3 Strategies for Adapting to the Eroding Middle Market

2/13/2017 10:26:00 AM
One of the worst feelings I know (gut-punch nausea) comes from learning we lost a job or seeing a competitor’s handiwork on a project that I thought was mine. It doesn’t go away until I sell another big job, and the avoidance of that feeling motivates me to improve constantly. Unfortunately, the queasy sensation struck again last Saturday, and it’s still sitting in my stomach as I write this.

My wife decided to detour the family minivan into one of the neighborhoods we’ve been servicing for the last few years. The neighborhood started with one builder and over time ended up in the hands of two local luxury builders who became our clients. The first builder hired a new superintendent who’d worked with one of our competitors at his last builder. Next thing you know, we’ve been shown the door. I saw a few houses going up that didn't look like our work. I called the builder Monday morning to double check, and he delivered the nasty news.

When we begin a builder relationship, we let them know that if they have a wide array of home styles, that we’re probably not the best fit for any projects priced under $500,000, and that the electrician might be the best choice in those scenarios while we act as a “boutique” referral source. Many years of losing money in the production home business led us to this approach, and it’s worked well… until last Saturday.

My builder cheerfully informed me that he’d been referring our competitor into the jobs where he felt his clients wanted “just the basics.” He said, “So much of this stuff is wireless now, there’s really no need for you guys on more basic jobs.” Normally, I have a number of pre-loaded responses to statements like this (usually leading off with the suggestion that we might be the best judge of ascertaining what the client wants vs. him). In this case, though, I didn’t. He’s right. Between Sonos, eero, Lutron Caseta, and Amazon Alexa, you need no pre-wiring whatsoever to have a fairly decent (albeit fragmented) home technology system.

The rest of the weekend I sat and stewed. It took a seven-mile run Monday to make sense of where we stood with our builder program and overall company strategy. I created a three-pronged strategy around my perceived erosion of the middle market.

1) Always Sell RMR in the Middle Market: If it’s a new-construction middle market (below $500k) project without RMR, then leave it alone. It’s not worth it, and the margins will continue to shrink in those projects. If a sub 40-point job lets you sell a security system or managed services subscription, go for it, otherwise, drive on.

2) Continue Catering to the High-End: If you’re like us, most of your clients pay you for service and are happy to do so. They’re the ones who will shell out to have you set up their Amazon Echo for them. This segment isn’t going anywhere.

3) Grow Commercial: Our nascent Livewire for Business division is doing well and poised for hockey stick growth over the next year. Commercial clients are not going DIY anytime soon and are happy to subscribe to RMR services. As we become more confident with commercial, it may begin to compete with or eclipse our residential business.

While no one likes losing business (especially when I paved the way for it), I’m glad I had the wake up call to adapt yet again to our ever-changing market. I continue to be passionate about our industry and would love to hear any “adapt or die” stories that you have.

Stay frosty and see you in the field.

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