The Channel Change is Furious
by Byron Whetstone, American Direct President & CEO
The pandemic, lock-down and shelter-in-place restrictions have been difficult for so many. Our company was fortunate to be able to continue operations as an “essential” business. Although some associates chose the option to work remotely, the adjustment was minimal since our national platform for many years has been built on remote network technology and access. Businesses everywhere have embraced screen sharing to become masters of web conferencing. Is physical proximity truly required for companies to function? A proliferation of videotelephony options accommodates meaningful real-time connections which led me to state company-wide that we are witnessing an unprecedented industry pivot. This increased reliance on screen time for business communications needs a name to describe what we are seeing as the unfolding of a “Furious Forward Future.”
For some of us, this is no real surprise and I have often mentioned Thomas Friedman’s contention that we are in a 4th Industrial Revolution, an Age of Acceleration. Technology has advanced so rapidly that past predictions of Moore’s Law (information doubling every two years) seems exceedingly too slow a prediction.
As a result, entire industries are rethinking their business models. Who would ever have believed that we may never go to the theater or the cinema again? Or enjoy the anticipation of watching live sporting events?
I’m additionally fascinated by the way people have embraced the cleanliness, distancing, and health requirements that seem to have accompanied the fear of “death by virus”. Of course, following this virus fear brings sharp focus to the very real life issues of those who have survived or are currently facing death. Too many lives are decimated by the shutdown in employment and livelihoods.
Regrettably, we have seen this life and death issue also play out on whatever media outlet you follow as a violation of human rights or perhaps stated more directly as an amalgamation amid the haves and the have-nots. All political statements aside, we are seeing the country question institutions at every level nationally, state-wide, locally and these include law enforcement, education, emergency services and religious freedoms. The picture being painted should not be ignored by our businesses, because to do so risks their continuing ability to maintain relevancy or even survive.
A “Furious Forward Future”, requires some fundamental rethinking and that means a laser focus (alliteration is fun) on “the where” the momentum is leading. Here are four identified areas:
1) Distribution is a “Virtual Business”
Our clients live their lives on the mobile device continually at their fingertips. They communicate with their families, their co-workers, and their best vendors via a variety of virtual tools. If this is how our clients behave and how you and your associates behave, then the logical extension is that this is how our businesses should be allowed to behave. All digitized information, all virtual electronic interactions, and client service is then capped off with human interaction. As the table stakes increase, serving clients where they are spending time on-line and building virtual relationships is mandatory. If we can adopt this mentality, then we will begin to add value to transactions when our human touch is revealed. Virtualization is happening in every sector. Are you hoping this is a trend that will pass or that you can catch up later? The time is now to invest in machine learning, data analytics, and statistically progressive decision making.
2) Technology Investment Culls the Herd
For the many contract hardware distributors and commercial integrators, investments in technology likely will be the difference of who wins and who loses. Both segments have historically been very fragmented and this means systems and processes can remain status quo for many years. “That’s not the way we do things around here” is a death wish for leadership in these businesses.
The time for protecting the status quo is gone – long gone – and embracing updated information based technology is separating the excellent businesses from those who have not invested in their futures. As an example, while we were all hunkered down at home, the technology business that happened to sell pizza, or hot wings, or delivery services soared. Domino’s is a great tech company because of the way it embraces the statistical journey of their buyer. Attention is paid to how often to offer product discounting, where is the price point, what is the typical order size, what time is the order most likely to be placed and that information is available client by client. Those are not pizza questions. Those are driving top line questions. If the world is virtual, our business should have a command over this kind of data and the irony is, for many of us, we already have the knowledge, but ignore the opportunity. Status quo is so much easier and the cost to implement is minimal.
3) Consolidation Via Private Equity Investment
For both contract hardware and commercial integration there has been tremendous consolidation led by private equity or strategic industry participants and that is driving the inevitable shrinking of the number of companies in the space. There is a very viable argument that can be made that within five years, there may be less than 200 contract hardware businesses in the US. The top 20 companies in that future environment will all operate with national geographic aspirations and this group may be responsible for $ 1.5 billion in annual revenues. That is not fragmentation but rather aggressive consolidation. In a similar way, we have already witnessed the first billion dollar commercial integration platform with Convergent backed by private equity and a likely public offering in the future. With 6,000 integration businesses operating today under $10 million in annual revenues, the marketplace continues to be ripe for further roll-up activities. You may not be too bold, if you said “consolidate or liquidate” in either business profile in the future.
4) Advanced Turnkey Business Models
Interestingly, the safety and security businesses have also seen some large channel changes with the strengthening emergence of “software as a service”, and the growth of different “go-to-market” paradigms. Historically large guard companies with physical security offerings have acquired large commercial integration businesses to update their service offerings. The migration is causing the emergence of commercial integration as a turnkey solution and electrified locks are adding to the channel change. Owners and end-users are still driving selections but a turnkey complete service model negotiated at the enterprise level might impact building automation decisions, which is the living breathing building powered by technology information. A business model that provides services and products at the beginning of construction or occupancy and is the primary technology vendor throughout a building’s useful life is not only aspirational but as of today also achievable.