If you continue doing business the way you have always done business, at some point in time you will find yourself in the not-so-enviable position of running out of working capital. Don’t believe me? Look at what happened to the computer industry from 1988 to 1994.
By 1988, most businesses had bought into the concept that they needed computers to help run their business. Companies that sold computers did quite well. Margins were very good, and the best thing was that each computer hardware company needed one or more “wizards” to figure out autoexec.bat and sys.ini file issues, IRG conflicts, and in general make DOS and their client’s computers work with other peripheral devices. If you had a computer store and sold computers, life was good.
Three bad things came along that changed the “good life” and resulted in the widespread exodus of companies selling computer hardware. First of all, computer prices started falling faster than the manufacturer’s ability to keep them high by adding ever-increasing memory and processing power. The net result was that the local companies selling hardware had to sell a lot more hardware to make the same amount of money, but they also had to increase their operational overhead to handle the ever-increasing sales volume. Secondly, as Microsoft continued its quest for complete global world software domination by launching WIN 3.1 and then WIN95, coupled with IEEE’s desire to simplify and standardize communication hardware and software specifications, the “wizards” became increasingly less and less important as it became easier and easier to make computers “do their thing.”
Finally, the manufacturers of the computers themselves had an epiphany that maybe some of their best accounts might not be able to handle the ever-increasing volume required for them (the manufacturers) to continue to grow their sales, and so they started to seek out and successfully find other alternate channels of distribution. Later on some of them even decided to open their own storefronts and branch out into other types of products. Who would have thought 10 years ago that a company with cows on its boxes would grow to become one of the largest sellers of plasma televisions? But, we digress….
Okay, you say, I see what happened to the poor guys that sold computers. In fact, after you flip through the Yellow Pages quickly you might even agree that while you can find quite a few companies listed under “Computer Dealers,” there are a lot more companies typically listed under “Computer-Networking”, “Computers Services and Repairs”, “Computers – Software and Services” and Computers – System Designers and Consultants.” Even when you look closer at the companies listed as computer dealers, you find words and phrases in their ads such as “Need a specialist?”, “Custom Design”, “Your Complete IT Solutions Company”, “Expertise”, “Experience”, “On-Site Services,” etc. What happened to all those companies that used to make 60-70 percent of their profits from selling computer hardware during the golden years of computer sales? They either went away, or they morphed into a new type of company that makes most of its money by becoming a solutions provider or VAR (value-added re-seller). And frankly, if your company doesn’t get off its butt and start doing the same thing, you’ll find yourself in the predicament that literally every local company that sold computer hardware did 10 years ago.
I can already hear some of you saying to yourselves, “Yes, but gosh darn it, we’re members of CEDIA, and the ‘C’ stands for ‘Custom’ while the ‘D’ and ‘I’ stand for ‘Design and Installation.’ We are already selling systems and solutions for our customers. There aren’t a lot of parallels between what happened to those poor computer hardware sots and how we run our company.”
Really? Hmm, let’s ask a few questions. First of all, how much of your sales revenue comes from non-hardware and product-related sales? Last time I looked at CEDIA’s annual member survey, it was still hovering between 71-75 percent over the past three years or so. That’s higher, in fact, than the average percentage of sales that used to come from the markup of computer hardware from the same companies that either changed their business models or simply went away.
Here’s another question to ask yourself: How much time and effort are you placing in selling specific hardware/products to your clients? Do you advertise specific brands carried on your building, trucks or in your ads that you run? Do you think that the companies that are out their selling IT solutions to their clients believe that their clients are focused on which particular brand of computers will be used to solve whatever problem they have? Don’t get me wrong, it is critical to your future success to partner with the right manufacturers, and I don’t mean to imply that every product made by every manufacturer is the same. We all know that is not true. Whether you want to admit it or not, however, there is a good chance that your current business model looks more like that of a distributor (making most of your money by marking up hardware/products) than that of a VAR (making most of your money by selling complete solutions and charging for your expertise/knowledge/experience/reputation/understanding of the client’s problems and concerns).
Becoming a “solutions provider” is, in my opinion, one (but not the only one) of several things that your company will have to do if your firm is to prosper and flourish in the coming years. To become a solutions provider requires that you inverse the percentage of sales that comes from product markups, making the hardware portion of what you sell account for less than 30 percent of revenue and making the “knowledge” aspect of what you sell account for the balance. It won’t happen overnight, and in fact will take several years to complete. However, if you don’t start now you will never get there, and the time to start is right away.
Let’s take the sales of lighting control systems as an example. These systems consist of three basic hardware categories: dimmers or dimmer modules and enclosures, processors and keypads. Low-voltage wiring used to be involved nearly all the time (wireless technologies continue to get better as they evolve), and there is a fair amount of programming still involved in most systems. Throw in a bit of design time, site visits, consultations with the client and perhaps the lighting designer, and you have most of the elements that you need to execute a lighting control system. But, what is it that you are actually selling? What is your specific company’s “value add” for which a client is willing to pay? Why would a prospective client pick your company over another company selling the same thing?
Here is what it is not. It isn’t the specific dimmers, keypads and processors that you decide to list on your proposal. Many companies can buy and re-sell these products. So, the fact that you sell a specific lighting control system and have listed out the required components buys you a big fat zero in my book, because you haven’t provided anything that another company couldn’t also provide. If you are only selling the “hardware,” then you are acting mainly like a distributor, and your company eventually will cease to exist. Sorry for being so blunt, but that’s the way it will be. If you don’t believe me, ask any one of the many local computer VARs how they make their money today compared to 10 years ago.
How to Sell Solutions. Here is a quick way to determine if you are selling a solution vs. simply just products. Take a look at your sales presentation, both written and oral. How much time do you typically spend selling what the products “do” vs. what they “are?” Here is a sure-fire method to move your company rapidly into becoming a solutions provider. Try to eliminate all early references to specific products in your initial meetings with clients. In fact, it would even be better if you eliminated any reference to the product categories themselves. Instead, learn to “paint a picture” with words and tell stories centered around how your company helps your clients take their physical house (which is nothing more than a bunch of wood, concrete and metal) and turn it into a home-a place where your client and their family will want to spend their time together, a place where they can relax and feel safe and secure, a place where they look forward to returning from work or visiting others. And most importantly, learn how to set the stage for your company being the best local firm that can make all of the above happen. Don’t be in a position where you simply present solutions. Instead, sell your prospective clients on the fact that your solutions are the best solutions for them.
This is a rather complicated subject, and my intention writing this article was to get you started thinking of how to move your company away from being a “distributor” and instead toward selling solutions. I’ll close with a specific example related to selling lighting control systems. Hopefully, it will give you enough direction so you can begin figuring out how to do the same thing for every other product line and category that you offer to your clients. I promise you that if you start down this path you will quickly find that you will not only close more clients, but your profits will rise as will the satisfaction level of your clients.
The first thing I would try to do as a dealer is not sell lighting controls. Huh? Nope, I would even try to share with a client the fact that I’m thinking about specifying a lighting control system for their home. Instead, I would explain what it does, how it will help them specifically and why my company is in the best position to provide the best solution that happens to use a lighting control system to execute these solutions. How could a competitive dealer try to copy my system design if, in fact, I haven’t even called out (at least initially) what I’m actually providing, but instead call out the specific benefits that my client would receive if they employed my firm’s services and solutions? Don’t sell the products, learn to sell what the products do.
I’m a big believer that anytime a dealer can show that a particular solution will benefit “the family,” that it becomes easy to convince a client to spend their money. Most folks that I know spend a whole lot more on others than they do on themselves. With that in mind, I would begin to paint a picture or scenario for my client, who for now I will assume to be a couple in their early 40s.
This couple first focused on their careers and later in life decided to start a family, so they presently have two small children. After I explained that one of the areas my company specializes in is in making my clients’ homes a more safe and secure place to spend their time, I would begin discussing “safety solutions.”
One of the solutions I would present is the ability to exit a large home faster and easier in the event that there might be, God forbid, a fire that occurred during the middle of the night. While the chance of such an occurrence is minimal, the consequences are very great. I would share how my firm could assist the couple and their small children in exiting their house quicker by creating a low-level pathway of light that would lead them to safety toward the house exists. I would stress that the lights wouldn’t necessarily come on at 100 percent, but rather a dimmed level because just like you don’t want to use your high beams when there is fog outside, you don’t necessarily want the lights to be at full for the same reason. I would lower the lights in the surrounding rooms so that it is easier to find the always, and at the same time make it such that at least one light would flash in each bedroom, warning the occupants that something bad is happening and it’s time to get out of the house as fast as possible. So far, I haven’t shared with my prospective clients that I’m using a “lighting control system” to do any of this, but I also haven’t shared with them anything that any one of my competitors also couldn’t provide. I may have gotten my clients very interested, but if I’m not careful, I could end up creating a sale for one of the competing firms in the same marketplace.
So, to create a unique and compelling solution, I have to make a good case that my firm offers something that no other company offers. Using the above example, I could as part of my presentation share that my firm has spent time with the local fire inspector, and that we jointly had determined the optimal light level that should be present in a smoke-filled hallway. I wouldn’t necessarily share with my client the particulars of how we jointly came to that conclusion, nor what the specific light levels are that the dimmers would be programmed to respond to during a fire. All that my prospective client needs to know is that my firm invested the time to become an “expert,” and that we as the experts are best suited to execute this particular solution.
I might also choose to have met with all the major local companies that do high-end fire alarm systems and spent the time understanding how our lighting control system needed to be programmed to best respond to inputs that the fire alarm system would generate during a fire. That way, I could share with the client the names of all the key fire alarm dealers and even the specific brands of fire alarm equipment that would trigger the events leading up to the “night-life” mode I had previously described.
Selling solutions is all about selling what the products do, and not what they products are. It is all about selling your reputation, your past expertise and experiences (good and bad). It is about selling all the time invested in getting to whatever point your company has reached. It is all about selling confidence and even a bit of prestige.
Rick Schuett ([email protected]) is vice president of sales and marketing for Acoustic Innovations and a member of CEA’s Board of Directors.