As anyone involved in the installation and monitoring of alarm systems can attest, the industry has seen a sea change recently, not only in the technologies being brought to market but also in the overall structure of the business itself. The impact of these changes was on full display at the recently held Barnes Buchanan Conference in Palm Beach, Fla., where security dealers from across the nation gathered to discuss some of the industry’s most pressing questions.
Reflecting on my time at the conference, I was very impressed by the overall optimistic feeling about the industry, the advancing technology, the capital available for growth, and the marketplace in general. Here are several of my key takeaways from the event.
1. Quality and Growth: It is apparent that the largest security companies are focusing on quality as much or even more than growth. While this is good news for the best-run companies, it may be problematic for those firms without stringent account generating parameters. Companies not as discerning in their choice of customers may have a harder time monetizing their account base if big purchasers, such as ADT, raise their standards.
2. Changing Business Models: Conference discussions about the DIY model and the non-contractual type of RMR were certainly a highlight. Some companies that allow their customers to turn on and turn off monitoring have demonstrated success which, in turn, has caused traditional companies to sit up and take notice. More than a few operators in attendance indicated they are either thinking about ways to provide "on-demand" type services or are already doing it. This is a huge divergence from the traditional model of contractually obligating customers to buy monitoring services for a certain length of time, so the changing expectations of customers are causing companies to rethink – in whole or in part – their go-to-market strategies.
3. Changing Models and Capital Providers: The discussions made me think about how capital providers will accept new and changing models and evolving customer desires. Some have obviously already embraced them – through their funding of firms such as SimpliSafe and the like; however, the typical security company that ventures into on-demand services will need to demonstrate sound metrics supporting a recurring revenue theme to obtain capital.
Alarm companies could learn a lesson from Software-as-a-Service (SaaS) businesses, which focus on the same key metrics. In a keynote address, ADT CEO Tim Whall explained three of the key metrics: Cost to create customers, margins and the length of time customers stay (attrition). The main difference is SaaS companies usually measure Annual Recurring Revenue as opposed to RMR; thus, for a security company considering an element of on-demand business, you must measure and document everything. Keep metrics on all the factors that provide lenders comfort regarding recurring revenue year-over-year, as opposed to just contractual RMR. If a company can prove that each customer of a certain demographic produces a certain amount of annual revenue rather than monthly revenue, then a company could easily make the case for higher lending multiples.
4. Market Outlook and Opportunities: Other conference discussions focused on market opportunity and the economic outlook. Security dealers attending are optimistic about growth, but questions remain about competition from non-traditional areas, such as MSOs (Multi-service organizations), cable companies and the like. They obviously have large marketing budgets and are having success in generating security clients.
During the conference, I led a session entitled, "Capitalize on Trends Redefining Selling in the Security Industry." In it, we discussed ways traditional security companies can compete with the wide and varied players entering the market. The conversation focused on how the typical sales team can compete with large marketing budgets and expansive sales force of the MSOs.
The key is for traditional security companies to focus on their value proposition and to be very clear on whom their target market is. By focusing on why their customers buy from them, they will be able to compete effectively. Mike Barnes, founder of advisory and consulting firm Barnes Associates, estimated during the session that the MSOs have secured approximately five percent of market. I believe this business was won by cross-selling to existing cable or internet customers when they called in with service questions. Traditional security companies may not have the same opportunity to cross-sell their own services, but they can potentially forge stronger partnerships with non-security service providers, who can make referrals in return.
There is still plenty of untapped market to go after. Some MSOs may make it while others could fall by the wayside and exit as Verizon already has done. Either way, there is still a large unserved pool of potential customers up for grabs. So many good things are happening in the industry as the 2017 Barnes Buchanan Conference demonstrated and I can’t wait see what next year’s gathering brings.
Gretchen Gordon is the President of Braveheart Sales Performance, a sales optimization firm that guarantees improvement in profitable sales for its clients. Braveheart has a particular expertise in the security and systems integration industry, as Gordon is a former lender to the industry. Contact her at 614-641-0604 or [email protected], or visit www.braveheartsecurity.com.
