The “Change or Die” Transitional Seminars

In January of 2008, we sent an e-mail blast stating that “half of you who read this will be out of business within the next 5 years”. It was edgy and elicited outraged feedback.

I was wrong; it did not take that long.

At the time, we did not have all the details. All we knew was that too many people were competing for a diminishing number of projects with products that were plummeting in price.

We could only identify two of the three waves of misfortune that would assault our dealers:

1) The over saturation of the market brought on by a shift from “manufacturer-to-dealer” based distribution to “distributor-to-dealer” based distribution with no restraints or the licensing and training that is required for plumbers, electricians, and security contractors.

2) The collapse of residential construction to 27% of the 2005 levels (and less than half of the 1989 levels when this all started). Click here for details on the construction markets and our industry

What we did not predict was the third wave in the form of the “greatest economic recession” since the great depression and its permanent effect on the psyche of the American consumer (but neither did Warren Buffett).

When our industry “formed” in the late 80s, there was no home theater. That would come in the early 90s when Runco trademarked the name “Home Theater” and Lucas introduced residential THX.

There were no “integrated systems” because there were no residential control systems. There was “Home Automation” for a tiny group of hobbyists who would form the short lived HAA (Home Automation Association).

There was no lighting/dimming control because Lutron had not introduced Homeworks, and Crestron was 15 years from introducing their systems.

The biggest consumer TV was less than 40” until the early 90s and flat screens were a decade away.

For that matter, there was really no internet and certainly no broadband. No mp3, iPods, Blackberry, music servers, DVDs, or video servers.

“Custom” meant soldering ribbon cables on the back of a receiver’s front panel.

To address today’s challenges with yesterday’s tools and skill sets is worse than stupid; it is commercial suicide.

If you are going to try and relive the past, you might as well get a blue shirt and apply at Wal-Mart or Best Buy, or maybe sell some SUVs.

Our industry shifted from a “Retail Sales Model” to a “Contractor Bidding Model” and is zooming towards an “In
Home – Sales Model” with a new focus on existing, wireless technologies, and energy management.

We would not dwell on what has gone wrong if there were not a brighter future, for some of you.

“When the winds change direction, there are those who build walls and those who build windmills” Chinese Proverb, 848 B.C.

“The future’s so bright, I gotta wear shades.” Barbara K. MacDonald – Timbuk3, 1986 A.D.

At the behest of several manufactures and many of our dealers, we have researched and have identified a clear path to developing a new or additional business for your portfolio.

This business combines the global green movement, with recent technology, and your experience with electronics in the home to provide typical margins, faster sales cycles, and recurring revenue with familiar products and some new ones as well.

We are fundamentally product “agnostic”, but we do play favorites and will make recommendations.

Unfortunately, the skills that we have been teaching on how to be the successful “bidder” are not going to serve you in this new era as you meet at the client’s kitchen table in the home you are going to do the work in.

You need to learn how to sell and find people to sell to and you need something to sell.

We can help with all that. We have identified what needs to be done and organized a way to do it.

Drawing from years of research into how other in-home sales companies (pool, landscape, roofing, remodeling, HVAC, security, etc.) find opportunities and get business we have created a “Transitional” program help you begin your efforts.

We also provide very specific advice on how to develop a suite of energy management offerings and how to explain and demonstrate these packages to potential clients.

If the Transition makes sense, we have programs and tools to launch your new venture. Those are not free, but they will be tempting.

What do you have to lose?

What we find interesting is that those most offended by that e-mail 21 months ago are now out of business.

Bidding Vs. Selling

To Bid –verb (used with object) “to offer (a certain sum) as the price one will pay”
To sell–verb (used with object) “to persuade or induce (someone) to buy something”
Our industry evolved in a “bidding” environment.
As opposed to a “selling” environment, bidding is a contest with an assured winner (in most cases).
The bidder is dealing with someone who is likely to buy something.  The goal is to (1) find those
opportunities, and (2) prevail over fellow bidders.
The seller is persuading someone to buy something they do not have to buy.  The goal is (1) to find
someone who can buy, (2) persuade them to buy.
Historically, our courses have helped dealers find those bidding opportunities as early as possible and to
prevail by focusing on company stability, design, process, and documentation – not products and
pricing.  The several hundred dealers we have worked with have proven the validity of that advice.
Another early strategy for bidding success was to become involved in the original design and have
product combinations “specified” in. That strategy has worked well for manufacturers who have an
aggressive marketing program that can dispatch an employee to personally interact with the Specifiers
(architects, designers, and builders).  Lutron Electronics would be the best example of such a program.

These strategies worked well for new construction. Now new construction has
ground to a mere one fourth of its best years and there are simply more dealers
bidding on fewer opportunities.
In a book you might want to read, “Blue Ocean Strategy”, your bidding world is
described as a “Red Ocean” because the ocean is red with the blood of the
competitors (fellow bidders).
Now the landscape has changed and the more perceptive dealer can create a
“Blue Ocean” strategy designed to make the competition irrelevant.
There is a catch that will eliminate most of you.  You will need to learn how to actually sell something to
someone who does not have to buy something.
Unfortunately, current integrators are more adept at figuring things out than actually selling.  They are
“MacGyver types”.  Industry trainings have always focused on the actual doing and rarely offer true
sales training.
In much the way there are no born integrators, there are no born salesmen.  It is a skill set that can be
developed and refined; it is not another version of bidding.

In your new world, you will be selling integrated systems with a focus on home management to wealthy
homeowners in their existing homes.
If you wanted to bake a cake, you would follow a recipe.  A recipe is a set of instructions that allows you
recreate what an expert has accomplished.  This analogy applies to any successful venture.
Future entries in this blog will provide instructions on successful bidding and successful selling.
To avoid confusion, there will be one blog focused on selling and another on bidding.

To View this entry as a PDF Click Here

The End of Custom

The Decline of the Dealers, the End of Custom, and a Very Bright Future
First, a disclaimer; I care for the dealers and I respect much of what has been done, but the facts speak
for themselves and to ignore them while we wish for the return of “business as usual” is unforgivable
and stupid. No amount of hype will change reality. Only an understanding of what has happened and
why it happened will equip us to harvest the future some of us deserve. Please read with an open mind
and understand that the motive throughout these blogs is the good of the dealer.
The Decline of the Dealers
As the recession bit into our industry’s life blood last fall, a company owner and former CEDIA president
asked me if this whole explosion of activity over two decades had been a fad like CB radios in the 70s.
At one of our recent one day trainings, an attendee said he was not ready to accept the death of AV.
Two pretty scary pronouncements.

The reality is:
“Something very deep has changed in the American psyche,” said Dan Ariely, a professor of behavioral
economics at Duke. “The recession basically woke us up.”

My grandparents raised my parents during the actual depression and the effect on both generations was
permanent.
It has happened again and we are not going back, not for a long time.
Our industry exploded as cheap money and speculation propelled many into businesses they were not
equipped to run.  In an artificial environment, it is hard to separate skill from luck.  Now reality will
define an industry that will no longer be “Custom”.
Already thousands of lower tier dealers have dissolved and Consumer Electronics is changing in such a
pronounced way that both Tweeter and Circuit City closed in succession.
Many of those that flooded our industry should have started with a blue vest (Wal-Mart) or a blue shirt
(Best Buy).
Now they are headed back to where they belong.
How did this happen?
Businesses have entry and exit barriers, and our barriers were too low.
A house painter has a low entry barrier (paint an drop cloths) and a low exit barrier (liability from his
last job).
A Jeweler has a high entry barrier (the cost of the jewels) and a low exit barrier (liquidating inventory).

Here is a chart that might help:

Business Barriers PDF

The profile of the installing contractor is the worst possible combination of easy (Low) entry with a
painful (High) exit, similar to the barbs on an arrowhead.

Access to products in the early days created a temporary barrier, but we fixed that with CEDIA and an
awakening of the manufacturers that lead to the formation of a distribution network.
Access to skills has not become as available.  There are no college courses or comprehensive industry
training programs similar to those that evolved in the high voltage, security, and fire alarm industries.
Because life safety is not an issue, there may never be licensing and the attendant training programs.
For any entity to actually offer meaningful training it would have to open a campus, hire real
professionals and charge like a university.
Imagine if the AIA accepted architects with no degrees or equivalent experience and then tried to train
them with nothing but a series of three hour seminars presented by volunteers at an occasional event
generating a certificate?  If homes were built the way our systems are often installed, the first
woodpecker to come along would destroy civilization.
When I see the certificate, I am reminded of the Wizard of Oz.  Specifically the scarecrow when the
wizard fixed that pesky “if I only had a brain” issue. The wizard fixed it all with a diploma.
CEUs stand for Continuing Education with the assumption that there is an existing foundation.
The current state of affairs demonstrates the value of a certificate without the underlying skill,
knowledge, and experience. Those that know the fundamentals are fine, the rest are fitting into their
blue garments.
Too many, too easy, too bad.
The economy will recover but the industry as we knew it will not.
As recently as last week (8/14/09), the internet was rippling with more bad news and examples.  The
largest state in our union may prohibit the sale of very large TVs; the ripping of content from its original
media receives a setback in the courts (every wonder about the word “ripping”?). I received an e-mail
from an exhibitor proclaiming the presence of a movie star in his booth. After some whining and chest
beating, we learn that the movie star was never going to come and that the statement was a lie.
When I look at the way our industry responds to reality; I am once again reminded of the Wizard of Oz.
This time I am reminded of the Wizard with nothing behind the curtain.
Some people are blind to the inevitable and that is a shame.
The age of conspicuous consumption is over and that is a good thing. A return to real value for those
who can truly afford it delivered by skilled professionals will prevail.

The End of Custom
Custom has become the most obscene word in our industry.  The way to make money and build
business expertise is through repetitive delivery of a standard product into a niche market.

Custom is, by definition, the antithesis of “standard”. Those that celebrate it are doomed.
Most of you are not old enough to remember true custom.  When consumer electronics had to be
modified for installation into the homes of early adopters, custom had a place. Custom evolved through
two levels.

First there was a need for “custom hardware” when there was a demand for solutions that did not exist
on the retail shelves. The early adopters knew what they wanted and it was more than the
manufacturers and their retail outlets could provide. To meet that need, a small group of pioneers
emerged and launched an industry.  There were pioneers in both the dealer and manufacturer sectors
and they were not the established providers of consumer electronics. Those early adopters would have
been insulted if offered a standard solution.  The operative word is “early”. By definition, they are
temporarily available during the early stages and go away as any technology enters the “mainstream”.

As some manufacturers recognized the trend, they developed standard products designed for
installation. Ask yourself what remains of an integrated system that resembles consumer electronics and
then ask yourself what parts of the installation are most destructive to your profit.  The answers may
enlighten you.

Then there was “custom programming”.  Using software like the early dealers used soldering irons; the
programmers defined the functionality of the integrated system. Once again, as manufacturers
recognized the demand, they began designing systems where programming became “configuring”. AMX
with its “software in a can” for $1,500 (once) and Crestron with it application builders and Prodigy
products have delivered the final blow to “Custom” and the dealers would be wise to learn. Ask yourself
what aspect of an integrated system, generates the most frustration and controversy as you read
articles debating “who owns the code”?
When you analyze a business, you want to look for products and skills that have retained their values.
True design and project management evolved from Stonehenge, built the pyramids, and the Roman
Empire. The ability to work with stone and wood is the mark of the very builders you all miss so
desperately.
Some things do not change all that much and they provide the basis for permanent success.
A business based on the fad of the day is vulnerable to the fad itself.
Look for long term trends that span generations like food, shelter, safety, industrialization, electricity,
communications, transportation, computers, and the internet; then find a place.

A Bright Future

If you have not read Thomas Friedman’s “Hot, Flat, and Crowded” do yourself a

favor; get it and read it. This Pulitzer Prize winner’s book may change your business life as it explains the global

green revolution that provides the “greatest economic opportunity
since the industrial revolution”.
Regardless of your politics, Green is real.  I suspect many of you did not believe in home theaters enough
to own your own, but that did not keep you from selling them.
This blog will report the results of our research and define the steps you can take to develop the skills to
capitalize on the convergence of three paradigm shifts that could define your future:
• The Global Green Movement
• The Existing Homes that Want to be Green
• The Reliable and Scalable Wireless Technology That Makes It All Possible

The transition into this long term future is not likely to develop from the Home Entertainment industry
and may require new relationships, new skills (selling- not bidding), new markets, and maybe new
associations.
Revolution rarely comes from within.