Finishing touches: Polish your long-term business objectives byappropriately using the low-voltage contractor project timeline.
Feb 1, 1998 12:00 PM,
R. David Read
Much has been said and written of late about system integration for thelow-voltage contractor, who has been urged to join the rush to become fullsystem providers in multiple disciplines within the sound and communicationindustry. Systems contractors can, however, take two directions to expandtheir businesses. One approach is to seek vertical integration; the otheris to expand horizontally by assuming more responsibilities and seekingopportunities in the company’s core business.
Going verticalIn the vertical process, the initial reaction might be to layer onadditional products that seemingly compliment the company’s offerings. Thisapproach involves adding products that might prove attractive to potentialcustomers. In this scenario, the contractor becomes a distributor ofmultiple product lines, each of which meets with the buying acceptance ofvarying segments of potential customers. A danger with this approach isthat the distributor’s sales staff might adopt a low-price, easy-sale,order-taking mentality. Consequently, sales volume might rise, yet profitmargins could tumble.
Another example of building a business vertically is the decision to expandthe customer base by adding products and services beyond the company’s corebusiness. Let’s say a company that has developed a good business in thetraditional commercial sound and communication market expands its customerbase by going into the residential market. That is not to say that thisisn’t a legitimate way to grow one’s business, but the decision must besupported by a commensurable commitment in time, money and the personnelrecruitment. If the company merely layers on additional customer baseswithout investing in the necessary infrastructure, then the company willonly change its market emphasis, not expand its business. A few decadesago, when the telephone-interconnect market first evolved, many traditionalsound contractors jumped on the telephone interconnect bandwagon. Often,the end result was that the sound contractor became a telephone systemcontractor. The company had not expanded; it had merely changed direction.
To a prudent observer, it should be obvious that the sales staff and thesupporting technical personnel that have been successful in selling,installing and servicing commercial institutional markets may not have thetemperament, skills and technical expertise to operate successfully in theresidential or telephone equipment sales markets. Time is finite. Hence, asalesperson cannot be effective both in courting the industrial andcommercial sector and developing residential customers. There have been agood number of notable disasters when companies have adopted thisshare-the-load methodology. Some companies have made the transition butusually not with the same sales and technical staff. Some have actuallyexpanded their business while maintaining their core business, but onlythrough serious investments in time, money and personnel.
Before setting sail into uncharted waters, make a thorough analysis of theexpectations and investments required to reach some definite goals. Few ofus are as lucky as Christopher Columbus. Columbus had to be one of theworld’s most remarkable salesmen. He started out not knowing where he wasgoing. When he got there, he didn’t know where he was. When he returned, hedidn’t know where he had been. He did this on borrowed money and managed arepeat order.
Also, beware of manufacturer sales representatives who urge you to leapinto some of those shark-infested, uncharted waters. Frequently, thisadvice is motivated by a desire to generate a larger commission on theirpart, not a greater profit on your part.
Horizontally inclinedAn old adage states, “Determine what you do best and then do more of it.”This is the principle for horizontal market expansion. The systemscontracting project/product timeline diagram shows, in abbreviated form,the essential elements in the process. Traditionally, the design conceptstage of a project has been the province of the architect, engineer orconsultant. By and large, the manufacturing sector has responded to thedesigner’s demands by engineering and promoting products conceived to meetthe needs of the design community. The systems contractor, in turn, haspurchased and installed those products dictated by designer specifications.
This approach to the project/product timeline has, of late, been lessrigid. The various sectors involved in the timeline process have beenexamining how each might better control a larger segment. The tendency forsystems contractors to expand into design/build projects representshorizontal expansion, which also represents an encroachment on thetraditional design-team turf – a procedure that has, in some cases, invokedanimosity between the two camps.
Contractors making this move assume some of the roles that havetraditionally been the province of the architect/engineering/consultantsector. In essence, they are promoting their in-house services as analternative to the traditional methods of project design. This is also alegitimate method to expand one’s business, providing the systemscontractor has the expertise to assume the inherent responsibilities.
At least one contractor I have spoken with indicated that his firm has hadsuccess as a consultant for architects and engineers in the churchauditorium market. In such cases, he generally refrains from bidding unlessa bid is requested specifically. Services include the preparation ofprinted specifications and construction drawings. This firm also reviewscompeting proposals on design/build projects and acts as the owner’s agentin the selection and supervision of the selected installing contractor.
Another trend is the electrical contractor who enters the sound andcommunication market by establishing a subsidiary that concentrates on thelow-voltage market. Representing a horizontal expansion, this move isalmost universally booed by low-voltage contractors. Considering that thesound and communication portion of any given project has steadily become agreater percentage of the project, it is understandable why the electricalcontractor finds it attractive to expand into this growing sector of thebusiness. I cannot in good conscious condemn electrical contractors fortrying to increase market share. After all, there is nothing to preventlow-voltage contractors from expanding into electrical contracting.
Manufacturers in the sound and communication industry have historicallymaintained control of inventory and distribution. Some refer to theirinstalling contractor base as distributors but, few of these distributoraccounts (particularly in the United States) actually resell products andare, in fact, end consumers of those materials. This is not necessarilytrue in other parts of the world where the manufacturer’s distributor canbe both a systems contractor and a distributor to other installers.
Doing it betterGrowing horizontally is often less costly and more lucrative than trying toexpand into areas in which you have limited expertise. One area in whichsystems contractors could do a more effective job is service andmaintenance, which is frequently overlooked. The fire alarm and securitysegments of the industry have long recognized the value of re-accruingrevenues from maintenance and service contracts, but more traditionalelements of the sound and communication industry have been slow to followsuit.
This reluctance is attributable to the contractor mentality, which comesdown to: “When I’m done with this project and collect my retainage, I hopeI never see this place again.” By adopting this attitude, the systemcontractor throws away any after-market opportunities and, outside ofwarranty responsibility, ignores the possibilities for ongoing profitableservice, maintenance and operational opportunities.
A few contractors have emerged as a factor in the manufacturing segment byexploiting small niche markets. Controlling any part of this segment of thetimeline is a questionable prospect for most system contractors.
In horizontal market expansion, a system contractor needs to analyze theexisting customer base of his operation and define what additional productsand services will be required. This is not to suggest that because yourhospital customer base needs elevators you should jump into the elevatormarket. If your traditional offering to the hospital market has beeninstalling nurse-call systems, however, you might explore their needs inA-V training facilities or digital timers.
The trick here is not only an understanding of certain productapplications, but also an appreciation of how that customer’s facility isoperated. Product knowledge is an important element, but in many respects,an understanding of a particular market’s systems requirements is vital.Remember, your customers may not fully appreciate what your company canoffer in the way of additional products and services, which can be used tomeet their needs. If you fail to make them aware of how you can meet theirrequirements, you probably will not be considered when these additionalneeds arise. Whatever means you choose to expand your business, avoid thetrap of trying to expand in both a horizontal and vertical directionsimultaneously.
Readers of S&VC are most likely to be sound and video contractors, orlow-voltage contractors in the current vernacular. However, they shouldkeep in mind that this is not an insulated industry. As they seek to expandtheir businesses, other elements within the industry also covet theopportunity to expand. While the low-voltage contractor might seek topursue expansion by offering A-V operating contracts, the A-V operator maybe seeking opportunities in the installation market.
Several years ago, a major hotel chain announced the intention to open anew property in the fast-growing New Orleans market. One of the wellrespected A-V operating companies had an entrenched operating contract withthis hotel chain and decided to solicit what they considered a lucrativeopportunity to march into the new construction market. Consequently, theA-V operator prepared a bid submittal, spent considerable time and effortlining-up allies with the specified vendors, and proved to be the lowestbidder. Unfortunately, the company had failed to take into considerationthe licensing insurance and bonding requirements that prevailed in theLouisiana new construction market. The net result was that they retainedtheir contract with the hotel operating entity but lost a considerableamount of money on the new construction installation project.
The moral of the story being, whether you’re a sound contractor withaspirations of becoming an A-V operator, a LAN/WAN installation company orany other allied enterprise, thoroughly investigate all the particularsthat might impact your costs in time, money and personnel requirementsbefore you leap into uncharted waters.