Bailing Out

bailingout-0111As I get older, I find myself having conversations that, when I was a 22-year-old entering this market long ago, I couldn’t have imagined having.

Let me digress.

When I started in this market way back in the late 1980s, this was still considered a young industry. Sure, video had been around for more than a decade, but, truth is, the ProAV market was still a small, good ‘ole boy network of broadcast video, studio video and even former band members who decided to capitalize on their passion and start an AV dealership.

But, no one could have imagined what came next.

All of a sudden, projectors moved from being giant, convergence-laden, over-engineered optical wonders to high-volume, simple to set up boxes that every corporation, school and government agency wanted in their meetings rooms.

With all due respect to many of my industry buddies, even trunk-slammers made a lot of money selling projectors.

But, by the mid 1990s, the cream of the crop began to emerge. Those really good box-movers realized that you could shift your business model a bit and take advantage of a high-margin business known as SYSTEMS.

And, again with all due respect to some of my industry friends, many of these new systems houses were successful — in spite of the founders themselves. [Note to the reader: that last sentence may have to be read a few times to understand what I really meant].

Flash forward nearly 20 years and here we are today: a $60 billion or so industry known as ProAV.

Back to my first sentence: As I get older, I find myself having conversations that, when I was a 22-year-old entering this market long ago, I couldn’t have imagined having.

Many of my industry friends, more than not, are trying to figure out how to sell their companies and get the money for it they believe they deserve (and they believe it’s worth).

Trouble is, you see, it’s not worth what they perceive it to be worth.

Let me explain.

Back during the good ‘ole days, those ones I mentioned above, there were three big things that made for success in building a great, profitable dealership:

  • Access: Not everyone had access to product. In fact, the most creative founders out there discovered new products and technologies and helped get them into the market, thus, making them the market pioneers. For example, SMART Technologies was barely known in 1988, a year after its founding, and those AV dealers out there who were the first to get their hands on the original SMART Board are now multi-millionaires. This story can be told over and over again by simply substituting the name Crestron, Extron, InFocus, AMX, Polycom, Electrohome, Barco and a handful of others, with that of SMART.
  • Relationships: In addition to forming and maintaining relationships with these newly formed manufacturers so you had access and could sell their wares, you needed a knack for making and keeping relationships with your newly found clients, too. Back then, once you had a client, unless you messed up, you owned them. Breaking those tight-knit relationships was hard to do – unless you had #3.
  • Exclusivity: Yep, back in the good ‘ole days, most manufacturers would give you exclusive geographical territories that you could sell to with no competition. Can you imagine that today? Wow! I’m not saying a monkey could have been successful back in the day, but having exclusive territories for a particular brand (e.g., Sony) or technology (e.g., electronic whiteboards), sure made it easier for you to have been successful.

Back to today: we have about 250 or so of these $10 million+ a year companies here in the U.S. all thinking about a how to sell out and retire. Some have kids to pass on the business to, some have employees willing to buy them out but many are left trying to find buyers. And, although the economy isn’t doing well, that’s not their real barrier in getting what they think they deserve.

It’s worth.

Back in the late 1980s, you could sell your company based on the products you had access to selling. In the 1990s, you could sell a business based on your database of contacts. In the early 2000s, you could sell your company based on the client list – who you had relationships with and installs you could demo.

But, now, the ONLY value proposition that’s real is recurring revenue – and many, many AV dealerships simply don’t have any of it.

What is it? Well, it’s that monthly check you receive from your clients for proactive service contracts, for remote maintenance services, for extended warranties or for keeping their digital signage network operating and filled with creative content.

Don’t get a monthly check? Then, how do you think you’re going to sell your company?

Seriously, anyone can get access to product now – check out eBay and Amazon.com. Anyone can get leads to sell to — you can buy them over the Internet in a matter of minutes. And, no one’s giving out geographical exclusivity anymore — trust me on that one.

So, what do you have? What’s your value proposition? What makes you think your company has any residual value beyond a name?

If you truly want to sell out and make some real cash, you’ve got to set up a recurring revenue plan – it’s as simple as that! I’ve been writing about selling services for more than 15 years and those articles have included all four of those aforementioned recurring revenue schemes for your business. But have you been reading? Are you doing anything about it? Or, do you only understand value in tangibles — things you can see, touch and sell.

If you’re not a business owner but work for one, pass this article on — unless, of course, you want to buy the company yourself, in which case, don’t show them — that way, the company still has no value and it’ll cost you less!