The Top Ten Things That Require Your Attention    

This is a self-assessment test. For best results, have everyone on your management team take the test separately and average your scores. I am sure you will have a lot to chat about afterwards.

For each of these talking points, give your self a score from a low 1 to a best in class 5. It helps if you think about some top-notch businesses you know before you give yourself a 5. No half points allowed. No extra credit. No collaborating – do your own owrk! The scoring scale:

1. Approaching crisis level. This hurts us almost everyday.
2. Needs a lot of work. We focus on this infrequently and it shows.
3. We’re OK. Not much different from our peers.
4. Better than most. We actually work on this.
5. Best in class. Other companies ask how we do it!

You will notice there is nothing on this list about great people. You all have wonderful employees with a lot of talent, drive, and ingenuity. You have to ask, are you doing enough for them? Can they realize their potential? Is management doing its job?

Ready? This is what great companies do, in no particular order:

Management’s Free Time

Are senior managers (or owners) readily available to handle personnel, customer, or planning issues? Are company or departmental projects identified and completed on time? Are managers well informed and proactive? Do employees feel they can ask a manager anything? (score 1 to 5)

Mastery of Technology

Do you have the personnel and resources to figure out new technology? Are you masters at existing tech? Do manufacturers call you to better understand how their products work? Do you have recognized, undisputed experts in various fields with time for research as opposed to one super-busy know-it-all? Are you fearless about trying new things? (score 1 to 5)

Accounting Controls

Is your company purchase order compliant? Can you trust your monthly accruals for expenses and revenue recognition? Are receivables under control and terms and conditions consistently tracked and enforced? Are payables accurate in your cash flow forecast? Are financial results predictable?(score 1 to 5)

Business Metrics

Do you create daily or weekly financial dashboards and do all management review and discuss at least monthly? Do you use business intelligence to adjust pricing and margins seasonally or with the market? Do sales and work teams have KPI’s (key performance indicators) as feedback on their performance? (score 1 to 5)

Outsourcing

Do you have and apply external resources for peak loads? Are these suppliers as good as you are? Can you schedule these resources far enough in advance to guarantee you can secure the best suppliers? Do they prefer to work for you more than any other customer? (score 1 to 5)

Commission/Incentives

Are your incentive programs clearly understood and appreciated? Can employees see the connection between their good performance, the company’s results, and their individual incentives? Are commission plans designed to generate more profit and more business? Are all incentives reviewed regularly? (score 1 to 5)

Business Development

Do you have a systematic approach to attracting and introducing prospects to your company? Are these prospects qualified during that process? Do you gather business intelligence about the customer before asking for their business? Does business development continue even when you are busy? (score 1 to 5)

Marketing

Do you have a written plan for taking your products and services to market? Have you identified the verticals and channels that Business Development should target? Can you track the results of all your marketing efforts in terms of leads, contacts, and brand perception? Do you regularly connect with your customer base, issue press releases, and post in social media? (score 1 to 5)

Communication

Are customers and employees comfortable communicating with management? Are challenges and obstacles to success openly discussed? Is project information readily available to all team members involved in the delivery process? Do departments work together to improve overall delivery? When there are surprises, are they mostly things outside your control? (score 1 to 5)

Recruiting and Retention

Do you perform regular performance and pay evaluations? Are job expectations clear and progress tracked? Do you have a lot of unsolicited job applications? Do you hire good personnel even when there’s not an opening? Do great employees stay on board? Are poor employees let go in a timely and professional manner? (score 1 to 5)

Scoring

Add up all your scores and multiply the total by two (x2). You now have a grade on a scale of 100. A score between 50 and 70 would puts you in good company, but with lots of room for improvement. Anything above 70 puts you at the head of the class. Anything below 50 requires immediate attention in order to stay competitive.

What is a great score worth? Companies that have CAGR (compound annual growth) of 10% or more in both revenue and profit over the past five years, probably did well enough on this test to score 80 points. Their current pipeline is solid and they are being “discovered” by new clients daily. Seasonal spikes are taken in stride and profits never vaporize after closing out a month. Results are consistently predictable and often better than expected. Employees are happy and job openings fill within days. These companies probably have one or two areas that they want to improve on and will act on those as soon as the problem is identified. Sounds great doesn’t it?

No one is perfect. If your score was in the 90′s, you are probably not being honest with yourself or your team – unless you happen to be the best at what you do. However, companies that really are the best rarely score themselves with 5′s because they are always aware of what needs to be improved.

If you need to improve in multiple areas, your question might be, “Which ones first?” One recommendation would be to focus on one area that you know you can successful in. Go for the win. However, many of these assessment points are inter-related. For instance, any progress will require a lot of management focus, but freeing up management time means getting many of these issues under control. So instead of trying to be best in class in one thing, work on several areas at once by focusing on common themes. For instance, improving controls and discipline in things related to accounting will help in several categories.

Marketing 201 For AV Geeks  

This Is Your Website Intervention   

Marketing experts can be rather militant in their opinions on what your website can or should do for your business and with good reason: There are now four generations of humanity surfing the Internet and they all want to know the same things: What do you do, where the heck are you really located, and what is your phone number? Like many folks I have not opened a physical phone book in probably ten years and I would not expect to find anything useful in one if I did. The Interwebs on the other hand has everything under the sun. What was once just a flashy billboard for commercial businesses (did we forget what the “com” in dot-com stands for?) has become commerce central. And even if you do not need to conduct transactions on your website, you do need to quickly legitimize your existence and you have about ten seconds or less to do it in. (If that ten seconds is wasted on loading a flash animation, then many potential prospects have already moved on!)

Imagine the biggest account you want to penetrate. They have a team of evaluators that have allowed you and nine of your competitors to submit a capabilities proposal. They are going to perform some due diligence on your company that may be as simple as checking out your website and Googling your company name for blog references, but it could go deeper than that. They might call all the “offices” you list and ask to speak to the General Manager. Or, if they are really clever they could do a string search of the text on your “about” page and see who else describes themselves in the same way. What will your website tell them about you before you ever get the opportunity to explain yourself? Will you be invited to an in-person pitch as a viable supplier or comic relief?

Now, imagine the perfect client searching for a supplier that has your unique expertise, geographical footprint, or commitment to customer service. Imagine that they have found your website after someone referred them to you. Will your site live up to that referral? Or, will that customer have to lower their expectations in order to contact you?

[As an aside, consider also that you may have the most wonderful, creative, and compelling website around. Does your company live up to that promise?]

I am not going to make a long entreaty about why you should hire a professional and get your website updated. Do it. What I will ask you to do is perform the same due diligence on potential developers that is conducted when companies evaluate you. Check out your web developer’s site, then all the ones they’ve created for others. Are they trying to look bigger than they are? Do they have more than one or two credits worth noting? Does the owner, principal, or chief executive hide or are they profiled? Can you communicate directly with them? Do they have a philosophy or just tout expertise?

Here’s a few things you should expect to hear from a savvy web-developer:

• A discussion on your goals and objectives for your website
• A desire to understand your business strategy, customers, and competitors
• An analysis of your social media strategy and potential tie-ins to your website
• A request that you identify at least five of your industry’s websites that you like and five that you don’t and why
• An assessment of how much and often your firm is capable or willing to maintain a website
• An explanation that they will submit 5-10 preliminary themes and develop the 2-3 that you like the most before you choose one

In addition, here are a few things that I think should be important to you:

• A website that you can easily edit, add, or change yourself
• Strict adherence to only using high resolution photos
• Don’t be afraid to ditch your tired old letterhead logo and get a web-friendly update
• Don’t fall for gimmick-y web mechanics; focus on delivering customer-centric content
• Commit to – at a minimum – monthly content updates

Websites are today’s most important first contact between you and your prospects. For many companies, effective online marketing can establish credibility more quickly than any human-powered contact and can pave the way to more effective first meetings. And once a relationship is established, websites have the power to keep customers engaged and informed. There is a tremendous amount of relationship building available to businesses like yours when they implement the right online strategy.

Marketing is the catch-all term for changing or maintaining perceptions, identifying and meeting expectations, and anticipating future demand. This is not just about customers; employees and suppliers are subject to marketing strategies too. Every sale you make involves an element of marketing. Even your proposal is a marketing execution (for better or worse). The key elements of marketing include Research, Branding, Advertising, and Public Relations. There are more, but for today let’s focus on these more common concepts.
Research tells us things we need to know about our customers, our competition, and ourselves. You need to do research in order to establish pricing, know what products to buy and sell, or choose a company name. Too little research and you will lose touch with the market; too much and you will get stuck in analysis paralysis (the act of not acting because more information might indicate you should have acted differently). Some research is quantitative and delivers hard numbers, eg: The percentage of direct view displays to projectors installed in board rooms is increasing by x% per year. Other data is qualitative, eg: Customers perceive that suppliers from Midwestern states represent a better value over coastal states.

For the average AV integrator or rental company, a combination of quantitative industry research and light qualitative analysis of customer preferences and opinions is enough to point you in the right direction. This research will influence your branding message and medium, indicate whether advertising would be productive, and identify any public relations opportunities. It might also help you learn whether your pricing is high or low for your product or service or if there are opportunities for products and services that you don’t currently offer.

Branding is the touchy-feely part of marketing that eludes most of us. Companies have the least control over their brand image, but it impacts the business as much or more than anything else you do. Brand is what people perceive you to be. It is influenced by everything you do and say, but there are a few things you can do that will help in a big way. The good news is that smart branding will trump most of the little mistakes we all make along the way.

Branding starts with your company name and what it says to the customer (research!). Your logo and tagline (if you have one) set the tone for the branding experience. However, the biggest single impact you can have today is your website. The content of the site is not as important as the look and feel. At a minimum, viewers will assess you and make a judgement about your brand based on what your website says about you in less than thirty seconds.

Advertising is the act of strategically placing a message in front of consumers. This can be an advertisement in a trade publication or sponsorship at an event. Trade show exhibiting is part of your advertising budget. If you spend capital to place your message somewhere specific – it’s advertising.

For most of my clients, I find that advertising is not the best return for their budget. There are too many things that need to take place first in order for ads or trade show booths to have any impact. However, the opportunity to advertise is sometimes thrust upon us so it helps to be prepared. For instance, if a trade magazine wants to feature an event or project you have worked on, then a well-placed ad can help you capitalize on that opportunity. Be ready.

Public Relations is the tool we use when the brand, message, or image of your firm is affected by actions or events in or out of your control. PR is how we explain things that happen to our public audience. The AV industry is rather niche-y, therefore our “public” is often quite small. Public Relations can be as simple as picking up the phone and calling a key customer to discuss a recent announcement or incident. Especially in an election cycle, PR as an art seems very reactionary. However, a regular press release regimen can augment branding and advertising efforts in a proactive way.

I hope this is helpful background information, but there’s an elephant in the room called Social Media. I still get regular emails or calls asking, “My boss wants to know if anyone has ever sold anything because they have a company Facebook page.” I wrote this article because that boss doesn’t understand the difference between advertising and branding. If I then go to that company’s website, I expect to find an antiquated, static, perhaps even ugly page with little or no personalization. The owner probably spent a ton of money for it ten years ago and never learned how to capitalize on it. No wonder they are suspicious of something that is essentially free! The answer to the question however, is “Yes, social media does have an impact on sales in terms of branding and public relations. You should learn how to use it.”

To sum up, my holistic approach to marketing is to first assess the current brand and market position of the firm (research). Discuss how the company wants to be perceived in its quest for more and better customers (brand). Then we can assess the value of the tools that are in place or available such as websites, social media, and visual branding. Finally, we develop a budget somewhere between 0.5% and 2.0% of annual revenue. More if you are catching up; less if you are maintaining. (Manufacturers might spend 4 to 10%!) In most cases, the process of developing a modern website would take you through the same steps. And while many marketing companies make this process a little too much like voodoo for the average AV Geek’s tastes, there are the few that understand that practical comes first. Remember this, you are a consumer and you have never bought anything that didn’t involve marketing. As a supplier, marketing is the tool that will deliver customers.

What follows is the original email that I published in the January 2012 AV Matters. What follows are some of the comments and perspectives that were emailed to me in response and my replies. 

Outrageous Rigging Charges

Dear Tom,

I was hoping to pick your brain and discuss the ever-worsening effects of the drastic increase in rigging, power and liaison charges being imposed by [in-house AV providers] as a way of keeping us independents out. It seems to have reached the ridiculous point. Just 2 weeks ago I was quoted over $5,300

to rig 1 40′ downstage truss w/ 3 pick points and I had to supply the lift. After getting on the phone with my client, the hotel Convention Service Manager, the in house av rep and myself, we got the price down to $2800.

It seems the price points that venues are trying to hide in their “3rd Party Agreements” are just getting out of hand.  These agreements are not provided to our clients when booking the space unless they know to ask for them in advance.  Once the space contract is signed, they have little room to get the charges/fees reduced. I am looking to get a forum to make this a more known problem in the events industry and get this info in front of the event planners.

What are your thoughts on this and have you heard any discussions in your travels?

-Frustrated Stager 

Dear FS,

This is a timeless discussion topic. After all the philosophical discussions about who is better equipped to perform the work or who is gouging whom, it all comes down to the same conclusion now as it was in 1980: The venue owns the space, the venue assumes the risk, the venue gets to decide what profit it wants to make and how it makes it. Clients have the power to change contracts before signing them and have a great deal of influence afterwards too. MPI has been teaching Meeting Planners about the ins and outs of convention services contracts and third-party provider clauses for years. We can complain about stupidly expensive and occasionally inept rigging services, but at $300 per gallon of coffee – that rigging charge is chump change to the overall meeting costs.

And before we blame the in-house AV company for the pricing, the hotel owners have a great deal to do with this. Since the hotel gets between 50-70% of the revenue (40-60% of the service cost plus a hotel service charge on top of that), the net revenue to the supplier often looks like what you would have charged. The hotels can be very greedy and downright illogical about these fees. (What do you think the hotel service charge would be if the client wanted to bring in its own caterer?)

So, you have my sympathies, but the in-house AV provider has to pay a huge fee to get the contract, is constantly ordered by the hotel to comp charges that were fair, has to provide tons of free support to the hotel itself (from editing the GM’s kid’s birthday party video to handling AV for weekly staff meetings) – all for the privilege of watching you come in and do the show. Stagers complain all the time about individuals selling shows from their apartment and renting the gear from [insert your competitor's name here]. These independents have no overhead, insurance, or responsibilities that legitimate companies like you have. Now imagine that you are the one that built a huge convention center and hopes to pay it off by providing services to the guests and then some stager that only has a couple of employees and much lower overhead wants to take that away. I think it is a wonder they let outsiders in at all!

Educate your clients, explain their options – you are supposed to be the expert. Bottom line is that this situation is one of the unchangeable conditions of our industry. It will sometimes cheat you out of business, therefore it is your job to be aware, be resourceful, and educate your clients. In my opinion, the venues are not going to change any time soon.

– Tom

Qualified Personnel

Dear Tom,

Great reply to your rigging email.  The only comment I would have is that it is not necessarily venues that are looking at a “direct” increase in profit but the in-house audiovisual providers.  I know from personal experience after 9/11, vendors were looking for additional revenue streams they could capture to not only prop up their revenues but the revenues in commissions to the hotels.

While I agree with you that when rigging, the facility is ultimately responsible as you are attaching to their structure.  My problem is that when they try to charge for personnel that are not certified or qualified to make the necessary decisions.  That on top of not bringing your own lifts, certified motors (that come from the same place they are sub renting them from) and mark up the cost sometime 5x what we would.

Also, those of us that do the proper rigging have the same if not better rigging liability insurance.

The best defense is having an educated client during the contract phase.  The earlier you can bring in your trusted AV vendor, the better chance you have of removing some of these charges.  And to your final comment, you will be surprised how many sales agents will strike the rigging and exclusive audiovisual services to get the butts in beds!

Thanks! I am glad you brought up the issue of qualified personnel – especially in regard to rigging. A few hotel AV companies tout their training programs, but when it comes to rigging some training just falls short (pun not intended). The Entertainment Technicians Certification Program (ETCP) provides independent testing to certify the knowledge of entertainment and theatrical riggers and entertainment electricians. The key word here is independent. Programs that train, then test their students tend to be focused on passing the test-takers. ETCP does not provide training and the tests are developed by a diverse group of experts. As an oldtime theater rigger (flyman for a roadhouse), it disheartens me to see hotel AV technicians with cursory rigging training and no real experience taking responsibility for evaluating the safety of a truss rig. Granted, some of the riggers sent by outside companies aren’t qualified either! But I would bet the experience of a veteran touring guy over someone that was setting up flip charts the day before. -Tom

Terms and Conditions

Tom,

I have to agree with you 100% and this is right after getting quoted $20,000 for a pretty simple rigging project in Orlando.  I also complained and the CS [convention services] manager and in-house folks worked things out so that I was only 50% over budget.

In the end I’m grateful for the service they provide and just need to accurately warn my client and budget accordingly.  As you said that’s what experts do.

Sometimes all we can do is warn our clients and point out the battles they need to fight for themselves. As their expert and agent, we can give them the fuel they need to persevere. I want to bring up one more point about your Terms and Conditions as an outside provider. When you build a budget for your client, sometimes the tendency is to presume that the venue is friendly and the outside provider rules standardized. Production rental companies have to protect themselves by citing exclusions in their T&C for venues that have exclusive contracts, union agreements, or preferred provider agreements. You do run the risk that the in-house provider can use your exclusions to prove why they are a more cost-effective choice for AV, rigging, or labor. However, you eliminate the risk that your client can hold you responsible for charges that you should have RESEARCHED before you wrote the quote. If your comeback is that sometimes you don’t know the venue when you write a quote – then circle back to my point: write the exclusion in your proposal! Maybe then your client will be better informed before they choose a venue.

PS – If your next point is that you fear losing the job to another outsider because you cite extra charges to cover the in-house expenses, then you need a better proposal or a better salesperson.  –Tom

Outside the Box Thinking

Obviously I am biased however full disclosure as a matter of integrity must serve some place in business ethics. The short sighted side of this is that most of the independents would be willing to pay properties a commission to level the playing field and could include all “services” coming in.

Just a thought.

Back in the 1990’s, corkage fees (charges for bringing in outside suppliers) came into vogue as a means to recover revenue lost by the venue when their third-party provider could not win the business. As a national stager, I ran into this from time to time. The mistake the venues made back then was to expect the outside suppliers to open up their books to be audited for the assessment of the corkage fee. Hah! In the end, the customer always became involved and the problem went away. To the point of the letter above, I think that if venues had one price for a meeting room if you used in-house providers (or none at all) and another price if you selected the waiver to bring in your provider, then the corkage fee would make more sense (and be the responsibility of the customer).

 More to the point of the writer above, I wonder what would happen in competitive standoff between an in-house provider and outside supplier, if the outsider offered a flat fee to the venue for the privilege of being uncontested? Do third-party agreements have clauses that prevent the venue from doing this?  -Tom

The Issue of Liability

Love the newsletter, but I have to disagree on one important point in your response to the person who sent you their frustration on rigging charges. I too have to agree with them that it is getting way out of control and creates some serious issues for the overall event as all of this has to be taken into consideration when putting budgets together and usually impacts either the production or the scenic, sometimes to the detriment of the overall look and feel we, the producer, want to pull off.

In regard to your statement that the “venue assumes the risk” that is really not true. If the hotel has an “official or exclusive” rigger then that vendor assumes the risk and as I am sure you know the producer does as well. In many discussions with the hotel and their in house provider regarding this clause I immediately state that my company needs to see their certificate of insurance and we want to make sure we get a rider naming us as additional insured. Many of the reactions I get are either total befuddlement or some sort of push back saying that they can’t do that. I then explain what “exclusive” means and then the discussion usually moves to a more accepting tone.

The bottom line is that if a hotel has any exclusivity then they have to understand and accept that both they and their vendor has to accept responsibility… not always the case.

Thanks for the comments. I will concede that as an event producer you share liability in any venue. However, the building owner is the prime contractor in the liability chain and ultimately that is whom the injured will go after if they do not receive satisfaction elsewhere. The reason that the venue wants YOUR liability certificate is to increase the odds that your insurance carrier will pay out before theirs does. 

But you get BONUS points for recognizing that by contracting with a third party rigging services provider, the venue has increased your exposure and assumed responsibility for your safety while foisting theirs off on to the house rigging company. I am not sure if the competing outside AV, lighting, and rigging companies can achieve the same results by asking to be a named insured, but I like your chutzpah! (of course if the house rigger defaults on a claim, the venue operator and then building owner are next in line). -Tom

Desperate In-house AV Companies

I agree with you, both that this is a topic too often discussed and that the best solution is educating the individuals purchasing the meeting space about the valuable and irrelevant clauses within a venue production rules. Some of what you said however does not align with my experience, (I spent over a decade as the Director of AV Services in some excellent convention facilities in Orlando FL), and it seemed important to share some ideas that apply some balance to your obvious empathy for the in-house vendors.

No one would argue with you that the venues have legitimate interests in managing risk within their facilities. So for them to insist that all rigging and electrical services be purchased through their vetted and properly insured vendor is wholly appropriate. My clients have no issues complying with these requirements. Regarding these activities as a source of important revenue for a convention hotel, my experience is these revenues have no impact on the overall profitability of the venue. In fact, from the many facility P & Ls I have seen, these items, (in many cases even revenues from their AV contracts), do not merit a line in the financial reporting and fall under other revenues, (less than 2% of gross revenues). Simply, a convention hotel is in the heads and beds business. They have convention space to put heads in beds, and when given the choice between preserving AV revenues, and getting the room rate they want, the AV clauses go poof, fast. This would not be the case if the revenue from these sources is as important as you suggest.

What my clients do object to are blatant attempts by the in-house companies to use these clauses to minimize or eliminate the cost advantages offered by an outside staging company by adding costs that provide no value to end client. An example is the requirement of hiring a “shadow manager” to enforce an imaginary “hospitality standard”.  If these individuals would fill a working role on our shows, our clients would happily pay this fee, and enjoy the benefit of this technician’s enlightened oversight.  But in most cases, the in-house vendors insist that these expensive individuals do nothing. There are other tactics, but the point is made.

FS should be encouraged though as many corporations are engaged in strategic meeting management initiatives. An important part of these initiatives is eliminating contract clauses that do not benefit the corporate buyer. From the industry meetings I have attended, most strategic buyers place punitive and vague production rules in that category. So FS, there is light at the end of the tunnel for staging companies.

The national companies that provide in-house AV services created the financial environment that they live in. They voluntarily offer signing bonuses, guaranteed commission payments, and 50% plus commission rates. With these types of contractual costs, it is not surprising they must use every tactic possible to preserve the premium they want to charge my clients for the convenience of using an in-house service. Perhaps they should read your article on the “Value Proposition”. They may find enforcing transparently silly contract clauses would become unnecessary.

One cannot blame the venues, as they are simply the beneficiaries of these AV companies pursuit of easy AV dollars. This does not have to be the case, as many smaller, regional companies can negotiate better terms. For this reason, it is difficult to have any sympathy for the plight of the larger in-house AV vendors.

Thanks for your thoughts and perspective. I agree with you on all points including the “other revenues” of hotel P&L’s. I have always been a big fan of in-house rigging and electrical contracts when they improved safety and service. However, I have seen the gross profit analysis of many hotels and note that many times the most profitable items as a percentage of revenue are things listed under “other revenues”. In some cases, the gross profit from third-party provider AV commissions was equal to 10% of the hotel’s net profit. Room nights offset overhead costs – there is very little variable expense. So clearly room nights are critical to success. But AV and Convention Services are gravy income. They have low cost of delivery and scalable expenses. Housekeeping and restaurants have to maintain reasonable staffing levels regardless of how many rooms are booked.

As I said, I too am a fan of in-house rigging and electrical – except when they are used as a bludgeon to keep independent providers out of the hotel. When there are published prices and guidelines that are consistent, these are good programs for protecting the building, guests, and workers.

Finally, I want to put an exclamation point on your comment that in-house AV companies have created this mess by commoditizing (my word) their service contracts into impracticality! However, I do still blame the venue for their shortsightedness in regard to these third party arrangements. A good business agreement is one where the needs of both parties are aligned: a win-win. The third-party agreements I am seeing today are designed to deliver revenue to the venue now and have little consideration for the future and no upside to the AV provider for growing the business. The AV providers I speak to feel trapped – they need the market share and losing a contract means waiting 2-3 years for another opportunity. If I were in this spot, I would work on my value proposition… – Tom

Take Responsibility

Bravo on your balanced response to the frustrated stager. I have the unique perspective of dealing with this issue on both ends of the spectrum, both as an event stager and an in house audio visual provider.

Your reply was spot on. More than ever we are coaching clients on red-lining exclusivity language and negotiating terms before signing with [companies other than our own] serviced venues. On the flip side, our in house folks are educating customers and stagers to the realities of doing business at the venue.

Thanks, I was going for balanced! Not sure everyone got that though… -Tom

The Occupy-AV Movement

Tom,

Wake up and smell the coffee….it’s $300 per gallon!!!! ….Change is coming

I read with great interest your response to “Frustrated Stager” about in-house av suppliers and hotels gouging users (meeting planners or third party stagers) with expensive patch and rigging fees.

My company operates in [redacted] and plays both sides of the issue supporting both in house facility contracts and works hard to compete at many facilities our competitors support.

I do not agree with you that “it’s not going to change any time soon”. I believe we are at the start of a shift to a new model. The current revenue share model (you describe as:”50-70% of the revenue 40-60% of the service cost plus a hotel service charge on top of that)” is responsible for increasing costs to consumers with virtually no improvement in delivery and outcomes for customers.  With respect to the facilities responsibility to generate revenue on meeting space; they must begin to re-align their revenue models to the new customer expectation.  This new customer is demanding transparency and above all a perceived sense of value and competitiveness. $300 per gallon for coffee and $5300 rigging charges will become less and less tolerated by meeting and event planners.

The new economy is here and it is being driven by smart well informed consumers that have realized the power and influence of each dollar. These customers are, more and more, DEMANDING VALUE.  Value is measured against everyday consumer experiences.   As meeting planners are presented with the current type of inflated value proposition they will demand change….they are already demanding a new deal.

I am a free enterprise thinker that believes the consumer will judge the current model as out of date, fat and out of step with the new economy.  The best thing for consumers and our industry is good competition among suppliers.  Hotel commissions is an example of how a lazy and fat economic system can manipulate supply partnerships that rely on increased capital input from consumers with no improvement on the deliverables.  The idea that hotel ballrooms and convention centers can exempt themselves from the new economy is old thinking and soon to end.

I believe that progressive grass roots members of  our industry could accelerate this inevitable change by coming together to creatively and actively communicate to event and meeting planners.

Thanks for your viewpoint. I am thrilled to get your take on this.

I believe in free markets and this is why I don’t expect things to change as quickly as you do. The inequity in pricing we are seeing today is cyclical. I expect it will become worse before getting better, and then get worse again. When the commercial real estate market breaks down and the hotel owners go bankrupt, the new owners will have better financial models to operate rationally priced and serviced businesses. Not that I wish anyone failure, but these companies owe more on property than the property is worth. That kind of change is hard to stem.

Having said that, we agree on the fact that the model is broken and consumers can and will demand changes. This is why I specifically mentioned MPI. They are the educating force for the meeting planning industry and a forum that companies like yours can deliver this message. I think you would also find some kindred spirits to form a non-profit group that focuses on getting this message out. 

Fair and Balanced

When I saw the topic of Exclusivity in Venues my interest peaked and I expected to see an attack on Venue Based Service Providers.  We always have to balance the topic of venue exclusivity due to the amount of revenue we manage within our venues and through our non-venue based operations.  As I read through the reader email there was so much I wanted to say to respond.  Your response was as if I was writing it myself, thank you for a great response and explanation to the readers concerns.

You are welcome. I have rental company clients in and out of the venue business, so I see both sides of the issue. Anytime someone cries “unfair” I tend to pull back and look at the bigger picture. Thanks for reading!

A Different Take on Public Venues

Rigging fees in hotels are between the hotel and the customer, but I think they may be wrong if they do not charge the same price to all customers and notify them in advance of the charge and that the hotel is getting a lot of the money from the rental.

With a building built with public money (convention centers) I think it is just wrong to try to charge the outrageous fees.

I have thought for many years that if a convention center or a hotel tells a client they “strongly recommend” they use xyz audio visual staging company for the audio visual work at the facility and they do not disclose to the client that they receive a rebate on the rental fees they (the client) is being overcharged and the hotel or convention center is guilty of payola.  This may be tested fairly soon by a client that was not aware of the 50% kickback on the rentals.

The person that sues will probably be eligible for treble damages under the Federal Antitrust laws.

Thanks for your observations. The antitrust comment is an interesting take. I am not sure how high it flies since contracts with public buildings should be public record, but I do concur that public spaces should have market pricing and be fair about how pricing is applied. I wonder if that applies to a third party building operator – many convention centers are run by private companies on behalf of the city? Now, if a conference manager is taking a kickback in a public building, are there different legal implications than when it occurs in a private venue? I don’t know…

All in all, an interesting thing to ponder. Thanks again for sharing.

What’s Wrong With My Company’s Value Proposition? 

Capturing value is hard, selling on price is easy 

When I hear folks blame their poor margins on low-ball competitors, my heart sinks a little because I understand that low margins are sadly, self-inflicted. There is no law that says you have to take business that doesn’t make sense. And more importantly, not every job, project, or customer is right for you. The big question is how do you get the right customers to pay what you are worth? In other words, how do you negotiate value instead of price?

If I ask you what your value proposition is, and your answer begins with “We have the best…”, then I expect I am going to hear a lot of platitudes about quality and service – probably the same things most folks say about their company. If your response is about how you help the customer maximize their return on investment, then we might be talking about a true Value Proposition.

How do you determine what is valuable? There are customers that clearly express what is important to them only to have prospective suppliers offer something else. In talking with buyers, they often cite that the existence of an RFP (request for proposal) actually triggers lowball bidding. The assumption is that because more than one supplier will propose on the job that the customer is looking at price first. If your value proposition is high service instead of low price, then you have to learn to recognize when the customer isn’t buying what you are selling and when they are.

“You get what you pay for” is the rallying cry of those that feel cheated out of work by lowball competitors. Sometimes they are right – some low margin sellers deliver poor results. The question we need to ask is, “What did they do or say that convinced the customer this performance was acceptable given the price?” Upon analysis one of two things has happened. Either you were not able to prove why your solution and price were more valuable – or – the other bidder was able to prove why their offering was better for the customer. All things being equal, take the better price, right? If you strongly feel that you were the better choice, then you only have yourself to blame for not demonstrating a value proposition that proved it or finding a customer that cares about the things that make you cost more.

The real obstacle to having a winning value proposition is that it can’t look like everyone else! If we reviewed the sales pitches from a dozen integration companies, I suspect that the buyer would learn that EVERY company has the best people, never makes a mistake, and always finishes on time. When every company promises the same thing, there is no discernible value in it for the buyer. The seller with a winning value proposition will take the risk that their unique approach will win profitable business and accept the risk that some buyers won’t choose to pay more for that product.

In the final analysis, the reason many companies end up with low margin work is that they are addicted to revenue and are not willing to risk losing any project on price. These companies are leaving money on the table (not to mention losing money on some jobs), because they have a very low risk tolerance. Let’s look at a consumer example: Do you think that Starbucks understands that some folks won’t pay $4.00 for a cup of coffee? Of course they do. What they do understand is that the Starbucks value proposition increases what a cup of coffee is worth to some consumers. Starbucks is willing to forgo the folks that don’t value this customer experience. In fact, so many consumers prefer to pay four bucks instead of one that McDonald’s has introduced a new line of fancy coffee. They can’t beat Starbucks at their game, but they might lure some of coffee drinkers back with this new value proposition. In both cases, the value proposition is about the customer experience. In a blind bid on a cup of coffee, we’d all probably choose Dunkin Donuts because it’s coffee and it’s cheap – but it is probably the last place I’d like to spend time in drinking coffee.

Value propositions are both discoverable and invent-able. They can start with a marketing catch phrase or a strategic idea, but the best ideas come from your TARGET customers. Let’s presume your ideal customer is willing to let you make a decent profit in exchange for something. Find out what the something is and under what conditions the buyer would allow you to charge a fair price. You might want to build a value proposition around that.

I am not hearing about any specific industry, channel, or segment that is in a downturn with the exception of K-12 markets.

I am not hearing of any regions that are still depressed (other than the usual laggards), but I do hear about regional AV companies that are suffering. At the same time I often hear about AV companies that are thriving in the same region. (Not all problems are economic or regional.)

The capital markets seem to be full of money looking for places to invest.

Private equity is quietly moving again. M&A activity is up. Right now some private companies are selling because they can’t fix their problems by themselves. Soon we should see good mergers showing up (a good merger is 1+1=3). The funding is there, but private equity either wants a bargain or home run.

We have seen a few major bankruptcies and I expect more. Why? Because companies with poor cash flow and unprofitable business models simply can’t find any more financing. In short, they have run out of options.

Margins generally remain down especially in the contract bid world where there seems to be no bottom. Some companies are buying revenue at negative returns. Why? I have no idea.

Direct relationship selling is yielding improving margins, but much of this work is still being shopped around by the customer. Still, the smart money is on enterprise and relationship sales methods. Sell high-value solutions instead of commoditized products. This means teaching customers to want better solutions.

Lead times are increasing on low-margin projects and shrinking on others (more time to shop for desperate contractors). We need to make short lead time projects more profitable!

If I were developing revenue budgets for 2012, I would lean towards the assumption of 6-10% growth even without any major initiatives. At the same time, I would increase the percentage of my expenses that are scalable. Procure more sub-contractors sooner rather than adding personnel to my business. If revenue growth exceeds 10%, then I might add personnel.

Net profits seem to have stabilized for most companies I talk to, so in 2012 I would strive to reduce overhead, improve efficiency, and turn away less than optimum projects in order to increase net profit by 2-3 basis points.

On capital budgets, I would invest heavily in anything that would reduce my labor costs over time. Software systems for project management and cost tracking fall into this category. Also, computer hardware prices are quite low. I would replace any computer over three years old and take advantage of faster, more reliable hardware and the latest OS versions.

If 2011 was your sales growth and infrastructure investment year, then in 2012 I would focus on cost control and minimizing capital investments. Pay close attention to right-sizing personnel in 2012. Often I find that adding FTE’s will reduce overall costs by spreading work around, reducing mistakes, and adding flexibility. By the same token, being overstaffed can be costly because it creates silos, which reduce flexibility and leads to mistakes. There is a correct headcount for every company, but it all depends on your business model, internal strengths, and state of your infrastructure.

I hope this adds something to your discussion. Happy planning!

What You Measure Will Affect What You Achieve

The bane of my existence is the misconception that all revenue is good and all expense is bad: this is what I call “straight line” finance. So I am always on the hunt for business metrics that show the relationship between good revenue and good expense decisions. Recently I heard about an airline business metric that triggered a lot of notes: Revenue per available seat mile. This one number succinctly captures how well the airline is selling its capacity and at what rate. If the airline sells an open seat at any price, then the ratio could increase. However, if that seat is sold for less than the same seat last month, the ratio goes down. Each route or time period can have its own target number. And each airline would have different outcomes depending on their cost structures. While this one metric alone is not enough to measure a business’s success or failure, it at least tells a good story. Any airline can sell seats. The question is, did they sell them for enough money?

What is your company’s equivalent of “revenue per available seat mile”? Here are some capacity ratios you might consider in pursuit of the perfect performance metric.

Capacity-Based Metrics

Some aspect of your business revolves around available capacity. Metrics should also reference a specific time period. I prefer a trailing twelve months (ttm) average as a baseline to compare to the current period. When you learn what your ideal outcome is, you can apply that metric to potential projects and reject them before it’s too late.

Revenue per available rental income: Calculate the potential revenue of all your rent-able inventory (that is, rental items you actually receive revenue from as opposed to items that support other assets) and figure the 52-week rental income based upon weekly retail rates. If you divide that into actual discounted equipment revenue, you get a good measure of return based on what you think you should be getting (retail). What you hope to see is that the ratio improves in busy months (eg: discounts are lower). If your software is sophisticated enough, you can also compare projects, clients, or salespersons.

Revenue to available installer hours: Most integrators would benefit from more outsourcing, but lack the metric that will trigger hiring of subs far enough in advance to be cost-effective. Add up all the billable hours your team could perform if they were scheduled efficiently. Go ahead and throw in ten hours of overtime per person per week. Divide that into the last twelve months’ revenue for the ttm average. Compare this metric in profitable vs unprofitable periods to get an indication ideal capacity.

Average margin per project day: This is a sophisticated calculation and only for rental or installation companies that have excellent work-in-progress (WIP) tracking and job costing systems. This metric goes down when there are cost overruns and up when mistakes are reduced. The nice thing about this number is that you can forecast it. If you prepare a fiscal budget each year, you have already predicted what you think this number will be – track it!

Inventory on hand to revenue: In integration, the goal is to NOT have resale inventory on the shelf for too long. If things are ordered too soon or have to be restocked, this number goes up. If it goes too far down, then lack of inventory becomes a huge problem. Install teams will be held up, project days extended, and a host of other issues will follow. Inventory to revenue measures several key performance outcomes from finance to planning to execution.

Revenue to any constrained resource: A process constraint is any widely-used resource that you run out of first – or soonest. Some companies track several of types resources because their primary constraint changes according to the revenue mix and season. For rental companies typical constraints are billable technical staff, project managers, trucks, inventory, or warehouse personnel. Integration companies have more processes and often are constrained in design, programming, CAD, project management, installation teams, or admin assistants. (Hint: if you are maxed in multiple areas, raise your expected margins before hiring more help!).

Revenue per employee: This is an oldie but a goodie. Use full-time equivalent (FTE) counts to base your calculation. This includes your part-timers but not sub-contractors. Companies with better infrastructure and a culture of planning and process do better than those without. The point however is to find the staffing level that makes you most efficient and adjust to that number based on your forecast.

As you begin to understand what the numbers tell you, the point is to set new goals and change how you operate to achieve them. Never look at any one metric by itself. They are all connected! Trying to increase revenue per FTE may hurt your inventory to revenue by creating costly performance mistakes. And any metric in any period can be compared to ttm profit.

Do you have a favorite metric to track in your business? Email me.