AV systems integration company Adtech, Wayland, Mass., was in business for 16 years when the company decided to branch out into HomeAV as well. What was behind the decision? How well is it working for them?

David Gormley, president of the company, shares Adtech’s experience in this exclusive article for rAVe in order to help other commercial systems integrators considering a move into HomeAV.

rAVe: Describe your company, when it was founded, how it began, and what the main focus of the business was for the past 16 years.

DG: Adtech was founded back in 1988 as Advanced Technology Presentations by my wife, Elizabeth Gormley. Prior to opening the company, she was with a small software developer selling the first black and white LCD panel from nView Corp. It's a fair assumption to say she was a pioneer in selling these panels, and quickly became recognized by the manufacturer as one of their best reps. When I met her, she was frustrated with her employer and ready to move on, so we called nView and convinced them to sign us up as a new dealer in Massachusetts.

Her first day in business she sat at a desk I had set up at my own company, sold an nView panel at list price on her first phone call, in the first hour. I knew we had fallen into something good.

For a year, I ran my own business by day while handling all the operations of building Adtech at night. She spent her days on the road and on the phone selling nView panels, followed shortly after by InFocus panels, and then Proxima. I joined her full-time a year later. By then, the company was filling a niche as the AV company with computer expertise, and with product always in stock and ready to ship. In those days, you got a lot of orders because you had it in stock while the other traditional AV companies did not.

We must have been doing something right because soon enough our Proxima rep decided to leave her job and come work for us, followed later by our InFocus rep, who saw the light as well.

The main focus of our business for the first six years was primarily following the LifeCycle of LCD panel to LCD projector, and reaping the rewards of easy sales of allocated products at high margins. Despite the advice of many to diversify at the time, I didn't see any reason to spend precious resources diversifying when we couldn't keep up with the business of selling high margin projectors. Instead we diversified into new ways of selling projectors, opening a national sales division and selling through the computer magazines with weekly ads and an 800 number. Within months, we were selling so many boxes that at 4 p.m. each day, I and whomever else I could find would head for the shipping department to join the frenzy of getting every order out the door by 5:30.

All good things eventually come to an end. Those who survive it have to recognize that fact and figure the right time to change. For me, that was around 1996 with the internet looming and our good customers asking us why we couldn't install their projectors. It was time to transition from box sales to AV integrator, without ruining a hard-built reputation of first-class customer service and support. I brought in a local industry veteran who promised to bring the knowledge, expertise and contacts necessary to make a successful integration business. The only problem was that two years later, I finally figured out that he forgot to bring the customer service along with him. My objective in building this new division was to grow slowly, take only small projects we could handle and build a reputation as the company that delivers what they promise, starts and finishes on time and doesn't leave until the customer feels they got exactly what they paid for. When I recognized this was not happening, I terminated that relationship and developed a new position of COO and made one of the best hires of my career.

From that day on, we committed to building the AV integration business I wanted, one step at a time, while continuing to grow and adapt in our box sale business. We grew quietly, one system at a time, adding good technicians and engineers as we found them and developing a company atmosphere that would attract and keep the best talent in the industry. We weren't on the A B or C list of the big AV consultants and architects, and we didn't make the bid list on the million dollar projects, but we were quietly making our way into many of the big companies and schools - with a solid reputation and good referrals leading the way. If you had a project under $50k and didn't want to wait the eight weeks for someone else, you found Adtech and were done in four.

Those customers kept coming back for more and we made sure of it.

Today, we are capable of completing any integration project, big, small, complicated or simple. Our customers know that when we accept a project, it's because we know we can complete it and they won't find themselves waiting for us because we took on more business than we could handle. We have what I would consider the most efficient, knowledgeable and caring team of technicians, engineers and sales and support staff that I could ever have the privilege to work with. We are able to accomplish the volume of quality work that we do primarily because of the pride each takes in what they do and how they contribute to the overall success of this company. I consider them the New England Patriots of AV integration, and we have all seen what that kind of teamwork does for a great football team.

rAVe: What prompted your decision to expand into HomeAV?

DG: Six years ago I realized that commercial projectors were becoming a commodity. I knew we had to get into the residential business. As a commercial A/V integrator, the standard line of advice has always been, stay away from residential systems. The perception was that it's a different business, a different kind of customer, one that requires and expects perfection, one that you will never make happy, have a hard time getting paid by, and one that requires too much service. Two years into the business and I can confirm that is ALL true and then some.

It was easy to heed those warnings and stay away, until the recession hit a few years ago and the internet became a competitive force. As I looked for a different direction to take the company in a challenging economy, I realized that I was already facing everything I feared about residential customers with our commercial clients. Our objective to being successful in commercial business was to be the perfect contractor who showed up when we said we would, completed each project as specified in the design and in the timeframe planned, and never left any stone unturned when the project was done. By aiming to meet or exceed client expectations, Adtech was able to build customer loyalty.

Unfortunately the recession and the widespread gutting of prices on the internet have changed the way a substantial percentage of our commercial customers think. There is much less loyalty today and always a new company that wants to hang the "Audio Visual Contractor" sign on their door and bid against us.

Thus, I was drawn to the customer loyalty still embedded in the residential world and went in knowing there would be significant challenges to make it profitable.

rAVe: What steps did you take to enter the HomeAV market?

DG: In assessing the Home AV market around me, one perception rings loud and clear - this is a fast growing business with a lot of opportunity for the right kind of company with financial resources to stay the course and get over the bumps. Most of what I found were smaller operations following one project to the next with their checking account requiring replenishment in order to take the next job. Then there are the bigger retailers trying to get in, but unable to build a quality team of sales and installation professionals. There is also a bounty of trunk slammers working from their house - selling the job and installing it.

As a customer, you can't get good service from the big stores and you have to hope the small company you choose doesn't go out of business after they install $100,000 of complicated AV gear in your home. You are also taking a big risk with the one-man show since one day he will surely decide it’s time to get a real job again.

So I decided there was a place for us in this market. Because I already had a vast amount of resources within the company, I decided to make a large investment in something no one else had in this area -- a showroom. The perfect building was on the market one mile up the street on the main road in an affluent town. When I first walked in, I immediately saw theaters and vignettes unfolding before my eyes. I bought the building and within weeks found Jim Ares, the best person I could have imagined to run the division.

Ironically, the day we started work on the building, my assessments of the residential AV market were becoming reality. A small but well known custom integrator ran out of high end projects and filed for bankruptcy. We hired their top technician. Another company was having troubles; their techs heard about us and showed up one day in a van looking for jobs. A trunk slammer showed up at our door and said he wanted a real job selling systems and not putting them in as well.

I had to question how it was that a company in such a "high margin" business could go out of business. Then a year later another more established integrator in Boston went out of business. On the one hand, it's exciting to get opportunity to hire more talented, experienced people and see less competition. But on the other hand, it also should make anyone realize that this is a tough business to make money in -- even with high margins. The reality is, the costs of running a residential operation are very high and margins have to be high if you are going to stay in business. You have to be extremely attentive to daily operations and keep a watchful eye on the people you hire.

rAVe: Describe the Expo -- what is there, how large, what was the investment you made in it?

DG: The Home Entertainment Expo is located in a unique homelike building in Sudbury, MA. The front portion is a historic home built in 1699, with wooden beams, a sagging ceiling, warped floors and an old brick fireplace. This area houses the offices. The remainder comprises 8,000 square feet of showroom space in a five-year-old building that has the look and feel of a colonial home. Everyone that comes in this place is immediately taken by a feeling of comfort and relaxation. They are happy to be there and soon overwhelmed in the excitement of the technology. Of most importance is how it caters to what we call "WAF" - wife acceptance factor, great for the husband who wants all this stuff but is often shut down by his wife who doesn't understand it and does not support the purchase.

We have a high-end theater valued at more than $200,000, and we have an entry-level theater valued at $12,000. We have several home theater projectors on display in our lower level, each in its own small theater environment. We have big screen DLP and LCD TVs on display in family room environments and a wall of plasma and LCD flat screens in every size. We display home theater chairs, storage cabinets and TV stands. The showroom is equipped with two different whole house audio systems controlled via keypads and Crestron wall-mounted LCD displays.
Lighting is all controlled Lutron Homeworks via keypads and Crestron controllers.

The idea of the showroom is to get the consumer excited about implementing AV technology within their home. Once they can see it and touch it themselves, it’s much easier for a sales consultant to help them believe they really can have all of this in their own home, and understand why it is a wise investment in their personal enjoyment, and of course, the value of the home.

rAVe: What percentage of your business is now HomeAV?

DG: Currently it comprises only 10 percent of our overall business. We are in the “grow slowly and wisely” phase of the operation. I suspect that percentage could increase each year by up to 5 percent.

The main factor in growing this sector of the business is building a team of technicians, project managers and engineers to deliver on the business opportunity your marketing team brings in. With the power of the showroom - and a comprehensive targeted marketing effort led by Helene Andersen, Director of Business Development, we can bring a steady and increasing flow of the right customers. The bigger challenge is growing an efficient and talented organization capable of responding to those opportunities.

rAVe: What have been some of the best rewards from expanding into HomeAV?

DG: The excitement that goes with any business providing products directly to the consumer. Suddenly everyone is interested in what I do and how my business is going. In commercial AV, the interest level amongst friends and acquaintances in what I do typically stops right after the third sentence. In residential, I get stopped everywhere I go with questions about what's the latest great thing to get and I always get compliments on my store.

rAVe: What have been the greatest challenges?

DG: There are plenty of challenges in this business and mistakes can be very costly. Building a solid team of installation professionals is challenge #1.

You can find a few good experienced people, but the rest you have to build yourself. Your techs deal with people in their homes, so not only do they have to have the skills to do the job, but they have to be able to talk to people and make them feel comfortable with you in their home. I've been told that some of our customers will literally stand there over the techs’ shoulders the entire day watching everything he does, asking questions one after another and somehow still expecting the guy to work and finish the job. That doesn't happen in ProAV. You can imagine what that does to productivity, but how do you teach a tech how to be friendly but also how to let a customer know nicely that they need to go away and let him work?

Another challenge is preventing mistakes and dealing with them when they happen. Ever had a tech drop a plasma screen in a conference room? Maybe you have to repair the plasma for a few hundred bucks, but when you drop it on a homeowner’s brand new hardwood floor creating a dent, you have to absorb the cost of removing all their furniture, sanding down the entire floor, fixing the dent, re-staining and varnishing. Profit - gone and then some.

When the customer complains about our labor rates, I explain to them that we deal with expensive equipment in expensive homes and that requires well-paid, highly-trained, experienced technicians. Whether it is an existing home or new construction, considerable care and detail must go into every installation to avoid costly mistakes that we will no doubt be held responsible for should they occur. Thus our hours and rates are often greater than what you might see in a commercial installation, or that of a competing big chain retailer. If they cannot get comfortable with that and expect us to reduce our rates or time estimates, it’s time to let the customer go elsewhere.

Even better is when your tech moves the 12-year-old TV to get to the cable feed and in doing so, something that's probably been waiting to break for three years finally goes. Guess whose problem that is? The customer blames you and expects you to get it fixed. Welcome to residential AV. It's a great place to be when things are all going well, but there are times when you just say - "Why did I do this?"

Last, and probably the most important challenge - getting paid. You need signed contracts, deposits and payments outlined in contract and you don't go to the next stage without payment. Some consumers are great, but there are many out there that will withhold tens of thousands until you label the last keypad and when you do that, they will come up with another reason not to pay you. There are people that enjoy the power of owing you money and you have to have policies that keep you in the driver’s seat. Rest assured, the one time you let your guard down with a sales rep who insists his customer is good for it - you will get burned.

rAVe: Do you think ProAV integrators have any advantages in entering this market over strictly HomeAV integrators?

DG: I think good ProAV integrators have a lot of advantages if they can be properly leveraged. You've already gone through the business of building an installation team. You can take that experience to build the residential team, but don't expect to use your commercial guys in residential. Most want nothing to do with it.

They also require two entirely different approaches. In commercial, it’s get in and out as efficiently and quickly as you can. In residential, there is a lot of thinking time on site, and you have to work carefully and meticulously. Everything has to be made super easy for the customer to operate. They aren't going to read manuals. They want you to show them how to do it and when there is a problem - they expect you to come fix it, not talk through it over the phone.

Most also don't understand the meaning of the phrase "Service Contract" either. They think it means once they buy from you - you are bound to come back to their home free of charge for life.

Infrastructure is also key benefit to a ProAV dealer crossing into residential. You don't need new accountants, new software programs, or new shippers. You can borrow techs from residential and use them in commercial if need be. You can leverage existing vendor relationships to help you with residential vendors and you can use your history to provide good credit refs to potential new vendors.

Beyond those factors - it is an entirely new business. You need someone else to manage it, not the same person who runs ProAV. That person needs an admin. You will need a separate residential design engineer, separate project managers and separate sales people specializing in residential.

rAVe: Who are your target markets and what are the differences in working with them and marketing to them?

DG: Whether working with a builder, architect or designer, you always end up dealing directly with the homeowner. You market your services to those people because they are there with your target customer and thus those relationships are key to a business' success. We utilize our showroom as the primary marketing tool for each. We run seminars, and create social events to bring these people in. When they see what we can do and experience the showroom, they realize that by bringing their customers here - we make them look good. We also have special programs designed for each sector that give them great incentives to encourage their customers to do business with us.

In terms of direct consumer marketing, you can't possibly afford to market to the masses like the big retailers do. 90 percent of the people are not your target audience and will never buy from you even if they do come in your store. You have to decide who you are and who your customer is and that's who you target.

You can't do business with everyone. If you advertise blowout prices on plasmas, you may bring in more customers than were shopping at the big retailer or on the internet, but then the customer looking for a $100,000 theater may think you are a low quality retailer and not come in. But if you only have expensive equipment, the average consumer wont step foot in your store. The truth is, often they can do just as well on a good plasma screen as they would in the big retail store but they are afraid to come through the door. The challenge is figuring out where the line is that will bring in that customer but not scare away the other one. It may not be possible.

rAVe: What advice would you give other commercial/ProAV companies considering entering the HomeAV market?

DG: Don't go into it because you see big fat margins and think you can get a piece of it. The margins on the list prices appear to be profit, but there are many seen and unforeseen expenses that eat into those profits. You need to be realistic about the actual costs of doing business and plan accordingly.

I remember when a good friend of my father’s sent a proposal he got from a custom integrator for a theater and some plasmas in his home. It was all Runco plasmas and projectors at list price. I thought - man is he getting ripped off. I told him I could get him a cheaper plasma and projector and he was overpaying. Thankfully, he didn't listen to me because at the time, I didn’t understand the custom home integration business. Now, I understand that it wasn’t out of line in the least.

The biggest mistake you can make is offering that customer your products cheaper and stepping into that house thinking you just hit pay dirt. You will be the one redoing his hardwood floors and wiping up the dust with the shirt you just lost. If you are going to do it - do it for the right reasons and go all the way. You have to first want to be in this business, then be prepared to lose money while you figure out how to do it right - one customer at a time. If you can get past that and still like it, you will also have figured out how costly it is to be in the business and suddenly those list prices and high margins won't look high - they will look necessary to your survival.

For more information about Adtech, go to http://www.adtech-sys.com/

For more on the Home Entertainment Expo, go to http://www.homeentertainmentexpo.com