INITIAL ELECTRONICS: BIGGER RESOURCES BETTER TARGET MARKETS
Dick Norwoodâ€™s eyes glow when speaking about how he and partner Dick Cusson bought their security and systems integration business from Meade Electric Co., in 1985.
â€œWe were buying our jobs at the time, but we seemed to get along well and included the employees, who were nervous about what would happen,â€ Norwood relates.
His energy and enthusiasm are still evident, even after his retirement last December. He and his partner Cusson sold NTC Electronics, Chicago, Ill., named for the initials of the foundersâ€™ surnames, to the Initial Electronic Security Group, a division of Rentokil-Initial plc, in 2003. NTC was renamed Initial Electronics after the sale.
â€œBut I had so much faith in the employees,â€ Cusson remembers. â€œI thought, â€˜Weâ€™re going to make it with these guys.â€™ They all pulled together. We were highly leveraged.â€
Cusson credits the companyâ€™s employees, many of whom are still with Initial, for enabling the partners to repay their loans and for the company to become successful financially. â€œYouâ€™ve got to take a risk,â€ he advises.
Over the years that risk paid off; the companyâ€™s resultant success is embodied in its being chosen as SDMâ€™s 2006 Systems Integrator of the Year. Initial Electronics is on track for an estimated 50.7 percent revenue increase this year and had a revenue increase of 90.9 percent in 2005.
This was due to its acquisition of two systems integrators, ISS, with offices in Danbury, Conn., and New Haven, Conn., and Video Master, New Lenox, Ill. Initial Electronics ranked twenty-third on this yearâ€™s SDM Top Systems Integrators Report.
In the early days, duties were divided evenly among the three founders. Trimarco was the sales manager, Cusson handled service, and Norwood took care of administrative duties.
â€œWe had a silent partner with 49 percent of the company, and if we couldnâ€™t get along, he would buy out the company,â€ Cusson recalls. That was a strong motivator for the three to work together successfully, he points out.
But the need for additional growth became evident. â€œWe needed some capital to deal with national clients,â€ Norwood declares. â€œWe needed to be more of a national company. The big growth was in multi-city or national companies.â€ The companyâ€™s membership in the PSA Network also helped, he notes.
When interest was expressed, at the 2002 ASIS show, by the Initial Electronic Security Group in acquiring NTC Electronics, the two remaining partners were interested.
â€œWe saw some very positive things,â€ Norwood notes. â€œWhen they bought companies, they had kept the management in place, so we felt they would keep the employees and supply capital.â€
Although Cusson and Norwood have retired, they visit the offices monthly and make themselves available for occasional consulting projects. When Cusson visits, he always brings a coffee cake, which is one of his traditions.
Both have sons working in the Midwest office. Kyle Cusson is the regional vice president for the Midwest and Paul Norwood is the director of business development.
THE SUITORâ€œIf you go back to the early part of 2002, it was a conscious decision made by the Initial Electronic Security Group to re-enter the U.S. market,â€ relates Kevin Robison, now Initial Electronicsâ€™ president. â€œThey had been in the U.S. integration market briefly and exited it in 1996. They acquired a company, but later decided to go in a different direction.â€
Robison, who had been working in the security installation business since 1989, was employed to help the Initial Electronic Security Group obtain security market interests in the United States.
With its sale in 2003, NTC Electronics joined the group, which is a $520 million division of Rentokil-Initial plc, based in the United Kingdom (U.K.). In the United States, the divisionâ€™s revenue is $28 million, with nearly $20 million from Chicago area operations.
The Initial Electronic Security Group also owns numerous security integration businesses around the world. It features a U.K.-based business, Initial Electronic Security Systems, which operates a number of branches and has completed projects on a worldwide level. Projects of note include the U.K. Royal Palaces and a network of surveillance cameras throughout central London.
The groupâ€™s parent company, Rentokil-Initial, is a $4 billion corporation specializing in business-to-business services such as pest control (hence, the corporationâ€™s name), electronic security, courier services, cleaning and washroom services. The company just exited from the security guard business. It has 93,000 employees in 40 countries.
â€œIn early 2002, we took a year looking around, and five months cementing the first deal with NTC in Chicago on May 13, 2003, which now is called Initial Electronics,â€ Robison remembers. With its sale to the Initial Electronic Security Group, it got the capital needed to expand.
â€œAbout 70 percent of our business is from our existing customer base,â€ he reveals. â€œOur attrition rate must be less than 2 percent over the last three years. The reason for the attrition is that they go out of business or they decide they donâ€™t need the business. Itâ€™s very rare that a competitor takes the business.â€
Adds Paul Norwood, director of business development, â€œIn the past in Chicago and out on the East Coast, one of the things we found is that when customers go with one of our competitors, they come back to us to fix the problems they got into with them.â€
WHATâ€™S IMPORTANT TO INITIALRobison believes that a chief distinguishing factor between Initial Electronics and a lot of its competitors is that â€œweâ€™re actually part of a very large company, but weâ€™re striving to achieve that local company, hands-on approach to the business,â€ he characterizes.
This hybrid approach, as the company calls it, is the key to its strategy that kept the company growing through several acquisitions.
As an example, Initial Electronicsâ€™ local service touch enabled it to gain the trust of protecting the priceless artifacts and fossils at The Field Museum of Natural History in Chicago. Here, Sue the tyrannosaurus rex reigns over the main hall and Initialâ€™s security protects priceless artifacts from Tibet, Indonesia, ancient Egypt and an even more extensive specimen collection in the private areas of the museum accessible only to scholars and scientists.
â€œWeâ€™ve been involved with them for many, many years,â€ remembers Steve Wehofer, sales manager. â€œWe worked closely with their security director and helped them estimate budgets to ultimately spend their money with us. We stuck with them through thick and thin.â€
Currently, approximately 46 percent of the companyâ€™s business is from the financial sector. That business developed from referrals from a job 27 years ago at a single bank, maintains Tom Murdock, marketing manager.
The companyâ€™s next largest vertical markets are commercial (21 percent of revenue), health care (13 percent) and pharmaceutical (5 percent). Market share in each geographic region is estimated at approximately 15 percent.
â€œAfter our original purchase of NTC and our subsequent purchase of Video Master and ISS, we have seen our margins and overall profit steadily strengthen over the past three years,â€ Norwood declares. â€œWhile we are in business to make money, we are cautious not to squeeze too much money out of the business without adding resources to allow us to serve our customers.â€
Initial says each office maintains open-door policies for all managers, holds town hall/roundup meetings and actively seeks ideas and feedback from all employees.
The company also emphasizes its training budget. All employees are encouraged to take part in ongoing technical training initiatives, and significant funds are made available for employees to complete undergraduate and graduate-level courses.
Employee benefits include dental insurance, flex time, formal recognition programs, training, discount programs and advancement opportunities. The average length of service with the company is more than 12 years.
â€œObviously, being in an expansion mode means that our employees have the opportunity to grow with us both in terms of their responsibilities and in terms of the variety and type of work they will be doing,â€ Robison points out. â€œTo some individuals, being part of a larger team has its attractions. There is more interaction and resources than in a small company.
â€œThe real strength of the business is in the quality of the people,â€ Robison emphasizes. â€œWe have some very good managers and some very good employees, who day after day after day give the customer the service that he requires and he likes to see.
â€œOur aim as we look at businesses to acquire is to make sure that we buy businesses that have that same reputation and that same commitment from the staff,â€ he continues. â€œWe try to get a good feel for the companyâ€™s reputation locally.
â€œWhen youâ€™re talking about changes you make to a business, there are really some things we donâ€™t want to change â€” and some things we do want to change, primarily the back office stuff,â€ he notes. That includes payroll, benefits and the like.
â€œWe like the senior managers to stay with the business for a while generally, because weâ€™re looking at $7 million to $15 million businesses, and a lot of relationships are formed by the guy whoâ€™s running it, and we donâ€™t want to lose him at the time,â€ Robison stresses.
â€œIf youâ€™re going to be buying up these integrators in the kind of plan weâ€™re looking at, youâ€™ve got to retain the uniqueness to who you buy and where they are,â€ he points out. â€œMost are private businesses, so thereâ€™s a little bit of entrepreneurship. Weâ€™re trying not to lose the uniqueness, not lose the entrepreneurship, but add something in resources and people.â€
DEEPENING NICHESPart of the companyâ€™s strategy is to share expertise in niche markets among its four other offices. â€œIf you look at our business, theyâ€™re all into some niche markets,â€ Robison notes. â€œIf you look at our Danbury office, we do Yale University and Yale University Hospital. As we look at acquisitions, we are looking at some really unique niche customers.â€
Initial is seeking such niche customers from market research and leveraging the business of existing customers. â€œItâ€™s that kind of thought process that weâ€™re looking at,â€ Robison says.
Norwood explains that originally the company was much more involved with industrial types of businesses, such as transportation and rail yards. In the mid-1990s, the firm began to pursue the financial market with projects at some large banks.
â€œWe piggy-backed with a couple customers to get ourselves in the door, and now weâ€™re with most of the major banks in Chicago, along with a number of the pharmaceuticals,â€ Norwood states.
Robison points to this strength in banking in Chicago as a market that is not being served as much in the companyâ€™s Danbury and Baltimore offices.
However, the Midwest office has been increasing its recurring monthly revenue (RMR) due to increased focus from Dave Meeks, account executive, who joined Initial Electronics from Video Master, and techniques learned from the companyâ€™s Connecticut offices, which sell much RMR. This is an example of expertise-sharing among offices that already has paid off.
Initial also has been increasing income by concentrating more on monitoring, leasing, exclusive service agreements and maintenance contracts.
â€œIn the end, marketing is what we do to reach prospects, whereas sales is the process by which we will hopefully influence decisions,â€ Tom Murdock points out. â€œIt is very important for me to be in constant contact with our sales force so that we are united as one team and sending one message.â€
The company reports that its strongest vertical markets â€” health care and banking â€” continue to prosper. Slight decreases in its industrial business are attributed to a general shift away from manufacturing in the U.S. economy.
â€œWeâ€™re just about to commission a market survey for the whole of our U.S. business to help us identify the other vertical markets where we can take our skills and move into,â€ Robison announces. Although he considers it premature to name the markets, the company is considering utilities and transportation.
â€œThis is something Rentokil-Initial is doing across all its businesses â€” taking a long hard look at markets they are operating in and where they need to take the business,â€ Robison explains. â€œItâ€™s a corporate initiative, and all the subsidiary businesses are asked to get involved.â€
CUSTOMER SERVICECustomer relationship management software packages are being used to enhance customer service and enable salespeople to do more work in the field, Murdock points out.
â€œIâ€™m also initiating a program called CSI, for continuous service improvement,â€ he relates. â€œThe program was first rolled out by one of our sister companies and involves proactively seeking feedback from our customers and enabling teams within our organization to make changes.â€
The CSI system is modeled after the philosophies of total quality management, Murdock explains. Members of the operations and sales departments regularly visit customers, seek feedback via Web and hard copy surveys, and formalize a response to any problems that arise.
The ultimate goal of the program is to help customers realize that Initial Electronics is interested in getting more input from them and will act on their concerns.
â€œWe need to get our customers more involved in deciding how we run our business,â€ Kyle Cusson adds. â€œWe have rolled the program out to a select few customers and have been finding an enthusiastic response. In 2007, we will be growing the program more and more to reach a larger cross-section of our customers.â€
Dan Starsoneck, the companyâ€™s regional vice president for the new Capital region office, agrees about the importance of keeping in touch with customers.
â€œWe believe that one unsatisfied customer is one too many,â€ Starsoneck maintains. â€œWe value input from our customers, and use it to correct any sources of irritation before they become problems. Because we place such a high value on what our customers want and desire, absolutely no phone call, ever, goes unreturned.â€
Robison spells out the companyâ€™s philosophy. â€œWe have three prime groups that define our success: our customers, staff and shareholders,â€ he lists. â€œIf, together with our suppliers, we can satisfy all three of those groups, then in my mind we have won.
â€œOur philosophy is to strive to be the best at what we do and to try to treat everyone with whom we interact with respect, honesty and commitment,â€ he asserts. â€œIf we can do that, then we will be successful, and at the same time, be able to take pride in the way in which we have achieved that success.â€
Sidebar: Starting up in the Capital RegionOpening an office in Baltimore near the Washington, D.C., area was always intended, declares Initial Electronics president Kevin Robison.
â€œThe decision was taken earlier this year to make the investment, and we went ahead,â€ he explains. â€œWe recruited individuals from a company with whom I had been associated in the late 1990s, found some office space close to BWI airport and opened doors for business on July 1.â€
Although Initial expects its biggest growth will be from acquisitions, what distinguishes this office from others in the company is that it was not acquired.
â€œItâ€™s one thing to find a great company to acquire, but itâ€™s another to build that business on our own,â€ points out Paul Norwood, director of business development. â€œOne thing we want to keep alive in our organization is the entrepreneurial spirit.â€
The office is located near BWI Airport, between Baltimore and Washington, D.C. â€œEstablishing a new office has given us a unique opportunity to focus on new security products and innovations,â€ declares Dan Starsoneck, regional vice president for the Capital region. â€œAdditionally, we are also free to look outside traditional security markets for new business.â€
The office is equipped with the most up-to-date information and communications equipment. Employees there are training on the latest security technologies.
â€œWe believe our largest growth will come from new construction,â€ Starsoneck relates. â€œWhen combined, the Baltimore-Washington corridor forms one of the largest metropolitan areas in the country that continues to grow by leaps and bounds.
â€œOver the last 30 years, we have seen unprecedented growth in the needs for electronic security in this area,â€ he continues. â€œThere is no reason not to expect this level of growth to continue for many years to come.â€
Initial expects growth in its Capital region office to come from health care, government and commercial office buildings.
Sidebar: Strategy Behind the Spending SpreeWhen asked to look into the future for Initial Electronics, president Kevin Robison thinks in terms of acquisitions and gross revenue.
â€œWeâ€™re looking at two or three acquisitions to add another $20 million or $50 million by the end of next year,â€ he reveals. â€œRentokil-Initial is interested in looking at any acquisition. Theyâ€™re not hung up on size. We could make a larger acquisition.
â€œThe most important thing is not to get as big as you can as quickly as you can, but to make sure we are acquiring quality businesses and assimilating them into our organization,â€ Robison reflects. â€œIn the long term, theyâ€™ve told me the business needs to be in the hundreds of millions, from $100 million to $300 million a year. Rentokil-Initial prefers its businesses to be in the top three in whatever markets theyâ€™re in, in whatever country theyâ€™re in.
â€œWeâ€™ve probably looked at 15 or 20 potential acquisitions,â€ he estimates. â€œWeâ€™ve made three; 12 to 17 weâ€™ve said â€˜noâ€™ to for various reasons.â€
The companyâ€™s second acquisition was ISS, Danbury, Conn., and the third was last December of Video Master, New Lenox, Ill. Its most recent acquisition in October was of Barry Security, Tewksbury, Mass., near Boston. The $6 million company's customers include major pharmaceutical corporations, hospitals and the headquarters of some of the Fortune 1000.
â€œBasically, the acquisition strategy is to acquire local, regionally based systems integration businesses primarily focusing on the Midwest, Northeast and Mid-Atlantic states,â€ Robison declares. These regions have been chosen to ease communication with and travel from the United Kingdom.
â€œOur goal is to become one of the largest security systems integrators in the United States within the next 10 years without compromising a bit with regard to quality or customer service,â€ Robison declares.
Sidebar: How Initial Electronics Garners IT SkillsInitial Electronicsâ€™ philosophy is that its customers rely on it to custom-tailor exciting new security systems for them, but not before the technology is truly ready for implementation.
â€œOne of the most challenging aspects of our business is that it is always changing,â€ points out Initial Electronicsâ€™ president Kevin Robison. â€œSince 9/11, there has been such a rush of companies joining the electronic security world, and with so many products, it is increasingly difficult to decide which products are the best.
â€œWith this in mind, we have invested in our people to ensure that we have the right technical skill sets to accurately determine which products are the best,â€ he explains. â€œThis is a critical aspect of our business, because this expertise is ultimately what our customers are buying when they bring us in.â€
Initialâ€™s major equipment suppliers include AMAG, Brivo, Dedicated Micros, DVTel, GE, HID, Identicard, March Networks, Pelco, RS2 and Vicon. The company is a member of the PSA Network.
â€œAbout two years ago, we realized that the market was demanding these kinds of skills from their suppliers, and we have consciously gone out and recruited people with those skills,â€ Robison declares. â€œTo date, we have a total of six network-savvy engineers and are actively supporting them by getting Cisco and Microsoft certification.â€
The companyâ€™s three-tiered approach to technology changes is to gain the necessary certifications from Cisco, Microsoft and other companies, build relationships with established leaders in the technology sector and recruit salespeople with experience selling to technology professionals, points out Dan Starsoneck, regional vice president for the Capital region.
â€œOur experience runs the gamut from the latest Windows and Linux operating systems to Cisco routers and network switches,â€ Starsoneck maintains. â€œHowever, you canâ€™t have staff that is familiar with networking equipment but knows nothing of a digital video recorder or access control system. They need to be well-rounded so they understand the application of network technology, not just its implementation.â€