AVaaS for Rentals: The R&D Factor
For many years, the joke in the rental and staging industry has been that we exist as the unpaid (and uncredited) research and development arm of the manufacturers that we buy from. Often, we are the first buyers of new technologies for a number of reasons. First, because of the technological pressure to stay ahead of our competition, and second, to satisfy clientele and their desire to implement the latest technology for their shows. And the old saying that “you can tell the pioneers by the arrows in their backs” has always been a true one. I cannot recall the countless number of times (usually on the show floor, late at night) that I was the first one to discover a software or firmware bug in a new product. I have never resented this, in fact I have often volunteered to beta test equipment. It is the nature of what I do in producing shows. And it has done good things for my companies, including getting us some direct routes into the manufacturing and engineering departments of our suppliers, which can really pay off when you are one hour out from the curtain going up and you need to get directly to somebody who can answer your questions without going through the help desk, who are normally reading to you from the same manual that you have been sweating over for two hours already.
However, perhaps the mistake that we have made has been that we have treated this as the price that we pay for being in the rental industry, as opposed to finding some of the true advantages that come from experimenting with the latest in equipment, technologies and software. Let me explain why.
For the same number of years, I have been ranting that we needed to redefine the audiovisual rental and staging company. From our beginnings as an industry, most companies have structured the price of an event around the price of the technological parts that were used, absorbing much of the work done in building and maintaining a rental company as internal costs, while charging mostly for equipment. As the price of equipment dropped in the digital age, and as the computer replaced so many rentable pieces of hardware, it became more and more difficult to do business this way, especially since the cost of personnel was rising at the same time. Over the years, it became harder and harder to justify depreciation as the way to write off equipment that quickly became obsolete. And when you apply several years of depreciation cost to not just your successful inventory, but to the mistakes (such as equipment that never really “made it” in the market) you tend to build up an ongoing cost that’s hard to maintain.
Now, when you combine those two things, several new advantages can be obtained. As background, let me also explain that I have spent the last year in R&D on a new VR service, which has led me to build and rebuild an inventory of the latest equipment several times. In doing so, I have made my mistakes, because in order to experiment with much of the necessary equipment I have had to buy quite a bit of it before it was obvious that it was going to “make it” in the market. And some of it did not. But that is part of the process of building a new business, around a new product. And, luckily, I have an excellent CPA who has been able to help me find a number of ways to utilize government R&D credits to offset these costs.
The biggest advantage has been that R&D tax credits typically allow an accelerated write-off of equipment, including being able to expense much of it, provided that you can show an actual R&D effort at developing a product.
It seems to me that it’s time for many AV companies to take a look at the products and services that they provide, and especially their profitability.
Now, 25 years ago, I took over one of North America’s largest AV rental companies, which had been unprofitable throughout its history, mostly because it it spent years attempting to offer exactly the same services and products as its major competitor. On my first day as chief operating officer, I told my staff that the best thing that could happen to us would be if we wound up being nothing like the competition at all. And it proved to be true.
As I see it now, we have an entire industry in transition. Our equipment base is changing radically and quickly, and even our trade association has recently changed its name and direction in order to accommodate those new changes. So it seems to me that this would be a good time to redefine our services and the way we price them, and as long as we are doing that, there are plenty of programs (depending on your state and who your customers are) that can help us treat that necessary reengineering of our products and services as creditable R&D efforts.
The benefits for this will be many. First, that we will get to acquaint our clientele with a different way of looking at us, and that will be (in my opinion) the most significant benefit. But, for those of us who are struggling to find a way to stay profitable in this time of change, it may also provide some ways of helping with the significant costs. And R&D credits are not the only benefit to accompany attempting to produce an engineer a new service. The same types of credits are available for employee training and equipment and there are also programs available to steer business (again, depending on your state) to companies who are undertaking this kind of change.
It is time that the rental and staging portion of our industry saw itself in that light.
Think about it.
And, next month, we will continue with this series on reengineering the AV rental and staging company.