Integrator Roundtable: Diversification, Cloud & Managed Services Loom Large
Like allied forces generals plotting moves following victory in a tide-turning battle, a trio of integration company leaders compare notes for post-pandemic success.Leave a Comment
With the deafening din of gale-force winds, Americans exhaled a collective (albeit cautious) sigh of relief in mid-May when the CDC announced substantial easing of pandemic-prompted facemask requirements and recommendations. It certainly brightened outlooks in many ways about getting back to life as we have known it and business closer to usual. That includes traveling and experiencing industry events.
At Security Sales & Integration’s annual integrator roundtable, conducted during the PSA TEC event in Denver to provide the market an intimate view of current trends, challenges, opportunities and more. Although due to pandemic implications the session was held virtually for the second year in a row, the discourse took place just hours after the CDC’s milestone declaration. That truly set the stage for a lively conversation with fewer uncertainties than in the recent past.
Participating executive leaders were able to not just dwell on the ordeal and setbacks of 2020 but to realistically assess where their integration business stands right now — and share what they anticipate will come into clearer focus as the pandemic dust settles.
This year’s panelists were Bert Bongard, president and CEO of Minneapolis-headquartered LVC Companies; Louis Boulgarides, president and CEO of Ollivier Corp. of Los Angeles; and Fabiola Francisco, director of client success for Condortech Services in Fairfax, Va.
While the dialogue centers around COVID-19’s monumental effects, it’s all about the takeaways of gained efficiencies, best practices, lessons learned, in-demand solutions and success tips.
Q: How has the pandemic impacted your business most and what do you see as we start to look past it?
Fabiola Francisco: The pandemic definitely had an impact in our business, causing a standstill for a time. We were able to balance a lot of our workflow through the federal government side. It started getting busier again, about two months after the pandemic hit. That was mainly because the government said, “Well, there’s nobody in the office. Let’s get these projects running.” Where we struggled quite a bit was with the supply chain, resulting in halts and stagnation for a bit.
It was hard to get our folks out to the jobsites to work on projects clients wanted to have done because everything was shut down, including truck drivers and means to get all your shipments. Our staff realized how important our job is and I think that’s the important piece. We may not have been recognized as first responders but we definitely were supporting them. We did whatever we needed to do to keep our federal government buildings and clients secure. Lately, we have been quite busy on the government side and now commercial has picked up again. Usually the beginning of the year, first quarter and part of second quarter, it’s quite slow.
However, in 2021 it’s picked up the pace. We did suffer a revenue loss overall, due to not being able to invoice for two or three months last year. But we were able to manage through that. It’s been a little concerning for my staff, and so we had to keep an eye on the culture here and how they felt about what transpired. We have had to make sure they are comfortable and have everything they need. For 2021, it’s looking like we’re going to be on target for our goals. We’ve been able to hire some more folks, which is a good thing.
Louis Boulgarides: At the beginning of 2020, we were on pace for a record year as the economy was booming. COVID hit and we were sent scrambling around trying to find out how to support our processes and it was challenging. We were already primarily a virtual operation to begin with, so there weren’t really any logistical issues around that. And when 2020 finished, we were at tick ahead of 2019. Where we really felt the impact was Q1 of this year, with February being the worst month we’ve had ever. We had a lot of orders scheduled to happen in 2020 that were delayed while people waited to find out what was going to happen with vaccines and reopening. About 60% of our businesses is in high-rise office buildings. Those here in Los Angeles are still only running about 10% occupancy. They’re still being impacted.
We do work with movie studios that are back in full swing. Pharmaceutical companies and medical facilities are starting to move from COVID response back to normal operation. We’re starting to put together some good months and making up for the first part of the year.
Q: To what extent were you panicked or very concerned? What was the mindset?
Boulgarides: I try not to panic in front of my other employees but there were points in time. When 60% of the business is high-rise office and they are literally a ghost town, it’s a gut check at that point. Fortunately, we were diversified enough in other verticals that were continuing to move. We were able to manage through. Really the only time I was seriously concerned was Q1 this year when things really slowed down. The rapid way the vaccine got rolled out helped allow us to exhale in March and start moving forward. The concern now is how long will this be sustained? Inflation is coming, supply chain issues are coming and although there’s pent-up demand summer is traditionally a slow time.
Q: Diversification was a key for a lot of integrators during this time. Were you able to lean on recurring revenue some, and how did that experience change how you view recurring revenue?
Boulgarides: Yes, it did help with the cash flow through the pandemic process. When I came to Ollivier, there was zero recurring revenue. The past three years we grew our recurring base to 10% of our revenue. Obviously that won’t support the business but it creates a little bit of a flow. From our customers’ standpoint there’s still a lot of economic pressure on them and it’s part of why I focus on holistic security. One of their biggest expenses is personnel. Having a security program that’s efficient for them is going to be very important. Using systems to reduce their security spend and continue to have it be effective is really the best place for us to position going forward. We need to help our clients get through this, as costs are going up and nobody wants to pass those costs through. Everybody’s in this together to try to manage costs. That’s how we’re approaching security programs with folks.
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Bert Bongard: We had to be very flexible managing through the pandemic. We had to shift gears, with the health guidelines, protocols, managing illnesses, job shutdowns, delays, go-to-market strategies, all of it was in flux. We were lucky in that I had started an initiative before the pandemic where we did our business continuity plans. Part of that was what happens in emergency or pandemic situation. So we were somewhat prepared. However, we had a lot of unexpected costs such as hiring extra IT staff and had to work more with our HR staff because things were coming at us fast and furious. Costs were up and revenues were down compared to budget.
We’ve been growing year over year and although we didn’t hit our aggressive budget we had a record year in 2020, which was amazing. It was really because of our diversification in so many different disciplines, including security, fire, cabling, sprinkling and a very large service department. We’d like to think of ourselves as recession-proof and we’ve proved we can be pandemic-proof, so to speak. Between all of that we’re able to weather the storm, which being in the Minnesota market also includes the social issues we also endured last year. I wouldn’t say 2021 started out gangbusters but we’re not far off our weighted budget. One thing I would say about last year is we had some work that was carried over. Because of the pandemic we don’t have as big a backlog as I would like to see.
Q: There’s been much talk and hype about pandemic-related security solutions such as contactless access control, thermal temperature checking, etc. To what extent have you seen that as reality for your business? What realistically is the opportunity?
Bongard: A lot of these things have been around for a while. Thermal was a hot bucket button, of course. We looked at it and did some vetting, but between HR and legalities we chose not to jump into that pond. And now we’re seeing their demand go down quite a bit. AI has been a hot topic for years and we’re seeing that really increase in how we can deploy analytics. Cloud-based and managed services have really come to the forefront. We have a decent amount of that in our business but now we actually formed a team two months ago to go after it a little harder. I think it’s going to be nothing but grow, grow, grow. I would encourage any integrator to get onboard with managed services.
Boulgarides: We scrambled around researching thermal and were ready to go. I sold none. I got one request for a thermal kiosk yesterday for a high-rise building that’s going to potentially be reopening and they’re looking at some solutions. To Bert’s point, there is a lot of liability around all of that and how it gets managed. Once people started to go down that road, they were like, “Yes, um no.” The biggest demand we got has been for cardless credentials. Phone-based credentials means recurring revenue for companies like us. It’s low maintenance. You design it. You build it. It takes care of itself. We saw a tremendous increase in demand for Bluetooth credentials. Again, to Bert’s point, we’re really focused on utilizing analytics and video technology to help augment the staffing spend for these properties.
There’s only one spend for the majority of these properties that did not go down during the pandemic, security. Janitorial services went down, engineering services, parking went down, but they had to maintain security of the property. When property managers look at that from a business standpoint, they’re not able to leverage security staff to adjust to the changes in revenue as a building or site. Our ability to help support that with technology is a huge opportunity.
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Q: Has that mostly been about leveraging feature sets inherent in legacy equipment or replacement?
Boulgarides: A lot of customers have changed out access control readers. The challenge is there are multiple Bluetooth providers and the credentials are not always compatible with each other. HID has got an offering, other companies have their own offering. This has accelerated faster than the industry was anticipating and so that’s still a little bit of a challenge. In most cases there’s a significant aspect of manual processes needed to get all the Bluetooth credentials into a system for folks to use.
Francisco: Being heavily invested in a federal government client base, we’ve seen them actually increase spending and focus on the AI piece. Artificial intelligence with things liked motion detection and analytics have been in high demand not only for greater situational awareness and operations but also to be able to run reports, discern patterns and identify areas of focus or need. AI is something we’ll also see coming to light in the property management market. We have some national accounts with multiple locations that are on an RMR setup for managed services like access control and CCTV.
On the government side, we don’t do a lot of Cloud-based work due to the way they operate. They host their own Cloud datacenters and there’s a lot of regulations that go behind that. However, one thing they are finally adopting, which we’re really excited about, and it has a lot to do with the cooperation between security and their IT, is doing a lot of virtual machines. Instead of us bringing in our big servers and MBRs, we’re now working with our IT teams to be able to put our systems in there, which provided a majority of the work we performed last year as a result of the pandemic. AI has been big; more reports, more information. To help bridge the gap and build a strong relationship between IT and security, we’ve engaged an information assurance specialist to help get ATOs [Authorizations to Operate] for the government for systems to be online and on their networks.
Q: Continuing with managed and Cloud-based services, have you found it challenging to develop a pricing model?
Bongard: Yes, we’re continually looking at that. We run it separately. We have our install salespeople and we have our service salespeople, and we’re running it more through our service department. It is a different type of compensation and it’s to keep people involved and interested. We don’t we have it completely figured out yet, but we have a pretty decent platform. A good thing about it is that you can talk to your customer and they can budget for it easier. You can tell them, “This what it’s going to cost you over this timeframe” and it becomes more palatable for them on the RMR model that way.
Boulgarides: When we put together the program, the first thing I did was bring on a director of managed services to manage the program. Our salespeople and other people in the company, when they get a managed services opportunity, they’re able to work with somebody who guides the process. Whale hunters didn’t have to turn into managed services sellers, they just had to identify the opportunities. Our gross margin for managed services is 50%. Installed systems sell for somewhere around 32% gross margin, so managed is much more profitable. The objections around Cloud are rapidly going away, so we’re not dealing with that much. It is extremely profitable and beneficial for our company.
From an incentivizing standpoint, I make things really simple as I don’t want my salespeople to have to think too much. They get two times the monthly recurring revenue upfront of anything they sell. If you sell a $1,000 RMR contract, the first time we get paid you get a check for $2,000. It’s 10% of our revenue right now, with our goal being 20%.
Francisco: I love Louis’ compensation idea and actually wrote it down! RMR is very important to us and we currently have a sizable chunk. However, we would like to increase managed services. A lot of it for us comes down to a learning shift and training people for it. Also, you don’t want your big game hunters to focus attention on RMR as they’re going to get bored with it. It’s just a mind shift for us to try to get toward that.
Q: What are some positives to come out of the pandemic experience in terms of operational efficiencies or best practices that will continue to benefit your organization moving forward?
Francisco: Prior to the pandemic, we had already been engaging with and doing a lot more remote work. We were on Office 365 with Microsoft Teams, we had the Zooms, we had to Go to Meetings. We had already had our virtual machines and everything in the Cloud. However, we had a plan that had to be sped up and we discovered some things that we were missing when going remote.
Instead of doing a pilot program we went straight into production. We had to make it work. Everybody on our team rolled up their sleeves and fully adopted and engaged with the tools we have. They showed initiative to learn and figure things out. We still have some internal software that can’t be in the Cloud yet so we had to find ways to manage that. We continue to have this innovative spirit and right now our new thing is monday.com. It’s a Kanban-type project management tool for multiple projects and my guys love it. We use it to track 50 current, ongoing projects. Another bright side of things has been the strong comradery among our staff. We were blessed to have such an amazing team that we probably wouldn’t have realized unless we were all in it together. I guess trauma builds that cohesiveness, that we survived it together.
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Bongard: We’ve learned that more than any-thing, how resilient we are. You always hope you would be, you always think you would be, but you don’t know until times of trouble. Traditionally, we have no one working from home but during the pandemic we had 80%. We learned that during times of pressure you can create some very good initiatives. As mentioned before, we were already going through our business continuity plans and were prepared. The other thing was we were really proactive in meeting about what was happening overseas before it really hit even the U.S. We also learned that technology truly is the backbone of everything we do and utilized it more than ever. Virtually officing and virtual communication has become almost the norm. We learned we can do this remote. We learned we can get through it. But it still doesn’t take the place of face-to-face and in-person touches.
Q: In long term, has virtualization changed to some extent the way you may do some sales presentations or hiring practices?
Bongard: Absolutely, especially some initial interviews. We had many virtual lunch-and-learns. We held some mini-conferences with our customers. It was tough at first to keep people engaged. We had to shift gears to make it more interactive and interesting. I think we all learned as an industry how to get through that and make it better going forward.
Q: Perhaps some of the skills gained from that will add efficiencies down the line?
Bongard: Yes, especially training. Traditionally, we all had to send people off to a different state or somewhere else. You’re incurring costs and salaries or wages of some kind, per diem out of the office and hotel. During the pandemic, a lot of it was offered virtually and it was fantastic. I’m looking forward to more of that. It’s just more efficient for companies and for who’s offering as well.
Boulgarides: We were already a virtual company so that part of it was not a big deal, but I never thought I had to have 1,000 masks or cases of hand sanitizer in my warehouse. I do now in case something like this ever happens again. When this thing hit, we had nothing. I was going down to the garment district in downtown L.A. and having them make us masks. This whole process, overall, as a company we’re now better prepared if this happens again. This may be the new normal as this moves forward. We were fortunate as a company in that although we had some cases of COVID everyone did a good job following the guidelines to minimize spread.
The experience reinforced our business strategy to diversify as you don’t want to have all your eggs in one basket. Thank God I didn’t have all my eggs in the office space basket or else I wouldn’t be doing this interview right now. Managed services is really important, and we need to redouble our efforts there. It was one of the reasons we were able to get through this. It wasn’t enough to cruise through, but it helped a lot. A lot of things we were doing were reinforced as being on the right track; it was a wake-up call to do uble down on those things. It added a sense of urgency because there were a few gut checks along the way.
This article originally appeared on our sister site Security Sales & Integration.
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