What's in Store for Custom Installation at the End of the Decade

Everyone says hindsight is 20/20. The ability to see into the future could save a person a bunch of money, time, aggravation, embarrassment, etc. The chinchilla hidden in the rental car in Dallas that almost killed me in 1983 and the "extra strong" door spring that closed the Marriott room door before I could get back inside (never reach for a paper when naked in a hotel) come to mind immediately. "They" also say, "Knowledge is power," and it is especially true in business.
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Everyone says hindsight is 20/20. The ability to see into the future could save a person a bunch of money, time, aggravation, embarrassment, etc. The chinchilla hidden in the rental car in Dallas that almost killed me in 1983 and the "extra strong" door spring that closed the Marriott room door before I could get back inside (never reach for a paper when naked in a hotel) come to mind immediately. "They" also say, "Knowledge is power," and it is especially true in business.

With that thought in mind, I set out to see if I might be able to peer into the future and see which products, technologies, services and business categories might lead the way to future profitability in the custom installation industry.

What better way to accomplish this lofty goal than to visit a future CEDIA EXPO? If by doing so I could save just one company from investing in the equivalent of Frox, Froxnet, and "the Wand" for their showroom (I'm showing my age), the trip to a future CEDIA EXPO would be worth the hassles and danger. I picked CEDIA 2010 as my target date because most people reading this column will still be in this industry in seven years, and a lot can happen in just seven short years.

The last step was figuring out how to get to 2010. I was stumped until I realized after reviewing a few transcripts from recent seminars I had attended that Michael Heiss, perhaps the most knowledgeable technology consultant in our industry, speaks at exactly 2010 words a minute whenever he does his technology update seminars at CEDIA Regional EXPOs. This was just too much of a coincidence. I decided to stand right next to him, listening transfixed to his every word at the Seattle CEDIA Regional the other month. And, after clicking my heels together I found myself magically transported to the show floor at CEDIA 2010 the second he finished.

I spent the four days that the show floor was open (note the expanded hours) taking copious notes about what I saw and the various "buzz" I heard while walking the show and attending a few seminars. The last day of the EXPO, I went to a seminar about the "history of custom installation" presented by Michael again, and after listening at 2003 WPM (he's slowed down a bit) and doing the heel clicking bit once again I was able to get home in time to file this article.

What a show! With more than 50,000 projected attendees, CEDIA EXPO 2010 will be one of the top trade shows in the entire country. So the first good news to report is that CEDIA is alive and well in the future, and more people than ever are spending their time and money to visit EXPO and learn about present and future issues related to home technology. But who exactly are the people who will attend CEDIA 2010? Here are a few different types of people I interviewed as I walked around the Orange County Convention Center:

Bill, a 31-year-old wealth-consultant for a large firm specializing in the affluent client segment. "Three years ago I pitched the owners of our firm on extending the services that we offered our clients," he said. "We already had the right client base, and I felt we were missing a huge opportunity to provide residential technology-consulting services to the very same clients. We now have three full-time home technology officers (HTOs) that we bill out at $150/hour to develop system specs for our clients. We'll even interview and select companies to execute the products and services that we specify. I'm here at EXPO looking for a fourth HTO person as well as looking for any upcoming products and technologies to offer to our clients."

Laurie, a 45-year-old executive recruiter who specializes in the home technology industry. "Growth in this industry sector has been phenomenal, and competition for the "right" people has become intense," she said. "Manufacturing firms are looking for leaders who can make a difference and have demonstrated that being successful takes a lot more than just making really cool products. Custom installation companies, in general, are using less direct labor, because many of their installers have spun off and formed their own companies to provide just labor and installation within any given marketplace. They are, however, still looking for "rainmakers" who can put together deals-alliances, if you will-with other companies in their marketplace to better share leads, showroom space and G&A (general & administrative) expenses."

Alok, a 27-year-old owner of a software programming firm in India. "I bring 10 of my best programmers here to EXPO each year," he said. "I have them attend each and every manufacturer training course for products that our firm gets retained to program remotely for dealers that neither want to nor can afford to have a full-time central system programmer on staff. We also have a side business whereby we offer beta software testing to identify bugs for companies before their software hits the street. I'm here to pitch our services to the 20-25 new companies that are here for the first time offering their third-generation IP-based central-control products."

Brian, a 62-year-old retired teacher. "None of my friends have a current and well-organized library of all their past family memories," he said. "Photo CDs, flash memory, memory sticks, even VHS and 8 mm tapes are all thrown together in boxes. They're all concerned about what will happen to all this precious materials once they pass away. Four of us have pooled some of our money to start our own company. I'm here at EXPO looking for a simple platform for each of us to be able to store, organize and access all these memories easily. We call our company "Memory Lane" and hope to offer a turnkey service to literally every family."

Of course there was the usual assortment of typical CEDIA attendees-20- to 40-something males looking for the next best technology or seeking out a competitive edge by attending CEDIA or manufacturer-sponsored courses. But I also saw a lot of mid 40s to late 50s males wandering the show looking for something completely different-a magic way to sell their custom installation business that they owned or co-owned. These guys were the pioneers; they started in the early to mid 1980s or as late as the early 1990s and helped create an industry. By 2010 many of these pioneers were nearing the age when they would like to retire or were thinking seriously about their retirement plans. Lucky for them, there were several exhibitors at the EXPO there to help them maximize the potential value of their company.

So who exactly were the exhibitors of EXPO 2010? All the well-known larger firms were in attendance-Runco, Stewart, Lutron, Monster Cable, ADA, Sonance, Niles, etc. There were, however, a host of smaller, virtually unknown companies (at least in 2003) offering their products or services to custom installers. Many of these firms got their start after a few custom installers started using them and after a while the company morphed into a new enterprise, geared up to serve custom installers. If you knew in 2003 what was going to become "big" seven years later, you might be able to use this information and gain a competitive advantage in your local marketplace. So, here are some of the exhibitors I saw when I was visiting in the year 2010:

Cobbs Homes. When I visit dealers and talk to them about why they might want to build their own theater interiors, I usually end up saying something like this: "If you are really going to get into construction management, then you need to do it well, and if you do it right you might as well build the complete home." There are only a few really good custom installers in any market vs. usually a lot more luxury-home builders. Most of your "chaos" that reduces project profitability stems from other sub-contractor chaos. Why then not be responsible for the entire enchilada and become a home builder?'"

Cobbs is one of several exhibitors on the show floor in 2010 that specializes in helping you create your own general contracting firm. This company is unique in that they have teamed up with Home Depot to provide local project management assistance to manage the flow of materials to the home. They have a long line around their booth because in 2010, most custom installers are looking for ways to increase their average sale to their clients and adding "the entire house" is a nice additional piece of income.

TechKnow Homes. Whereas Cobbs is trying to teach your firm how to become a GC and build luxury homes, TechKnow Homes is a home systems knowledge franchise. In 2010, the most successful custom installation firms aren't those having the highest sales revenue; rather, they are the companies that have the greatest sales revenues per full-time employee compensation dollar. Many companies have realized that growing revenues don't necessarily translate into increasing profits because expenses have a way of increasing proportionately. As a result, these "best companies" have begun to outsource any service that is not critical to the success and identity of the firm (to those companies that say outsourcing is dumb because you lose control, take a look at the relative profitability of a builder vs. your company). TechKnow Homes sells a business solution that is focused on maintaining a minimum of $8 and preferably $10 revenue per $1 of full-time employee compensation (this is the best way to measure the effectiveness of your firm in my opinion). They teach you how to outsource effectively, how to make the proper decision when weighing "do it ourselves" vs. "outsource it," how to sell against companies that try to do everything in-house, how to interview companies and identify good subcontractors, how to structure your contracts with your subcontractors, etc.

[Beat TechKnow Homes at their game and start to figure out how to do this yourself in 2003 vs. waiting until several years later.]

Uber Guard. This company got its start when GPS-based transmitters became low-cost, reliable and had the necessary range and resolution to provide a child and asset-tracking system. The "killer app" for home automation systems was never found, which meant that the "new" killer app became providing products and services that were extremely "family centric." In 2010, the focus of every proposal and presentation has become "How will what my company sells help you and your family"? In Uber Guard's case, they are marketing the hardware and the software that enables each family member to track the other members' movements.

A mom standing in the kitchen can glance at a flat panel of some sort (which in 2010 are built into the front of most mid- to high-end refrigerators) and see where her children, parents and even their husband are located at any instant in time. Custom installers sell the systems and make it easy for their clients to access the information no matter where they are.

Home Exp. This company is yet another franchise entering the CI space. And no, Home Depot doesn't own it! In 2010, most custom installation firms have been forced to abandon the pricing models used in the earlier part of the decade whereby firms bought products and resold them at fairly high margins. In the future, many companies have gravitated to a "cost-plus negotiated markup" pricing model for their products and then bill separately for every other type of service (project management, access to the best products, programming, creating drawings, technical services, etc.). Home Exp helps custom installers learn how to sell Experiences (hence the Exp) and teach firms how to sell what products do vs. what they are, thereby allowing them to create greater value for their clients and then to charge accordingly.

Mac Consulting. In the 1990s, the greatness of many custom installation firms was defined in part by which manufacturers that they were authorized to carry. By 2005, most custom installation firms had realized that while partnering with the best companies certainly was crucial to their success, the most important brand that they could be selling was their own brand to their clients. Mac Consulting is, in 2010, one of a handful of publishing and corporate identity firms that exist to help custom installers learn how to brand themselves in their marketplace. They produce corporate identity pieces and customized company brochures for their dealer accounts (funded in part by their manufacturer supplier partners) to help create local brands. A catalog of parts from a well-known multi-room audio company could be changed into a pictorial representation of how a custom installer's clients could enjoy different audio systems. This brochure includes unique names created by the custom installation company, and typically not even a mention of the specific manufacturer. Their booth was swamped every time I walked by while the 2010 show floor was open.

eNstallX. This firm capitalized on the fact that there was no easy way for a custom installation firm to offer their services much beyond the geographical boundaries that they served. eNstallX is a network of individuals (and some companies as well) that must meet stringent guidelines for quality, service, expertise, timeliness, responsiveness, etc. that can be hired by any custom installer seeking to lower their direct costs and subcontract some/all of the actual installation, programming, wiring, etc.

I had only a few minutes left before I heading back to the year 2003, so I popped my head into a few CEDIA courses to see what the "topics of interest" were in 2010. "Creating Wealth via Intellectual Property" shared with the attendees how one can patent both products and processes that are unique and then either sell or license them back to others within or outside the industry.

"Leveraging Your Greatest Asset" taught attendees how to use their close, personal relationships with wealthy individuals to create new revenue streams that they had never before envisioned. "$1M per Employee or Bust" talked about how to become immensely profitable by lowering overhead and picking the product and service categories offered to clients very carefully.

"How to Create a Sellable Business" discussed how a company should be structured from Day 1 to eventually be sold, and revealed to those in attendance what investors look for when evaluating companies and most importantly, how to create re-occurring revenue streams (which is highly valued when calculating the worth of a company).

Unfortunately (or fortunately depending how one looks at it), I needed to get back to the present so I could get home and enjoy my new son (Erich Thomas, born 8/4) so my trip needed to end rather hastily. I signed up for Michael Heiss' whirlwind tour and shortly found myself back here in the present.

Back in 2003, our industry is going through a lot of changes, more than we've seen in the past decade. According to PARA, the average cost of plasma TVs has dropped 50 percent from September 2002 to August 2003. You will hear people talk about falling0 margins, more competitors and falling prices. Yet seven years from now, I'm here to tell you that things look even better than they are now. Why? Because companies will continue to evolve in order to survive and prosper.

As long as you keep an open mind about what you should be offering your clients in the coming years, you and your company will do just fine. Perhaps you will do exceptionally well. The key thing is to be prepared for change. It is already here, and handled properly, it can be a great thing. Your business will need to change, so be ready for the changes to come. And make sure you attend Michael Heiss' classes on technology if you want to know what is going on in our industry. Just don't sit right next to him or you might just disappear for a few days...

Rick Schuett (RickS@acousticinnovations.com) is vice president of sales and marketing for Acoustic Innovations and a current CEA Board of Directors member.

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