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Is It Really Worth the Risk? - ResidentialSystems.com

Is It Really Worth the Risk?

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Running a custom business is a very demanding job. It takes great selling skills, years of professional technical and installation skills, and perhaps more important, it takes great business skills.

If you own or manage your company, you know that you are constantly bombarded with important decisions that may seem small at the time, but these everyday decisions combine to determine the long-range future of your company.

To run a business properly you have to spend a lot of money. There is no reward without risk. Risking too much can bankrupt your company. On the other hand, risking too little can keep you from important opportunities and in the end put you out of business. The key to financial success is finding the delicate balance between risk and reward.

One of my clients had a business creating prototypes of new cell phones. Her company did not actually manufacture phones, but the initial mockups. She explained to me that just a few years ago she decided to purchase the most advanced plastic modeling equipment available. This new equipment was extremely expensive, but she took the risk and it gave her a real advantage. Her company became an industry leader, building prototypes for Motorola and other giant cell phone manufacturers. She felt that this single decision was critical to her companys success.

At a large trade show, Sony spent millions of dollars to rent a video screen system for just three days. It seemed to me to be a reckless waste, so I asked my business professor what he thought about this elaborate expense. Instead of agreeing with me, I was not prepared for the answer he would give. It does not matter what the cost is, he said. The only real question is: what is the return on investment? I saw the wisdom of this advice and realized I had to seriously adjust my personal thinking.

Its fine to spend a million dollars if in the end you make two million. Its good business to invest years of your time to reap large profits. In business, it is all about return on investment.

I realized that, in my small under-funded CI business, sometimes I was thinking too small. It really does take money to earn money and if you are not willing to part with a lot of your bankroll, you will severely limit how far your business can go.

In all types of purchasing decisions, we are always looking for the best deal and are often drawn to the lowest price. Lets say that you are interviewing two salespeople for your company. The first choice is a local guy who has been selling phone systems for two years, and he will be happy to work for $35,000 a year. The second sales candidate is from out of town, and he has made it clear that he expects to earn at least $75,000 a year.

You know that your budget is tight and that $35,000 fits what you can pay. So you hire the low-priced salesperson and he makes $600,000 worth of sales that year for you. The sales guy you turned down gets hired at another A/V company across town. You bump into him a year later and you cant believe it when he tells you he sold $4 million and actually made $100,000 in performance bonuses. He cost more because he did more. He was more motivated and he worked much harder to reach his sales goals. That salesman was worth the cost and would have made you a lot of money, but you looked too much at the cost and not enough at the return on investment.

If you are thinking about adding a beautiful showroom, think about the return. The next time you write a check for an opening order to add a high-end line of audio gear, dont focus on the amount of the check, focus on the growth and new clients that your investment will bring you.

There are lots of startup CI companies who can install basic in-wall speakers, wiring, and volume controls. How long do you want to compete against companies on that level?

It takes a real investment in time, money, and training to add a line of serious control equipment like Crestron. This is exactly the type of investment that can set your company apart from your competition and reap rewards for you year after year. You have to risk more and invest more to achieve a bigger return.

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