From watching how horrific crimes expand the awareness of integrated security solutions, to adapting their business models to an IT world, to overcoming conflict in the security sales channel — systems integrators face many challenges, but also have many opportunities in the industry they serve. They discussed these challenges and opportunities when they came together as part of a panel discussion at PSA-TEC, held in May 2013 in Denver, which was recorded and is presented on the following pages.
The panel was moderated by Bill Bozeman, president and CEO of PSA Security Network. PSA encompasses more than 200 electronic security systems integrators, aligning them with more than 200 vendor partners. The PSA network is responsible for more than $2 billion in annual security systems design, installation, integration and maintenance of access control, video surveillance, intrusion detection, fire and life safety systems.
Bill Bozeman: It’s 2013. I want to know what you see as the best opportunity for a physical security integrator going forward in the next year, two years, three years.
Eric Yunag: Everybody has watched what happened in Boston and Sandy Hook — what have been tragic national instances. From this industry perspective, obviously that has brought awareness to what everybody in this room does on a daily basis to a level that we’ve just never seen before.
I think what the nation is looking for now from us, as integrators and security people, is the expertise that all of us have grown up in this industry with — the disciplines of security which all of our non-traditional competitors just don’t have.
If you think about, probably as we look back in 10 years, what a real important inflection point this is, and a paradigm shift about how people really think about surveillance in the context of national security and public safety. It’s an encouraging outlook on the demand drivers for our business moving forward. I think this is just going to be a significant watershed time for this industry and the level of awareness that people see with the systems and the services that we provide.
Bill Bozeman: I wish I was just starting my career, because I see it as absolute perfect timing for us.
Paul, a lot of people thought two or three years ago that the IT integrators were positioned better than our guys were to step into this — because everything’s going to the network and you guys were so network savvy. I really haven’t seen that. Why is it that the Atrions of the world aren’t out there installing big, enterprise-level security systems, or even small stuff for that matter?
Paul Cronin: When you really look at new technologies to new industries, it’s an incredible investment. It goes from $0.15 of investment on a $1 return, selling existing products to existing clients, to the far extreme, which is $2.40 on a $1 return [selling new products to new clients]. It’s somewhere between 12 to 16 quarters before you become cash-positive.
We want to invest in building what we know. There was a lot of additional benefit to us in the IT services industry when this whole conversion movement started. We’ve gotten more consultant dollars; our services have grown because it’s just another IP end point on the network. We’re doing the consulting around being able to put video on the network, being able to manage the network, as well. So it’s been a very positive experience for IT.
Also, Bill, we just don’t have the labor model. Our engineers are very expensive. We focus more on consultant type work and managed services. Not many people on a ladder; there aren’t people putting in door locks. We just don’t have the labor model, so we’re focusing on high-level consulting services.
Chuck Wilson: In building on what Paul was saying, about half of [NSCA’s] members I would consider A/V system integrators and the other half are security and life-safety system integrators. The difference I see between them is that the A/V guys are really, really struggling to find out what their relevance is going to be in the next few years, because they see that they need to transition themselves to becoming an IT system integrator. In their world, their discussions center around, ‘How do we become an IT company, and then we’ll plug in our specialty — A/V systems or video conferencing or digital signage, or whatever.’
I think it’s an interesting point for this audience. Do we believe that as a security systems integrator we have to be an IT company that can plug in the specialty: access, surveillance and so on? Their concern is what do they look like five years from now? Who’s going to make that transition and which ones aren’t? Is there only going to be the super large, multi-office entity, or is it the small niche player, the mom and pop?
Bill Bozeman: Sandy, do you see any foreign company with amazing technology that’s going to change things?
Sandy Jones: I’d like to address some of the things Paul and Chuck were saying. One of the advantages the people in this room have is access control. It’s complicated, it’s hard to do, lots of permissions, and it’s not something the IT people understand or want to understand. There’s so much greenfield in Paul’s business, that why should they participate? It really is the advantage that you have.
A couple things that we’re seeing is in access control. I think we talked about near field communication, how that will change using your iPhone or something other than a card to present. Then, of course, the elimination of the panel and some of the IT backbone type of technologies driving access control.
But it’s really about the customer’s investment. You can’t tell a customer who just spent $50,000 on an access control system — or on any system — to rip and replace that technology. You’ll look like a fool, they’ll look like a fool. I think one of the challenges all of you have is looking at new technology and seeing if it’ll fit with the legacy, and then give your customer a leg up and an advantage.
Bill Bozeman: Okay, we’re going to switch gears. Ron, you’ve done a lot and you’ve done it fast. Tell us a tiny bit about how you did that. How did you get the money to get started and how are you growing so quickly?
Ron Oetjen: I grew up in Pocahontas, Ark., on a 120-acre farm. We started in my garage, and just one-by-one picked up enterprise-class clients and grew to where we are today. I think that what we did well is strategic planning over the years. We’ve always been very strategic in our thoughts. If we’re going to invest in something, how does it relate to our five-year plan?
The other thing I think we did well is hired. The truth is, I’m a pretty steadfast and durable guy. I try to hire people that are like me. You have to be consistent, because as you go through these peaks and valleys with this growth, I think it’s important to have people that are steadfast, that aren’t packing their bags every time you get into a hard spot. What I call the ‘village elders’ of our company — they’re all very steadfast and durable individuals.
Bill Bozeman: If you’re a qualified Lenel or Milestone technician, why wouldn’t they be better off working at Siemens or Tyco Integrated Security. Why go work for you?
Ron Oetjen: I think what we’re doing is exciting, and if you look at our mission vision path, there’s a place for anybody whose heart is in the right place. I think we’re a fun company; we invest in our employees. We’re on a growth track that’s been pretty steep. There’s also a level of stress. I think you have to have the right people, and if their heart’s in it, we want them.
Bill Bozeman: I see a tremendous reluctance on the part of the majority of our integrators to really change.tant said, I’ve got to do that,’ and then they don’t. They basically have the same model this year that they had the year before and the year before and the year before. But every once in a while I see somebody who is able to totally recreate themselves.
It’s unusual. It’s actually easier to start a new business with a good plan than it is to take an existing plan and completely change it. Unless you’re one of the very few in this group — I look around here and maybe there are five, six, seven, that have a significant amount of revenue coming in as contracted, recurring revenue — then I really, really think you need to either force yourself to step up to the plate and make these necessary changes, or if you can’t do it, step aside. Hire somebody who can.
Aronson — a locksmith company to what you’re doing now? I have tremendous respect for that. How the hell did you do that?
Phil Aronson: Well…when you’re making money at something it’s hard to change.
We had a strategic plan where we were going to get out of the locksmith industry. That industry is very slow moving; we were growing at 5 to 7 percent for about 10 years in the ‘80s and ‘90s. We decided that we didn’t want to be in that business anymore.
We did try to get into the electronic security industry as a locksmith, but until we said, in 2002, we’re just not going to be in that business anymore — now we had to reinvent ourselves, because we couldn’t go back to what we knew and were comfortable with.
We put a strategic plan together, a 10-year plan: Here’s where we are today, here’s where we want to be in 10 years, and here’s how we’re going to do it. We had no choice; we took the training wheels off and we had to survive.
It was a matter of, each year, changing from $10,000 orders to $50,000 orders; from $50,000 to $100,000 orders; from $100,000 orders to $1 million orders. That’s a simple way to run the business: people, process and tools, and find the right people. When they’re making money one way and it’s a comfortable way, then if you decide you want to change, it’s really hard work.
You have to have a good bank, you have to have good people, you have to have people that are willing to stay the course. I think from 2000, when we started to make the change, there are only about four people left. We had 30 at that point, now we have about 140.
Bill Bozeman: Most of your older, not necessarily age-wise, but most of your tenured employees had a difficult time with this, right?
Phil Aronson: Yeah, they did. Most all of them are good friends to this day. They just wanted to do something else. Th£ey just weren’t comfortable with the change to electronic security.
Bill Bozeman: The big manufacturers, let’s face it, some of them — or if you listen to Jim, all of them — are attempting to sell directly to the end user.
We catch them all the time. Every week, we catch them. They say, ‘We don’t do that. I can’t believe…oh no, I can’t believe Cathy did that. Gosh darn that, Cathy, for selling that $2 million job directly to the end user. We won’t do that again.’
As big manufacturers do attempt to sell directly to the end user, how do systems integrators ensure their position and their value to the end user? As a second part, what, if anything, can we do about it at PSA?
Jim, I consider you to be an expert in the channel, in channel conflict. Can we do anything or is it just hopeless?
Jim Henry: The thing you can’t do is get abrasive and condescending, and call the manufacturer a you know what, and the end user’s stupid, and yada yada. It’s not going to get you anywhere. I’m about winning wars, not battles. Some battles are very, very strategic to lose as long as you’ve got a lot of visibility on it. You don’t want to reward bad behavior by manufacturers, and in every manufacturer and in every integrator there are good and bad people, people with agendas.
There are all sorts of market forces going on now that create the behavior that goes on in this industry. Both from the misconduct on the end user side, the misconduct of the general contractors, and then the procurement theater that the manufacturers engage in because they had their arms twisted and they had to.
We all know — and Eric so brilliantly said this yesterday — if it’s all about us being a Lenel VAR, an AMAG VAR, whatever, he says then we’re done. The systems are becoming intelligent. We have actionable intelligence about how to use the tools out there.
If a manufacturer can sell hardware and software support directly to an end user, and achieve a degree of satisfaction greater than we can as integrators, then it’s our fault. The only thing that we can do is continue to message out there, without getting personal with them, that that’s a flawed business model. It may have short-term gain for them; it may make some purchasing agent feel as if they’ve achieved an objective, but that’s a boomerang that will come back around.
The two biggest projects I ever lost in 50 years came back four years later to be the two biggest projects I ever won in 50 years, and at a higher margin than I ever would’ve gotten if I’d won it directly.
In reality, there’s chaos out there. Where there’s chaos there’s opportunity. I just think we have to stay true to our values. At some times it’s tough to take a punch in the head from some of these manufacturers, and you just keep an eye on those situations and you turn that customer around — have that customer realize that the result or the return on that type of business engagement was not as fulfilling in giving them the ROI as if they were engaging through an integrator.
They have to see you as a value. They cannot see you as a middle man that’s making a margin, because the purchasing agents will paint you as that. Whether it’s 5 percent or 50 percent, it’s still margin in the middle, and if they’re looking at you as margin and cost in between them and the product that they want, there’s no way to have a good outcome to that until you reassert yourself.
You have to win that confidence by performance and, reliably, the failure of those that go to that direct model. Because they’ve all failed in the past, and we have to have the confidence that they will fail in the future. It’s just how we react to it with a degree of professionalism rather than anger and resentment.
Bill Bozeman: Don, behind closed doors, as far as you can tell us, does it ever come up?
Don Erickson: For those of you who are not familiar with SIA, sure, we have the big manufacturers. Our membership actually is getting more diverse. We have increasing numbers of integrators that are part of our membership, and we’re really proud of the mids and small manufacturers we have, as well. We like talking about all of them; it’s all part of one community.
First of all, SIA does not endorse the practice. We’re not out there trying to encourage our manufacturers to sell direct. In fact, we’re an organization that really encourages partnerships, and we’re an organization that encourages our manufacturers to look for new partners, and that’s really the whole premise behind why we try to work with PSA.
What we try to do is encourage manufacturers to really understand the uniqueness of independent integrators. You’ve got some great stories out there. What we try to do as an organization is encourage collaboration, and in particular, encourage collaboration with new partners, including integrators.
Bill Bozeman: Chuck, are you experiencing that on the A/V side? Are the big guys sometimes going direct to a hospital, a church, a theater, a ball stadium?
Chuck Wilson: Yeah, this exact same conversation takes place in every technology sector that we represent. The big guys, they tell a compelling story why a university or someone has brought them in. They want financial backing, they want one neck to choke sort of thing. They want to make sure that if that system doesn’t go in right, that they have a strong capability to work with that manufacturer to figure out what the problem is.
I agree completely with what Jim just said, that we can’t just be that middle person that is looking at the margin. We have to add value and we have to show that the best integrator members that we have are the ones that absolutely manage that account. They control the account; they would invite manufacturers into the pre-bid meetings or whatever, but there would never be an instance where a manufacturer would go around them, because they have the wherewithal, the technical skills, they have the local service and they do things right.
In my experience, usually when an end user goes to a manufacturer direct, it’s because there’s something lacking with that integrator in between, that they’ve had a bad experience. It’s the No. 1 fear that we all have, that the manufacturers will have a way to bypass the system integrator.
Panelists at this special session titled, “State of the Industry/State of the Integrator,” included systems integrators as well as other industry professionals:
Eric Yunag, CEO, Dakota Security Systems
Paul Cronin, senior vice president, Atrion Networking
Chuck Wilson, executive director, National Systems Contractors Association (NSCA)
Sandy Jones, principal consultant, Sandra Jones and Company
Ron Oetjen, president and co-founder, Intelligent Access Systems of North Carolina
Phil Aronson, president and CEO, Aronson Security Group
Jim Henry, executive vice president, Kratos Public Safety & Security Solutions Inc.
Donald Erickson, CEO, Security Industry Association
A Watershed Moment
During the Q&A portion of this session, SDM Editor Laura Stepanek, who was part of the audience, asked the following question.
SDM: Following up on what Eric said about how it’s a significant watershed time in our industry due to events like Sandy Hook and the Boston bombings, could you describe more specifically the effect that that’s had on your business? Is there really a solution for stopping something like that?
Eric Yunag: We haven’t seen media driving customer demand from that particular instance. My perspective — and this is just an opinion — is that it aided the level of awareness of surveillance and what it can do.
People saw, the fact that a picture from a surveillance camera was the key, really instrumental piece of evidence in ultimately identifying and detaining those people. The power of that, I think, there’s just no going back from that moment. When I use terms like ‘watershed moment’ and ‘paradigm shift’ and all those other clichés people like to say, the reason I say that is I think from this point forward, people just don’t view surveillance as something that is only forensic in nature, even though that example is forensic.
The dynamic move forward is that people don’t just want to count bodies on the floor of Sandy Hook. They want to be able to use that for first responders. The thought process around what does surveillance mean to those highly exposed, public institutions is going to be different moving forward. How do we use that for first-hand intelligence for first responders to limit body count — not just see how it happened once it’s over?
This is not something that’s going to happen today; but over the next five to 10 years, the way that surveillance is utilized by law enforcement, first responders across the country will change. We will never go back from what has happened there moving forward. It’s incumbent upon us to start those conversations now.
Conversations are now possible with local municipal law enforcement — in everybody’s geography here, big or small.
Ron Oetjen: The important part for us in that paradigm shift that Eric talked about is, I don’t think you’re going to see a Tech Systems or Intelligent Access or Dakota Security do a city of metro Boston or metro Atlanta — these systems that they’re talking about now.
There’s a lot of conversation going on around that. I think what it’s done for us is brought the vision to the private industries and the private schools. There is a lot of appetite for video right now. It’s a very, very hot industry for us.
I think what it did was shine the light on that. I don’t see many of us in here, maybe Jim and the larger companies, will participate in that kind of work. I just don’t see that being something that most of us are going to be chasing and trying to win.