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May 2011 - Vol 6, Issue 5
In This Issue
InfoComm Seminars
The Numbers
Best Practices
Industry Snapshot
Closing Thoughts
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Last month's AV Matters generated a lot of comments! I really hit a nerve when I said: You can't grow your business if sales people are involved in the product delivery. This month I will drill down into that statement in my Best Practices series.

Lots to talk about this month. InfoComm is upon us and I have already given several show strategy sessions to clients. Excitement seems to be higher than usual this year.

I am also starting a new feature about business metrics. We will first look at how we record labor revenue. While income doesn't need as much detail as expenses, it probably needs more attention than you've been giving it.

And once a quarter, I will give a quick State of the Industry report. I am asked all the time, "What are you seeing out there?" - and this is my current response. It's just a snapshot, so I look forward to tracking these observations over time.

Thank-you for this email with your co-workers,

Tom Stimson
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Survival Kit Courses Are Back 

Let me explain my InfoComm seminars in a nutshell: I am inside companies like yours every week, and let me tell you: Many of your assumptions about the AV business are no longer correct! I will explain what I am seeing, why I think it's not working, and what you should do about it. I want to change how you look at your business.

Rental & Staging Business Survival Kit

IS053 - Thursday, 6/16/2011 08:00 AM - 10:00 AM Learn more here.


Systems Integration Business Survival Kit

IS065 - Thursday, 6/16/2011 10:30 AM - 12:00 PM  Learn more here.

These are courses for managers and above. Questions? Just email me!
The Numbers

Parsing Revenue for Better Analysis  

Looking at How Labor and Services are Recorded 

The profit and loss statements I see every week vary broadly in content and form. The basic information is always the same (income, expense, profit), but often I find that the income categories were created back when the company was founded and haven't really changed since. Expense categories are added as needed, but most accountants and owners seem to like a very simple view of income.


Now that labor-related income is often 40-60% of revenue in Integration and Live Events, it's time folks revisit how it is recorded. The thing we called labor 20-30 years ago is still labor. Installation or Set & Strike labor is still generally semi-skilled, hourly personnel or sub-contractors to perform the basic functions. Project Managers are employed to manage this labor, therefore supervision is the first labor-related revenue that needs to be separated. Right now many of you are thinking, "We don't charge for project management." Whether you do or don't, adding an income category for it will definitely change


you sell.


The third component of billable labor are technical services or skilled labor. Before you remind me that all of your labor is skilled, both integrators and stagers differentiate between the persons they name for a project and those that are anonymous faces. In integration, the Lead Installer is typically (or arguably) skilled. Installers on the other hand could be classified as semi-skilled. Skilled labor in Live Events are typically department heads or lead technicians - the individuals that differentiate your product from everyone else.


The other component of labor are the soft services: design, drafting, programming, content creation, etc... These involve some level of professional training and often are billed like consultative services. In my estimation, many companies in these segments use professional services to add padding to their budgets without giving much thought to the expense side of things. Again, by defining and tracking the revenue these companies will slowly change their own behaviors about how they manage the human component of their businesses.


Integrators will also want a category for billed service or repair labor. This is different from service contract revenue, which is not technically labor at all. It's an insurance policy that gets its own income category.


By now you have thought of ten things I didn't mention. There are countless sub-categories to each of the above. Please email me your thoughts so I can share the ideas with others. Better parsing of labor is something that will benefit AV companies, and the Audiovisual Industry as a whole: the more we define and demonstrate professional services, skilled technicians, and value-added project management - the better AV compares to its counterparts in IT, Telecom, Theater, and Consulting.

Best Practices Series

Unleashing The Power of Your Sales Team

Focus on the Customer Instead of Projects


Last month I made the comment that, "You can't grow your business if sales people are involved in the product delivery process."  What in the world was I thinking? Isn't the sales team an integral part of the customer experience and therefore part of the delivery process? Well, yes and (a qualified) yes - just not in the manner most of us go about it.  


Why would you want Salespeople to be less involved in projects? The obvious answer is "So they can get out there and sell more." However, the more powerful idea is that you would no longer need a +10-year AV veteran to fill every sales job. Instead, you could hire smart, personable, well-trained sales professionals and leave the technical details to designers, estimators, and project managers.  


There are many examples of successful individuals that sell and micro-manage their projects. What these persons have in common is they control some portion of the overall operational resources of the firm. There are two ways in which an Account Executive (AE) can garner this supply - and I often see both. The first way to control resources is by having "the most important projects we do (or clients we have)." Important work gets resources. Engineers, project managers, CAD, meeting time, the best technicians, and the best equipment all go to the biggest most complicated jobs. And once those assets are engaged, the AE has a captive audience to focus on his or her other projects. In the meantime, the younger inexperienced AE is getting hammered for making mistakes that these resources could have helped avoid. In other words, one person's success is at the expense of other people's projects.


The second way that certain AE's stay involved in their projects is by controlling the relationship with the client. These relationships appear to be a good thing, until information is lost because only one person can ask questions and convey the answers. Next thing you know, the job is sold, there are huge gaps in the scope, and the clock is ticking. Management throws a lot of resources at the job and all is saved. The AE feels he or she has to hold the client's hand all through the process, because "the delivery team seems so stressed all the time." Getting answers from the AE seems like pulling teeth, but without their involvement the project won't go. The AE has to be involved and probably gets some satisfaction being the center of attention.  


In both cases the AE to stay involved because the budgeting process didn't develop the project correctly. This is a failing of both the operational system and sales. We've designed selling processes where the salesperson controls too much information and budgeting goes on whether that info is shared or not. The Salesman has become the project manager, while the intended PM fulfills the administration and scheduling role. Here's a simple test to determine whether your PM is really in charge of the project or not:  


In an ongoing installation or show project, who prices the change orders and presents them to the customer? The Account Executive? The Project Manager? Someone else?


If you answered that the AE handles change orders, then your PM isn't really the PM. Your project is really managed by the AE, who will therefore be more focused on work in progress than on developing and closing new opportunities. He or she will likely be an unnecessary constraint to information flow that will ultimately affect the customer's perception of your company's performance. If you answered that change orders are the PM's role, then how often is he or she actually able to fulfill this role? Is the PM on too many projects to have the personal relationship with the customer required to do this?  


What you may discover is that some of your longtime salespeople are really very good project managers and that this is where they need to be. In other words, our definition of project management isn't wrong - it's our definition of an Account Executive that is tripping things up. Let's look at the Sales and Operations roles and see what might be going wrong:


There are three roles in sales: Business Development, Account Management, and Customer Service. The bigger your company, the more distinct these three roles become. Bizdev finds potential new customers and gives them to the account manager, who writes proposals and closes orders. The customer service representative takes orders from existing clients and monitors delivery. In many companies, the focus in to place the salesperson all of these roles at once. Because he or she is the next person in line, information never needs to transfer. No one else talks to the client. By the time the traditional Project Manager becomes involved, the salesperson is so deep into the project that stepping back will alarm the customer.  


On the delivery side, the AV project management system forces the PM into the field to manage crews - sometimes on multiple projects, taking away time for planning and customer management. With the PM unavailable to focus on the next customer, the AE has to remain involved longer. What we get is a vicious circle. One half of the problem starts at the sales end with incomplete project hand-offs and the other half starts at the technician level with under-trained teams that need PM supervision. It all meets in the middle around an incomplete definition of project management that forces the sales process to go on and on.   


The solution to making the sales team more effective is to have an operation that can lift projects from the salesperson's shoulders. Within this system are "salespersons" that are actually project managers by skill.  In other words, let someone else perform the business development and account executive functions (find, capture, and close business) and let the traditional AV Salesperson (now, Account/Project Manager) budget and manage projects. The client relationship is now managed by a person not involved in project details, who is therefore free to find new customers and projects. The project is now managed by someone with client-skills, but not responsible for maintaining the client relationship or selling the next project. Companies can hire Business Development professionals with little or no AV savvy, but with lots of channel experience.  




Industry Snapshot

Q2 2011

In General:
Business is up almost everywhere I go. Margins are still a challenge and therefore gross profits are down or flat. But with overall revenues up (and SG&A held flat), net profits are creeping up a bit.

For Stagers:
It's starting to look like 2008 levels again. Three-quarters of the companies I have talked to lately cite that Q1 was up 20-30% over last year. Half say that one of the past four months has been the busiest in their company history. Half say that August looks bigger than it has this century. Most companies are worried about their operations keeping apace with business, but are still concerned about adding employees or investing in infrastructure. On the other hand, capital budgets seem to have been unleashed. What I hear most often is that stagers are finally investing in some sort of HD production switcher and HD projectors.

My biggest concern for stagers is that they have neglected their glue products and need to invest in cable, screens, and accessories more than they need switchers. These products not only have good rental ROI, they will save money on labor, deliveries, and time. Given the low cost of the "glue" items, a dedicated percentage of the overall budget might do the trick. Also, hire some warehouse help and spend time on some formal training. Keep the good candidates and eject the losers. Increasing capacity requires equipment and people.

For Integrators:
In general integrators did not experience as long or significant a downturn and most have recovered to 2008 levels. Margins on the other hand have taken a beating. Many Design-Build companies looked to contract bid work to replace revenue and now are addicted to top line revenue while the bottom line continues to erode. I recommend 30-day recovery program to ween yourself off the hootch and refocus on more profitable pursuits.

Business overall seems to be up 10-15% over 2010 and pipelines have increased dramatically. Work in progress has grown from a dismal 3-4 weeks in 2009 to a scary 12-16 week backlog today. If gross profits weren't so low, this would be good news. But any change in selling or delivery today will take months to transfer to the bottom line.

My biggest concern for Integrators is that they will undersell profit and over-promise delivery trying to show big growth. Project Managers continue to be over-worked in most systems, and technicians continue to be under-trained. Creating operational bandwidth seems counter-intuitive, but the cost of expansion will pay off with fewer mistakes, better planning, and overall better cost control. (Not to mention more change orders captured and monetized!)

For Manufacturers and Distributors:
Judging by the number of exhibitors coming to InfoComm, I think suppliers have all seen the uptick in business and recognize the potential of talking with so many customers. Please, please understand your customer's economic reality. While their business is up, profits are not. If your product is easier to install, faster to configure, or measurably more reliable - say so. Do you have an option for better terms or better price? Are your delivery times the best in the business? As much as we all like to talk about product features and innovation, what matters more is whether the dealer can make more money. Price points are not the answer! Show me how fast it is to setup, how easy to configure, how durable the product is.


Closing Thoughts

Here's a few scribbles from the margins:
  • An Account Executive doing business development is the same person calling on the same people over and over again.
  • Deals are not closed by email - this only confirms an existing transaction.  
  • If you never do anything counter-intuitive, does that mean you are always right?  


About Thomas R. Stimson, MBA, CTS
Stimson Portrait

Tom Stimson has thrived for over twenty-five years in the information communications technology industry. As a Consultant, Tom helps companies define their goals and then design a plan that will take them there. For more information visit the website.