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Our Businesses Are In Jeopardy

Get scared right now! The world economy is tanking and your business will be affected. The headlines are real, and now is the time to implement your survival plan. In the early days, Mike Heiss and I were half-jokingly calling the CEDIA Technology Council the “Staying Alive Council.” It seems those were prescient words.

Permit me to share some recent thoughts about the economy and how I am rethinking my business. Our little company, Rich Green, Ink, is nestled right in the middle of Silicon Valley and surrounded by extremely wealthy people. We seem to have plenty of business with new leads coming every week. However, we’ve been through financial collapse in this neighborhood before (remember the bubble years and what happened when it burst?), so I won’t let the present color the reality of the future, the near future. I fear we will see a severe drop in business over the next 18 months, and some CEDIA members are already holding on for dear life. It’s tough out there and the worst is yet to come. Some of our friends will be closing up shop.

(Disclaimer: I am no economist, as some of you know, so take these words from a naive business owner’s cautious perspective.) When the Internet bubble burst around 1999/2000 it took about 18 months for my business to drop to the bottom because there was a lag caused by building cycles. In 2001, though, we lost more than $3.5 million in contracts over a period of about four months. We are a small company and those lost jobs were potentially devastating. Our clients freaked out and just stopped building homes until their stock values came back. We survived by reducing staff and costs to the bare minimum, then held onto our existing clients like glue. We started reaching out to the architectural community and found new business, although more modest in scope. But we survived.

It’s not just Silicon Valley this time around, it’s the whole world, and the financial scars will run deep. What am I going to do with my business to prepare it for survival? Lots. Here is the early-stage plan:

1) Follow the money; it’s all about cash flow.

2) Don’t make stupid (costly) mistakes. Tighten up operations and project management.

3) Hold onto your existing clients like glue.

4) Get into new markets with new technology.

Let’s start with No. 1, cash flow. At our Friday afternoon accounting meeting (yesterday) we decided to re-visit our master cash-flow spreadsheet with more vigor. I want to know where every penny is coming from and exactly what our costs will be. Over the past eight years we’ve built a powerful spreadsheet that accounts for all sources of cash and all costs, distributed in time. We can predict with reasonable accuracy what our cash needs will be for the foreseeable future. You must do this and then start to look at what happens if certain contracts shrink or go away. Will you survive?

If you’re not already managing your cash this way, start with a simple spreadsheet that lists all of your current clients. Set up columns for tracking the current contract or proposal version, date, contract amount, change orders and percentage of completion by phase. Indicate what monies have already been collected and what your costs will be to complete the job. This one is tricky. Many of us collect large deposits to pay for other cash needs, then fall short when it’s time to order the equipment that the deposit was intended for. Be honest with yourself and figure this out. Get all of your obligations on this spreadsheet, including overhead, training costs and marketing to new kinds of customers.

Once you have your spreadsheet, get the pulse of each one of your clients to determine if they plan to finish the job as planned. You don’t want to be surprised when they call you to put the job on hold. Now look at what happens to your cash flow. If it looks like you might not make it a few months from now, start to secure sources of credit. It’s always best to talk to your bank (if they even exist anymore!) when your financials look good, not when you are strapped for cash. So do it now.

No. 2: Don’t make stupid mistakes. This almost goes without saying, but make sure your staff knows that costly mistakes cannot be tolerated. Most of us will not have the cash cushion we are used to, so plan your jobs with even more precision. Read the stupid instruction manuals, don’t make wasted trips to job sites being unprepared, streamline all operations. Train heavily, especially now. Invest in CEDIA education. There are regional and online learning opportunities galore so take advantage of them. Always put your best talent out front; don’t risk onsite mistakes with newbies.

Rethink your project management responsibilities and procedures. Make darn sure your project managers are managing budgets, not schedules! Both are important, but you must track progress against plan every single day and identify unexpected costs as they happen.

No. 3: Love your clients. Every single job you have right now is essential. Treat each client like royalty and keep talking to them. In the CEDIA channel, clients are typically wealthy and expect the best service. They want and need your attention, so pour it on. Visit the job sites, call them up and ask how you are doing. Invite them to special events and give them little gifts. When they speak, listen to every single word. If they ask for service, give it to them without hesitation! Roll the trucks! Stay sharp.

No. 4: Discover new markets. This one takes careful planning so you don’t blunder into new products and services that you cannot support. Don’t get me wrong — if you have a consistent and reliable product mix, stay with it! Now is not the time to experiment with a new multizone system or some ridiculous media center. Reliability counts more than ever in a down economy.

I’m talking about whole new markets: solar power and green system design, digital home health, Internet enabled security, MDU systems, digital asset management (be the digital concierge and charge for making sense of your client’s digital music and movie collections). There are many more; you must be creative.

Think about solar power. Start by reading Grayson Evan’s blog on Crosspoint:

Solar power is top of mind for new home builders, so consider providing roof-top photovoltaic or solar heating systems. Don’t forget other design tricks for enhanced energy efficiency in the home like real-time energy monitoring and control. Set up hibernation scenes for areas that are not in use. In all cases, charge for the design!

Think about who you need to hire and train to be successful in these new markets. If you want to, add new business you need new talent. Solar power? You might want to hire an electrician who happens to love home entertainment. Make him or her a serious profit center and support the new initiative from the top down.

Who will survive the global economic downturn? The smart ones. Use your brain, plan your business for ugly scenarios, hire great talent (they are circulating due to layoffs at other companies) and seek new markets. Move quickly. The days of easy home theater are over, but we have great opportunities ahead if you are prepared to see them.

Please comment. We need to help each other.

Rich Green, member of the CEDIA Board of Directors, Rich Green Ink