PREPARING YOURSELF for the future
Nov 1, 1999 12:00 PM,
Along with most other Americans, I am sick and tired of hearing about themillennium, whether it is spelled with one or two n’s. Everywhere we go,there are more self-anointed business prophets telling us how we shouldprepare for the future simply because they know. This is in spite of thefact that most of them have never experienced the excruciating pleasure ofmaking a payroll or owning a low-voltage business. Only in America.
I bring this up because I was invited to participate in a panel discussionalong with other soothsayers to talk about the future of the low-voltageintegration industry. I was not sure if I had been invited because I hadsold my business at the ripe old age of 40, or I was the only one willingto participate at no charge. As far as I was concerned, it did not matter.I love to talk, and given an opportunity to discuss the future, I thought,why not.
I arrived at the meeting and took my place on the podium along with theother panel members. We stared out at the audience, which consisted mostlyof low-voltage integrators. Then, the discussion about the future began.One panel member discussed future industry growth ratios and algorithms -projecting an array of numbers on a screen that left me utterly confused. Isuppose his goal was to let everyone in the audience know that if they didnot keep up with their industry growth rates, they should be nervous.Another panel member was a lawyer who was dressed in cognito – he was notwearing his fin. He predicted that there will be more lawyers in themarket, which only means one thing – more frivolous harassing lawsuitsagainst business owners. In other words, be scared of the big bad future,and hire a good attorney to protect yourself (translation: Hire me!).
Another member of the panel talked about the big guys entering the fray,indicating that everyone in the room should be worried, very worried. Theonly one who was not worried looked like Alfred E. Neuman.
So, if you listen to the pundits, to prepare for the future, you had betterbe worried and scared because you could be in somebody’s crosshairs.
As the last member of the panel, it was finally my turn to speak. Imagine,me giving my predictions of the future. I felt awkward because I do notbelieve anyone can really predict the future. Remember the so-calledpaperless office? How about the phrase, “The 30-year mortgage is dead”(circa 1981)? As for me, how could I have predicted that when I gotmarried, I would have given up all my rights?
I will tell you the same thing I told the audience that day. First, no onecan predict the future with the exception of the good news/bad news rule.The bad news is that as any industry grows, you will get consolidation fromthe bigger predators that lurk in your world. That is the bad news becauseit represents change, and if you are not prepared, then you could becometomorrow’s blue plate special. The good news is that you will getconsolidation from the bigger predators that lurk in your world. That isgood news because the bigger the company, the more their emphasis tends tobe placed on quarterly results instead of customer service, making themeasier to defeat on the battlefield through the use of good common businesssense.
Second, the best way to prepare for the future is to have a good balancesheet. The larger your cash reserves, the greater your ability to withstandchanges in the market place. Money allows you to operate from a position ofstrength.
There are four easy ways to build a good balance sheet. First, raise yourrates or markup levels that you apply to change orders and add-ons toexisting clients. If you are operating with a gross margin of 30%, then youcannot sustain double-digit growth unless you have access to outsidecapital. The easiest way to increase your gross margin is to raise yourprices for existing clients. As long as you are doing a good job, mostclients will never stop you. You should have a minimum target gross marginof 40%.
Second, raise your hourly service rates. Most integrators I speak withundercharge for their services, charging anywhere from $50 to $75 an hour.Little do they realize that it is costing them anywhere from $50 to $60 anhour just to put a fully equipped technician in the field. Raise your ratesa minimum of $10 an hour. Two things will happen; you will increase yourprofitability, and the higher rates will prompt your clients to ask youabout purchasing a service agreement.
Third, aggressively sell service agreements. The best long-term way toenhance your balance sheet and cash flow is to sell service agreements.Unfortunately for them, fewer than 80% of the low-voltage integrators sellservice agreements. The cash flow from service agreements will not onlyhelp stabilize your cash flow, but it will also add value to your companyshould you decide to sell it to that larger predator.
Lastly, think outside the box. To outmaneuver your competitors, you need tobe smarter than them by thinking outside the box (TOTB). What does TOTBmean? It means questioning why you do everything, going through every lineitem in your overhead expense, as well as looking at the way otherindustries address key issues. If those guys are TOTB and getting results,you can too.
These represent some of the easier-to-do methods of improving your balancesheet and giving you the power to withstand change. I did it at my formercompany, and so can anyone who wants to take his destiny into his own hands.
As for predictions, I have one more. A former professional wrestler will beelected the governor of Minnesota. Nah, that will never happen.