year on RMR. Our attrition rate is still under 10%.
Ricucci: Do you offset your attrition numbers on the residential side with resigns?
Camarillo: Yes. Between the ones that we resigned and also the upgrades. Everything’s automatically getting an attach rate as far as residential when it comes down to the interactive features. So that way everybody, no matter what, gets it for the first three months. If you throw in a camera and you put in a doorbell and they won’t leave you. We’ve noticed it is just a stickier customer. We’re trying to push some of that more toward the commercial side to make them stickier too. With their access control, with their cameras, they’re generally sticky but getting them to do more automation side on it is the leading part now.
All of you saw strong business in 2019. What are you anticipating for 2020?
Brandt: My thoughts on 2020 are very optimistic. We focus all of our time resources on the commercial space, but within that, we have very strong representation in most of the major vertical markets. That helps spread the volume of projects out throughout the course of the year. A lot of what we do is compliance-driven and I don’t see organizations being able to not to do this type of work, they’re compelled. Every one of the vertical markets, you can point to a different motivating compliance factor that’s forcing people to continue to expand the platforms they currently use.
For us, our reputation precedes this and it seems to be gaining momentum more and more every year. We will continue to grow. We make more of a conscious decision every year to choose not to bid projects and only work with end users that want to negotiate business and continue long-term partnerships. That model for us works very well.
Camarillo: The goal is to always beat the year that you had before. In some years it works and some years it does not, but the average goal is at least 10% growth. We’ve done pretty well doing that for the last three or four, and 2020 is shaping up to be just as big if not bigger. That’s from the difference of a couple big commercial customers we have, but at the same time understanding you can’t base everything off just one customer. Instead of doing all the work for company A, I’d rather do it for company A, B and C. It’s about lining that up so if one does fall you have two others to back it up. That way your numbers don’t drop that much, if at all.
Troy Dillard: I agree with Brian 100%. Your reputation precedes you and our customers are really finding out the difference with our competitors. Our motto is, “Do what you say you’re going to do when you say you’re going to do it.” They’re not used to that. It’s so refreshing and I think that’s really an old-school philosophy. I hope we can really stand firm in 2020 as only doing commercial accounts with an RMR attached to it.
In the past, you put in a camera, you’d get paid, you’d walk away. Now, with the I-View Now or something like that, it’s going to benefit the customer. You need to show the value proposition. We’re not going to be the cheapest, but we’re going to show them the value and what they’re going to get for that money. You have to be responsive and give the customer what they deserve and more.
Probably the biggest thing standing in the way of that is getting new employees. It’s not about growing the business, it’s getting the people. They have to buy in. They have to be the right person. We have plenty of warm bodies apply, but as Disney has said, one out of 60 applicants get in. You want the right person in your organization because they are the face.
Sweeney: For 2020, we’re cautiously optimistic. Our opportunities continue to remain strong and our projections continue to look good. We believe part of that is because we’re continuing to add value. The cautious component comes into play as it relates to technology and the economy.We commit to long-term fixed prices for our customer base and what’s happened the last 12 to 18 months with the different economic sanctions and tariffs and all the pricing changes really causes concern because ultimately our revenue will grow.
Depending what economic turmoil exists, our profit may or may not. Our goal is attempting to try to manage that. In our large capital improvement projects with hundreds of thousands of dollars in material spend, a couple percent here or there is a big swing. That’s the cautious part.
Ricucci: You made a very good point. It’s important to be honest about our industry. This is not a clean industry. It is not necessarily governed by strong business practices. Low barriers to entry and so forth, and so as a result the industry, in general, isn’t what it could be as compared to some other industries. However, that means you can stand out. Troy mentioned differentiating, making yourself special to your client or prospect. That’s where organizational psychology matters. That’s an important piece of what will influence 2020. It’s also important that you know what your finances are, what your metrics are and what your funding resources are. Because if you want to add bodies, you’re going to have to have a runway. You need that funding to carry that.
One can make an argument that if you can grow $25,000 RMR in a year and break even, or even lose a little bit of money with the proper funding in place, that’s gold because you’re building a value times 30 or 40 and you’re not paying out a lot of cash because it’s going back into the company. Traditionally in an integrator world, we’re not an RMR function.
We’ve come from the integrator and the dealer and give you, what I would call, hybrid, which is you still want to get that margin business in minimizing a path for creation cost on your business. But you also want to drive an RMR. Our RMR is over $100 per signup on average. That’s by design.
It will be interesting to see what the multiples are because you’re going to get fights about that but I’m getting in shape for that. You’ll look at those business metrics, and that’s what tells you what you want to do. We can tell a story better than most of our competitors with the same resources and the same price points for things like video verification, and Cloud-hosted and interactive services.
In our push, we just say, we want to bring more people and sell more, maybe it works and maybe it doesn’t. If you can be more specific and flow that through that organizational psychology, then you can renew or refresh what your look is to the customer. That gives momentum to your business, motivation to your people and makes you more attractive to a client.
What would you identify as the top challenges confronting your business?
Camarillo: Needing more technicians, and stepping up correctly to grow. The hardest part is when you take that big step, if you don’t have those fundamentals in place, you get stretched real thin. Luckily enough, all of our guys like to work, they don’t mind working late and they get paid for it. We’re a small company, there’s only five of us total. We’re trying to compete with some of the big boys and we’re doing a real good job at it, but trying to stay on top of it where nothing else gets left behind or nothing else gets missed or forgotten. That’s our hardest thing right now.
Sweeney: People for us is always the hardest thing, especially when the economy’s strong. It’s really hard to find qualified, capable resources. So we’ve focused over the last 18 months to instead of trying to find them and steal them is to grow them. We’ve implemented a few plans from the sales and operational perspectives and also our field technical teams to bring in younger, less knowledgeable folks and give them the tools and training to help them grow. We’re starting to see the fruits of that labor.
Another challenge is managing customer expectations, especially for delivery. When you’re busy and short on resources, the challenge is that if the sales team does their job correctly their continuing to grow the business. Making sure that those customers understand they’re still going to get taken care of and they are important, we just have a very hefty backlog to manage. That’s very delicate and challenging, especially when you’re acquiring new business. When you’re growing with existing customers, you have a track record, you’ve proven to honor your word and so they may be a little more understanding.
Brandt: To bring in a new topic, since I was young and new in the business one of the things that has substantially changed is the partnerships when it comes to the parts and pieces. When I started in the industry, you gained a lot of leverage and sold on value propositions and a lot of that was based on the partnerships you had with manufacturers.
It seems these days many products that used to be exclusive, where you had to really invest in training and certifications, are more and more available through distribution channels. There’s a lot more products that compete and oftentimes it seems like a race to the bottom and who can do it the cheapest instead of who’s the true value proposition.
Retaining that value and those partnerships is more of a challenge every year. Finding that value proposition and having it bleed through to the perception of the customer again seems to be more difficult. The customers used to fight to retain their integrator, whereas now they are being compelled to try and get it done the cheapest way possible. I think that’s a reflection of the industry as a whole and that shift toward the distribution model.
Ricucci: One of the biggest challenges is identifying what you do well and how to do that better to make a value proposition to build businesses sustainable based on that. The organizational psychology of taking that from the strategic people all the way down to the ones that back out into that and they know exactly how they contribute to that. That’s important and with the changing vendor landscape it’s difficult to know who’s what. The key part of that discussion is not just knowing and taking in every piece of technology that comes down the pike, it’s knowing which ones work for you and your clients and how you can monetize that.
Let’s discuss the huge issue of talent recruitment in security. How do you draw the line between bringing someone in that you can mold to what you’re going after, versus somebody who’s been around the block and maybe has habits you’re not crazy about?
Ricucci: It’s a question of your need at that moment in time. There are a lot of applications we see from the telecom in the cable industries, and they’re decent with wire, they’re decent in the home and the businesses, but they don’t know our products. If I’ve got a little bit more lead time and I’ve got somebody I compare that individual with then we can make that decision. If you unfortunately lose somebody that’s a higher level of tech three or something like that, then you have to start looking for somebody a little bit more talented.
As far as bad habits go, that’s really a concern that rests within the purview of your management function and if you’ve got lead techs that are also managers, it’s a little tricky versus an overhead piece that’s just an ops manager to check that stuff. If you have protocols and you have processes in place, if you’re a key process-driven company, you can usually identify and retrain some of that and sometimes you get a dog that won’t hurt.
Dillard: We’re fortunate with the tiny company that we are; we’re five full-time employees but we still gross over $1 million a year. We have nice projects, our newest employee has over five years and our longest is over 11. You need to treat them right; we do quarterly bonuses. Some of them are quite substantial with a Christmas bonus at the end. The 401Ks, the insurance, you treat them like family. If they need off for an appointment, sometimes I don’t even document it.
We’re tossing around the idea now if we can get a few more employees in trying out four 10-hour days as the workweek. A lot of corporate companies are way more productive with that and you find on the commercial projects by the time you unloaded all the tools, get on the job, you’ve worked for good five or six hours, it’s time to load all the tools back up again. Maybe if they got two more hours on that job before they head to load up the tools again, I think we could probably be more profitable.
Sweeney: The biggest mistake organizations make is that they compromise their core beliefs and core values. We really try to make sure everyone in our organization understands what our core focus is, what our core values are and any team member we add has to embody those values. Whether they’ve got 20 years in the industry or they’re fresh out of tech school, because those are things you can’t teach. That’s a deal-breaker for us.
In our business, we have a very strong customer service focus. That really makes or breaks us on a daily basis. It only takes one mistake in a customer service-oriented business to really have a big challenge. Sometimes the biggest mistake people make is they sacrifice or they give a little on who they are as an organization to hire that one person. Then they wait too long to make the correction.
Let’s talk a little bit about technology. What are one or two technologies that are just arriving or maybe right on the horizon that you’re excited about and why?
Camarillo: One that we’ve seen a lot of growth in is face detection. What excites me about the technology is we were able to see real and direct impact in our customers. Not to get too terribly philosophical, but when you see all of the substance abuse challenges that are out there today and all the horrific health consequences that are occurring from some of these folks utilizing vape or vaping, to be able to make a difference is pretty cool. We don’t get to say that every day and it’s been nice.
The second I’m really intrigued about is this whole physical credential question; do we still need one? With the improvement and advent of facial recognition technology and the price-point reduction of all these new biometric technologies, and even mobile credentials at that point, I’m not sure where the little piece of plastic with our picture on it is going to be in the next couple of years. I’m really curious to see how that transition, how that competition, plays out in the market, because I’m not convinced who’s going to win.
Are you sold on the phone as credential model?
Camarillo: I think today the phone as a credential is very convenient, but I don’t think the price-point that it currently offers is a sustainable model to replace the physical credentials today. To be honest, the challenge with the phone credentials, it’s making the reader now proprietary again.
Whereas, we actually got away from the readers being proprietary and being a little bit more interoperable with proximity and smart card technology. Now in the mobile credential world, you really have to have the right app and the right reader. You can almost say it’s taken a step back, as it relates to open architecture reader technology.
Brandt: What excites me the most in concept is that the electronic security world has gone from strictly reactionary to more real-time. Now with AI and advanced analytics, it’s actually moving toward a model of predictability. So knowing in advance where to allocate resources to try and prevent a circumstance, versus in the past only having a tool to go back and recreate what happened.
We’re actually starting to adopt more layers of technology that will help us define where to allocate resources, because it can predict where you’ve got vulnerability. As the industry makes more and more strides in that direction it will become even better and more exciting.
Ricucci: The main technology we’re excited about is the video verification and remote video model. About 15 years ago, cellular radios communicating with signals was not really that common. Now it’s prolific. All the value-add points with regard to video verification and remote video will probably have three-quarters market penetration, if not higher, of some sort of video verification component in it in every alarm that goes in. That’s what we want to be on the leading edge of.
I also like the idea of analytics. I have not seen it be worth anything more than sizzle at this point in a more expansive application. Facial recognition, predictive indices and things like that, they’re coming. But I don’t think, at this point, it’s better than a judicious use of devices with video, if you know what you’re designing.
It will get there and I’m excited about when it gets there. I’m just not going to push the technology past what it can do in an application. We always start with the application, the customer, the comprehensive understanding. Is this going to work for a customer? Is it going to be worth what we’re going to have to charge? I think analytics is coming, but it’s not near in my mind yet.
Digging deeper into RMR, what role does it play for you today, tomorrow?
Brandt: We’re still very much project-driven. I’m not focused on that particular aspect of business because most of our accounts are large commercial accounts, hospitals, colleges, utility companies, pharmaceutical. The large corporate world still doesn’t want data to leave their property. They still want to own it, manage it, be responsible for it. Right now, the only type of recurring revenue we have are maintenance contracts and software support agreements.
Sweeney: About 20% of our topline revenue is RMR-driven. We’ve had a good run the last 18 months adding new recurring services that our customers have latched onto. We offer the traditional services that you would expect, central station monitoring, test and inspect on the buyer side, traditional software support, great plans for our larger enterprise customers, the service plans that were also mentioned. Pretty strong growth has come recently from managed access control. We are reselling not just a subscription to a Cloud offering, we’re actually reselling the service.
Our customers don’t know the name of the platform we use. It’s the Advantech access control system, because they just send us an email and with the white-glove treatment we try to provide, we make the adjustments for them. What we really envisioned at the onset of that offering was an SMB-focused kind of tool.
We were wrong. We have been surprised at the size of customer that is intrigued by this model. Customers I would have always expected to be on-premise traditional PACS only are gravitating and intrigued by this model, not only of Cloud, but service. We’re providing the same thing in the health monitoring space with success.
We’ve had a lot of customers who have been forced to provide reports, detail verification, justification that their systems are up and working. Unfortunately in today’s day and age, every time a terrible current event happens, many customers say, “Is my system working? I’ve got to prove it to my boss.” And we can say, “Yes.” The ability to provide real-time health monitoring that we can generate reports off of, we can send along to our customers and give them a piece of mind, it’s been pretty powerful.
How do you sell it, do you show them a menu of offerings?
Sweeney: All the services I referenced would be subscription-based or have associated costs. We have internal menus, but what we really do is stress to our team, our folks in front of the customer, to listen first, to help understand what the customer’s needs are and then offer the appropriate menu. We don’t want to offer a steak to a vegetarian.
Camarillo: For access control, it has absolutely taken off. Every time a customer gets tired of training that one person, they do it and then when that person leaves they don’t know the passwords or the logins. Instead now they can just send us an email, “Please delete these people. Please change this timeframe to this, to that.” They also have the ability to do it, but the fact they don’t have to they like.
Then there are RMR services on the cameras; the only one we currently have in place right now is an annual inspection and cleaning. The health monitoring and the I-View Now or video verification from any platform, is something we’re going to dive into wholeheartedly. It’s something you’ve got to commit to 100%.
To show customers what is available, on the back page of our proposal they can see exactly what the cost is with it all. One dealer we know throws those features in for free for the first year and as part of the agreement and after that they pay for it. That allows for very little pushback because it has already been included.
Dillard: We’re fortunate, 43 years in business, 50% of our income is RMR. I want even more. I want 70%, I want 80%. It positions you to withstand those rainy days. Like when 9/11 hit, we didn’t do anything for three months. I can still pay my full-time guys to organize the vans, clean the shop, do annual inspection battery checks.
Ricucci: We’re about two-thirds RMR. We are paying for our operating and administrative arms and salaries with revenue from that side. I bifurcated my financials, so I’ve got an OPs admin that all that recurring revenue flows to separate from the sales function. I also don’t itemize or list the services. We are the consultants, based on the comprehensive understanding of their needs. We’re going to tell you what we believe is the best option for you. We’re going to also give you some additional options, but you’re going to get one number. I don’t want them plucking away pieces of it.
I also don’t want to fight whether or not fire inspections are the same margin as monitoring.With a maintenance agreement, instead of giving them the first year free we take the four years price point that you would pay if I had to come back in a year. We’ll divide that over 60 months and then I’ll discount it 25%. Any way you cut it, RMR is a good boat anchor to base your business metrics on.
Let’s talk competition. Concerned about new entrants, nationals, DIY?
Camarillo: If you look at the big boys like Tyco or Siemens, any of those big companies, most of their stuff is proprietary. A lot of customers are getting sick and tired of them. They’ll be paying $400 a month, hands down. They have no options, because they’re stuck. A lot of people are like, “OK, this is how much we got to pay them, how much is it to replace it all? Yank it all out, get rid of it.” That’s a good feeling.
Dillard: On the residential side, a lot of people want to price shop on Amazon or the Internet as a whole. They want to tell you what you should be selling your product for, but I don’t think a lot of people realize how there’s often a consumer version and a pro version. There may be a difference in the quality and what it can do. We have to show the value, show we have the warranty, and that we’re going to come back and service it.
Sweeney: The first thing that popped into my mind from a competition perspective is when there’s a new business leader or a team member within an existing organization we work with. We have very long, mature, mutually beneficial relationships with organizations and sometimes a new person, new facility manager, new IT director, new business leader brings in their own thoughts and/or relationships. That can create chaos in our world. We then have to spend a lot of time building a new relationship with that person.
The other competitive element is losing to in-house IT folks. It’s not uncommon to have maybe a young, more progressive IT person who feels they can buy the camera off the Internet and put it in themselves. It can be hard to convince some of them otherwise. Sometimes you have to let the customer take some bumps and figure out that maybe there’s a little bit of value in a professional organization that knows what they’re doing.
Brandt: I don’t disagree with Dave, but I find the opposite true more often in my world. I’ll give you an example. We’ve been doing work with one of the largest financial organizations in the world for many years. A lot of the facilities management for that customer was outsourced to us. They had an account manager who I worked with very closely. That person moved on to a pharmaceutical account that was using one of the large national integration companies.
About six months after putting up with what she referred to as ridiculous B.S. — not being able to contact the same person twice or get an accurate invoice on time or get service issues resolved or create a path to move forward — she said, “I don’t know why we’re doing this.” She called me and asked if I would be willing to take over the account. So while those transitions can affect and interrupt business, they can also create opportunities.
Ricucci: We’ve been hearing about the self-monitoring alarm for 20 years now. It’s like with the proliferation of ATMs and in-store banks, brick-and-mortar banks were going to be a thing of the past. Well, there are twice as many brick-and-mortar banks as there were 20 years ago, because people want more and more. With DIY, we get a lot of those calls, “Hey, I bought this, could you put it in?” I’m not really that concerned about the DIY component, because it is, I think, niche. If you do what you do well and you can show the value of what your expertise brings to the client, there is value.