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.

Advertisement