3 Tactics to Fight the Looming Market Correction
As the market slows, integrators need to act quickly to boost sales and marketing efforts, differentiate themselves in the market, or downsize their company payroll.
I spend a lot of time talking to my friends around the country since I participate in a lot of industry organizations. I sit on the board of Azione and have about 200 friends there. I belong to a not-so-super-secret skull and bones society of integrators called The Guild, about 20 or so more friends there, and I am HTA Certified... another 200 friends.
Almost all my friends run CI firms and almost all of my friends are really good at it. I trust them, respect their opinions, and I am always interested in what they have to say about the state of our industry, trends, and business in general.
Some of my friends are very focused on what is right in front of them and some are like Nostradamus, always seeming to predict the future. I am a curious person and tend to ask a lot of questions so I have spent a lot of time chatting with my peers.
Lately, I am noticing that the subjects of our conversations are shifting. One year ago, all we talked about is hiring, hiring, hiring, workforce development, and... hiring. Everyone had too many projects and not enough bodies.
Now I see more talk about marketing, how to get more business, and the general frustration with bad actors in the marketplace who are undercutting reputable dealers to steal away projects.
This has got my attention. What does it mean? Well, I think it means that this incredible hockey stick ramp that we have all been enjoying is starting its descent.
My gut tells me that it will not be a 2008 level dip, but I think construction and spending on our channel will dip somewhere between 10 percent to 30 percent. I would say we should correct back to 2014 levels.
Am I an economic expert or a soothsayer? No... but I pay attention to signals.
Many of my friends are telling me that they are still running around like headless chickens delivering projects they sold two years ago. At the same time, they are seeing fewer projects and opportunities come across their desk than this time last year. This is a somewhat consistent message.
If I am correct, there is another huge problem on the horizon. You know how you noticed 800 new vans in your town over the past couple of years? Have you had employees leave to start their own company? I recently heard that SnapAV now has 18,000 companies purchasing from them! Holy hell! A zombie apocalypse of installers in white vans has besieged our country.
Back to the problem... What happens to these newbies when the market starts drying up? They don't go back to work at the Verizon store or their old employer. They start slashing prices to win projects. They start to work for free or for wages. Now you have to deal with a 25-percent dip in sales and also lower margins to even be in the realm of what these desperate companies are offering.
Eventually they will go out of business, but that will take 18 to 24 months which doesn't help you until the herd gets thinned. This is probably a more dire issue than the revenue dip.
3 Business Tactics to Weather the Storm
So what do you do? Here are three tactics to prepare for the change:
Increase your Sales and Marketing Efforts
It has been really easy to be lazy at marketing in the past five years. Your phone has been ringing and projects have been plentiful.
Your industry partners keep feeding you because you are giving their clients great technology experiences. Well if your industry partners slow down and your existing clients start walking back their spending, you need to dust off your sales and marketing skills.
For those of you who rely on industry partners for most of your work, you will need to add 20 percent to 30 percent more partners to the list of ones that love you. That means lots of meetings, attending industry events, lunch and learns, and whatever else you used to do from 2008-2012.
Another perhaps less labor-intensive one is to mine your existing client database. In the past few years you have dreaded the call to update that 2009 era video distribution system. What a can of worms! I don't have time for this!
Well, there is a goldmine of system upgrades out there so it is time to start dialing for dollars by reaching out to your old clients with offers of free system checks.
Your biggest opportunities are network upgrades and security camera upgrades. These are two of the most important things to our clients and anything deployed more than four years ago is practically ancient technology.
Your existing clients love you, there are no cutthroat competitive bids, and you don't have to wait on construction to add to your top-line revenue. A treasure trove of profitability.
That would be my first plan of attack to add revenue but I would also balance that with the longer sales cycle of bringing new industry partners into the fold as well as considering new sources of work like Realtors or construction finance companies.
Think out of the box. Also, take a look at your sad and neglected website and your non-existent social media. I am as guilty as the rest of you, marketing has taken a back-burner for our firm.
This booming economy has made it fairly easy to get the price you deserve for your expertise. All rich people seem to be spending like they're a Kardashian, but pretty soon they are going to stop eating $34 Avocado Toast and pause before buying $11,000 backyard audio systems and $9,000 27-inch smart mirror TVs.
The term "luxury" will actually have meaning when the economy tightens up. Consumers will start to look at what we do as a "luxury." "Ahhhh, I don't need all that." That is a problem.
It's a bigger problem when someone is offering that same backyard audio system at $7,000. You can't afford to sell that for $7,000. You have to pay your worker's comp premium and give your employees health insurance.
You built a company and infrastructure to service your clients properly, not to eke out your rent payment. You are worth more than the newbie, the trunkslammer, the electrician that "knows A/V", and the IT guy that is "really smart."
Your clients will be more attracted than ever to the low bidder without fully understanding the ramifications of hiring an under-qualified company... or one that is teetering on insolvency.
Take the time to educate your clients that there is a WIDE variety of talent and quality in the companies that they may be considering. The range in talent is as wide as the difference between a junior varsity football team and an NFL team. Let your clients know that.
Inform the client that there are companies that work out of their garages, are not direct dealers for the products they sell, and don't get any training... Great! Would you want a great deal on a system that doesn't work? If they pay more, they get more. Clients want to make good decisions. They will pay more if they understand what makes a company good or bad.
I would strongly suggest that you send them to the Home Technology Association website. There are plenty of resources and articles that will help your client understand what "great" looks like, what they should spend on a system, and why they should hire a qualified company. If you have passed the certification, this is an even better conversation to have.
You can tell them how you have been put through the most intense scrutiny our industry has to offer and you passed the test! This is a big achievement and something that can easily eliminate 90 percent of your competitors. It's a very powerful third-party endorsement of your company that says you are a safe choice.
Also, bring up any other achievements you have in your holster, Sony Diamond Level, Savant Ambassador, Lutron Diamond Dealer, Crestron Elite Pro, CTA TechHome Mark of Excellence Awards, CEDIA Member of Excellence, etc.
Being better will help you get the price you deserve for all of the things you do better than your weaker competition.
If you improve your closing rate by 20 percent you can make up the gap without doing anything else.
Some naysayers dismiss industry achievements as unhelpful in the sales process... but they are dead wrong. If you passionately believe that you are better than your competition and you believe that an industry achievement is proof of that, the client will believe it too.
Proclaim your achievements with confidence and conviction. Your clients will respond. My firm has won many industry awards and some of them are HARD to win. I am also HTA Certified which is HARD to achieve.
I can look my client in the eye and say I am WAY better and less of a liability than the guy working out of Public Storage locker who is about to do his second automation system and these things prove that.
Re-size your Company to the 'Corrected' Economy
If you don't have a lot of confidence in your sales and marketing abilities, think about a simple re-sizing of your company. My biggest regret about the 2008 recession was how I reacted to it. I didn't act quickly enough to trim our staff to match our dip in projects. That killed me.
I was optimistic. I thought that we were immune from the economic downturn. I liked all my people and didn't want to put anyone on the street. As a business owner, I did not make the hard decisions I needed to.
At the end of the day, we survived but we spent a good three years digging ourselves out of a hole we created by hanging on to salaries and overhead that wasn't being supported by our new lower revenues.
I can look back and say that I was able to keep some folks employed, but in reality I was robbing Peter to pay Paul. I was funding salaries I didn't need at the expense of compensating my top performers properly and keeping enough cash in the coffers to keep the company healthy.
I needed to act in the best interest of the company. So my advice is to size your company based on your backlog/pipeline and what you think you can deliver. Don't be overly optimistic about the performance of the business if you see a downward trend in sales. Act quickly.
I hope I am wrong about the gravy train slowing down, but I doubt it. If you see signs of sales slowing down, put your plan in place boost sales and marketing efforts, increase your closing ratio, trim staff if necessary, or a combination of all of the above. Who knows, you may even be able to grow if you execute all of these things well. Happy selling!
Eric Thies is president of DSI Luxury Technology in Lake Balboa, Calif.
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