The AVC Group, the new business group formed earlier this year to combine three Linear-owned residential installation companies–Niles, Xantech, and ELAN Home Systems–recently expanded its group-level management ranks with the appointment of the group’s first chief technology officer, finance VP, and operations VP. AVC Group president Mark Terry, a 17-year Harman International veteran, also created a new corporate headquarters for the group in Carlsbad, California, essentially moving all of the Niles operation and most of the ELAN team out west. Terry, who has been relatively quiet since taking his new role, sat down for an exclusive interview with Residential Systems editorial director Jeremy Glowacki prior to CEDIA EXPO 2010 in Atlanta. Here’s what he had to say about the AVC Group’s transition so far, his plans for the brands, and even his opinion about the future potential of the custom installation industry.
Even though you’ve been quoted about taking your new position, could you backtrack and reiterate what it was that attracted you to this position and convinced to you leave the world of consulting for another full-time gig.
It’s right up the alley of the kind of thing that I’ve done before, taking a group of disparate companies and combining them together to create something that’s more effective. When you have a whole lot of brands, I think it’s a unique opportunity. There’s two ways to play in the market, I think if you’re going to be significant, you can have the single mega-brand, ie the Sony-type players, and then you can have a collection of brands like ours, where brands represent independent categories and specializations, which are things that are valuable to a customer. So I think I saw this as an opportunity to do that again. That’s what brought me into it.
So far are there any big surprises that weren’t available to you when you were doing your due diligence?
(Laughs) Yeah, probably, but the answer is “not big.” Clearly the market is challenged, and I knew that going into it. The custom install business has been under a lot of pressure and everybody knows that. The recession and the housing market has really hurt. None of that was really a surprise for me. Just getting to know the players is the interesting part.
What was your initial assessment of your brands and the people you wanted to run them?
We’re lucky in that we have a lot of extremely talented people in the organization who have long histories in the industry and understand the customers’ needs and the products and the technology. That’s one of the great things about putting together a group like this. You’re harnessing a bunch of A-talent, and it allows you to develop best practices. You really can pick out of each company… you go through the books, you go through the numbers, you see what’s working, what’s not working, and you take the best from each, and then you collectively create something that’s better than any of the individuals. And that’s really what we’re doing here, and the people we have on the team are great and really experienced, yet all of the businesses are quite different, and they all have their strengths and their weaknesses, so, like I said, we’re able to pick and put the best practices in place. I’m excited about that opportunity, and I think that’s going to make quite a difference here.
One of the big changes so far was the decision to create a new headquarters in Carlsbad, California, and moving parts of the company into one place. Can you explain the rationale for doing this and the expected benefits?
Clearly it’s a lot more efficient to put it all under one roof to get better cooperation. We’re consolidating back-office functions, which would be of no surprise. Having redundant accounting, supply chain, and warehousing is not an efficient way to collectively run the company. The other thing is that it’s important having people working closely together and communicating and getting to know each other. We can’t forget that, before this, the group saw each other more as competitors than partners. Being together, side by side, really helps build the esprit de corps. Southern California is a great place to live and a great place to attract talent. People love to come to San Diego. There’s a lot of great talent in this area, and we’re moving a tremendous amount of people all from other locations to this location.
Explain a little bit further the locations that will remain intact and what those represent again.
Well, it’s pretty simple. Research, development, and repair will be consolidated in Lexington, Kentucky. We’re moving engineers from Niles and Xantech there to the ELAN facility, and that will be the joint R&D facility. We also have an R&D operation up in Marblehead, Mass., the former home of HomeLogic doing software and IP-based development for us, and we’re bringing more people in to bolster that.
And that’s just a matter of having existing facilities that were suitable?
Yes. They’re there and in place and we have a lot of tribal knowledge in those locations of people who have been working on these products for a long time and really understand the technology. We don’t want to re-invent THAT wheel, so it’s worked out. We’ll also have some engineering out in California as well, so we expect to have different projects working in some different areas, and I think we can get the best of both worlds.
How would you describe your strategy for the overall group, not specifically for each brand, and your goals for making the harmonious in a way?
The key there is differentiation and providing a value proposition to the dealer that is different for each of the brands. When you look at the history and the insides of this company and what they sell and what they do they are probably less of competitors than what many people think and perhaps even less than they would think. So we really want to amplify the strengths, and if another company is stronger in another category, then let them play in that space. The goal is to differentiate by price and performance and have each brand specializing more in an individual area. With this collection of brands, the big dealer can carry all of the brands, and that makes sense because they’re not conflicting. And for a more specialized dealers, they can carry one or two brands, and that can work just fine for them as well.
Can you break it down and be more specific about what each brand represents and what their strengths are?
Clearly ELAN offers higher end, higher priced, more IP-based whole-home automation. That’s more of their thing: complete systems, including automation and lighting control, security, video and all of that. Niles has really been more of an audio-video entertainment company–lot of emphasis on audio, high-quality speakers, audio distribution and control, and that’s really been their forte and they do exceptionally well with it and have a great history in that. I’ve always thought of Xantech as a widget company, a toolbox, the go-to company for solutions when you’re doing an install and hey this thing doesn’t work with that, I’d bet Xantech has a solution for that. And that’s really who they are and that’s represented in the kind of IR products and converters and baluns and all the stuff that they do. And we think that’s a great category and has a lot potential if we keep them focused in that are and very optimized. That’s also very complementary for the other brands, because there’s widgets that don’t make sense for ELAN to carry by themselves, but Xantech would be the perfect place to have them. And then ATON is our low-cost solution, competitively priced, pre-packaged, easy-to-install kind of systems, get into multi-room inexpensively. It’s a very distribution-oriented product. And Sunfire is more of our home theater. It’s our audiophile product. It’s more of a traditional speaker/home theater product line. So the brands are really quite different in what they do, and they overlap in some areas but surprisingly less than you think. And as we go forward in product development and growth, we’ll focus more on the strengths and less on the competitive aspects.
It seems to me you’re in a position with the group to not go down rabbit holes or different paths that seem to be the trend of so many other brands, which is trying to be all things to all people or a one-stop shop that ends up not serving the dealer as well, perhaps, and intended.
Exactly, I think you hit right on the head. One of the frustrations of so many dealers we talk to is that everybody has come out with everything, and they don’t need everything from everybody. And it’s been awfully easy for all kinds of brands to offer a broad range of products, not particularly deep, but broad, and then they go to the dealers and want them to sell a broad range of products and there’s not a lot of advantage for a dealer to sign up with a smaller vendor that’s got a broad range. It’s much better for him to be with a larger company or a larger group of companies that are more specialized. Unless, like I said, you’ve taken the Crestron- or the Sony-type of approach of being big and doing everything well. I think we provide a very viable alternative for them. And it also allows the dealer to add more value. If a dealer goes in there, and he’s really customized a system, and he’s optimized and used a number of brands, and chosen the right pieces for the right system, then I think the perceived value for the customer is greater than if he sold a one-brand system.
Looking outside your company a bit, given the challenges of the economy and the slumping housing market, what are you observing in terms of the opportunities within the challenging market?
I’m part of the InfoComm 100, and we get together with a group of influential people who are on the commercial side and discuss the state of the industry, and I think it’s equally applicable to the residential category. Yes we’re all aware that the economy is down and that housing is in the toilet, but these things are always cyclical and it will come back, whether it comes back tomorrow or next year, and in a rage or a slow climb, it’s coming back, and I think that we’re in a great time for the industry, other than economics of it. If you look at it, technology spending is up, where almost everything else is down. We have a huge generation of kids that are coming about who grew up on computers and iPods, and they enjoy and expect that type of technology in their lives. Ten years ago people buying houses didn’t grow up with that kind of stuff, and except for some brave souls, it was more intimidating. The people that are in their 20s and 30s now who are going to be buying houses, this is an integral part of their lives, and I think that serves us very well and speaks well to the category. And then the tremendous amount of content that’s coming on stream is a really exciting deal for us too in the category in terms of demand for usage. I think when we were just talking about CDs and taking your CD collection and playing it around your house, not so exciting. The ability to bring on all kinds of content from the Internet and all different sorts of sources routed around your house, I think, is a lot more exciting. I see our business and that of the CI business as supplying the backbone of the content delivery, the infrastructure, and I think that’s what’s really going to do well for us in the long term. A lot of this is physics: speakers, power amplifiers, subsystems to our systems, and I think that is where we can really add a lot of value and a lot of specialization. We’re not in the glass business. We’re not in the cloud content search business. Those battles are going to be one or lost by the giants in other markets. That’s going to be the Googles and the Korean glass manufacturers. We’re about permanently installing and optimizing the delivery mechanism. There’s always going to be a market for little portable WiFi, tabletop radios, and things like that. But, as with everything, there’s a range of products that people want, and on the mid to high-end, people want installed systems, and the custom installer is the expert at optimizing that installation. We can look at a lot of analogies in our life of things we spent more on to have it optimized, and I see that as what AV installation is all about these days and will be in the future. And I don’t see it being taken over by the Apples of the world. They don’t care; it’s too small for them. The ability for someone to walk in a room, not have to look for a remote, and be able to go to the wall and turn on entertainment and get that content delivered in a high-fidelity, reliable way… that’s always going to be a need for people. I think there’s tremendous demand coming down the road for this stuff and the control of subsystems and home automation business has nothing but upside to go. Yeah, it’s had its butt kicked recently, sure, but everything has. I think it’s going to be a bit of a different business going forward but still viable.
You mentioned Apple, and much has been written about the influence of the iPhone and iPad on the business. What are your thoughts on the threats and opportunities of the Apple products on your brands?
I think there are a couple different aspects of it. Apple’s done wonderful things for the interest in music, for the general population. The interest in listening to music had really been waning and their bringing it easily accessible to the entire market has driven up interest to the whole category of listening to entertainment. I think they’re helpful for our business, but I think the influence of the iPhone and iPad, both of which I have multiple of and my whole family has… that’s one leg of the stool. That’s an important leg of the stool, but I don’t think we’ll see people in the future wanting homes that are exclusively controlled by a portable, battery-powered device. I think that’s an important piece of it, as I think the Google Android is going to become an important piece of this. But the reality is that people are still going to want to be able to walk into a room, turn on their system, and change the channel without having to go find their phone. It hurts the remote business, but from the installer’s standpoint, it just makes the systems more exciting and sexy.
I’d like to wrap up by talking about your expectation for CEDIA EXPO and your thoughts on bringing the group in for the first time at the helm, especially after the brands had a lesser presence last year.
Well, you know, we’re coming on strong at the show, just as we are in a number of initiatives. We’re going to have a consolidated, large presence with two areas on the show floor, and we’re coming out with all guns firing. We really see this as an opportunity to get beyond the challenges of the past and move forward, and the corporation is doing well. They’ve recently done some other acquisitions outside of this industry. But I think that was a time past, and CEDIA is really an opportunity for us to turn over the leaf and come out and debut the new organization. We see it as an important part of our future communications to the market and we’ve already got plans for the upcoming shows in Europe. We really see this as our vehicle for getting out in front of our customers, and we’re very optimistic about it and we’re going to have a big presence.
Will you be around at the booth at CEDIA, or are you more of a behind-the-scenes type of guy?
I’ve got a lot of meetings set up, but I’m definitely the guy on the show floor. It’s what I’ve always done. I’m the guy out in the market, and I’ll be accessible out on the show floor and eager to talk to people and hear their ideas and suggestions. That’s what making this business is all about. The business is outside the four walls, and that’s what shows are so great for.