Although most segments of the security industry are faring well this year, many of us know people who own businesses in other industries who are not performing nearly as well.
Two friends in two different industries â€“ both small business owners â€“ have told me they havenâ€™t paid themselves a salary since last fall. These were well-established, thriving businesses just five years ago, but now each owner has had to lay off a majority of employees, sell trucks or equipment, and make deep sacrifices at home. Sadly, itâ€™s business owners in these situations who need money the most to make ends meet; yet their recent performance deems them unlikely to qualify for a loan.
In fact, financial professionals report to SDM that getting approved for a loan in the security industry has become even stricter over the past 12 months than in the past.
Investors are â€œstill interested in the [security] space,â€ notes Angela Paymard, vice president of Larrabee Ventures Inc., a financial advisory services company in Sherman Oaks, Calif., â€œbut have a higher benchmark for investment. They explicitly want to see a strong management team, low service cost, low attrition (10 percent or less), solid account creation at low multiples, and the ability to dominate a market or region.â€
Paymard stresses â€“ and most would agree â€“ that those requirements are good for the industry and require borrowers to have a solid plan. â€œAnd when these companies succeed, the press is great and we are more inclined to get the attention the industry deserves from the capital markets,â€ Paymard notes. â€œStories like those make it easier for the rest of us to step before an investor and promise success.â€
In this issue, SDM presents its 2005 Guide to Financial Services. The editors have depicted more than two dozen firms that specialize in the electronic security industry â€“ with services such as leasing, account funding and account acquisition, traditional loans, company mergers and acquisitions, investment banking, and more.
Paymard believes the future of attracting investors to the security industry rests with the industryâ€™s ability to change consumersâ€™ minds about the need for security. She suggests that although many people admit they need better security solutions for their companies, it still has not translated into quicker sales cycles. â€œIf we can get security customers to think like computer customers (â€˜I will need a new computer or new software in a couple of years because my technology will be outdated.â€™), then security companies will be able to attract greater investment and better selling prices,â€ she says.
In such a scenario, Paymard continues, â€œcommercial security customers would replace or update their systems as often as every two to four years rather than every seven to 10 years.â€
Paymard is optimistic â€“ and so am I â€“ about the many talented CEOs and management teams in the industry today, who are shepherding the development of products designed to do more than solve security issues; such products are making end-usersâ€™ lives and jobs easier and more productive.